At a glance
- The UK will mandate e-invoicing for many VAT-registered businesses from 2029.
- E-invoicing uses structured digital formats that machines can process automatically.
- It promises easier compliance and fewer errors but may involve new costs.
- Accountants should prepare by cleaning data; HMRC will consult on the new rules.
The headlines for the 2025 Budget tended to focus on the freezing of tax thresholds and wealth taxes. But accountants’ client work could significantly change because of a less talked-about announcement – e-invoicing.
From 2029, the government will require businesses to invoice many of their customers electronically. This e-invoicing requirement will apply to qualifying business-to-business (B2B) and business-to-government (B2G) VAT invoices.
This new requirement advances the government’s Making Tax Digital (MTD) initiative to digitise the tax system.
From January 2026, HMRC says it will work with stakeholders to design and develop this e-invoicing regime.
This will likely require some short-term pain. Accountants and their customers will need to accept new systems and potential costs. In return, compliance should become easier and practices will benefit from nearly real-time data.
E-invoicing explained
E-invoicing requires businesses to create their documents in a structured digital format (such as extensible markup language, known as XML). That allows machines to read them, and lets both people and machines send, receive and process them without anyone typing in extra data. Countries including Germany, Italy, France, China and Brazil have already mandated e-invoicing.
“The move towards mandatory e-invoicing is designed to bring the UK in line with the global digital economy, where it is already the standard, not the expectation,” says Stuart Miller, director of public policy & tech research at Xero.
E-invoicing can use two different models:
Centralised: In this model, suppliers create invoices for sending to tax authorities, who validate them and send them on to customers.
Decentralised: This allows the seller to send invoices directly to the buyer by using certified formats and networks. Tax authorities can still access data, but they do not need to do so in the first instance to create invoices. One decentralised network is Peppol, which enables the exchange of e-invoices through supported service providers.
The UK government has not yet declared the model it will use, but some observers have speculated that it is likely to take a decentralised approach.
Impacts on practices and clients
The government believes that e-invoices will make “tax compliance easier,” benefiting both businesses and HMRC.
They also hope it will reduce the tax gap, thereby increasing revenue for HMRC.
Penelope Allard, director of Wild Bookkeeping, believes the mandate will help accountants and bookkeepers overcome the challenge of chasing for VAT invoices, speed up processing times, and will result in fewer mistakes and more up-to-date accounts.
Alongside Allard, Della Hudson, founder of Minerva Accountants, thinks mandated e-invoicing can help achieve the aims of Making Tax Digital (MTD). Notably, it can ease businesses’ management burden.
However, Hudson says her experience of using e-invoices for overseas clients suggests that this will lead to an “additional cost” that will act as “another challenge for businesses to handle”.
Preparing for the switch
While the details of the UK’s e-invoicing requirement remain unknown for now, many software vendors already incorporate e-invoicing functionality.
These vendors include Xero, Sage and accounts receivable platform Adfin, all of which use the Peppol network.
Tom Pope, co-founder & CEO at Adfin, says his business is already equipped to help businesses issue compliant e-invoices. And he believes the changes for VAT-registered businesses shouldn’t be too drastic: the majority now use core MTD-compliant ledgers that will or already do incorporate e-invoicing.
He stresses that those who use bridging software as a workaround to make MTD filings will need to make the switch to e-invoicing vendors.
Miller advises accountants and businesses “not to panic”. He recommends they focus on cleaning data, including customer and supplier records, so that they will be well-placed to make automation-powered changes once the mandate starts.
Shaping the new rules
As HMRC prepares to start collaborating with stakeholders on the new system’s design and development, it says it is keen to capture a variety of perspectives. HMRC says this will ensure different viewpoints and concerns are reflected in the final plan.
Xero’s Miller stresses that the collaboration effort should bring together the government, small businesses, accountants and the wider software industry.
Lewis Harding, director at Rhombus Accounting, also thinks that it will be important for HMRC to work closely with vendors during the collaboration period. He says that can ensure that “clear technical standards from HMRC are defined early enough for [vendors] to adapt, test and roll out changes well before 2029”.
This view is echoed by Fatima Salhab, CFO at Ascendant, who believes the sooner these are given, the easier it will be for “cloud tools and accountants to build this into everyday workflows”.
Accountants seeking to collaborate with HMRC can contact the policy team at [email protected]
Keep up to date with the changes in financial reporting requirements by registering for the IFA’s quarterly Financial Reporting Series.
