The government will require electronic invoicing for all VAT invoices for business-to-business and business-to-government transactions from 2029.
The government has used its 2025 Budget to announce the long-anticipated arrival of electronic invoicing (e-invoicing) to the UK.
In a short update in the Budget report, the government stated that to “drive productivity further”, it will require the use of e-invoicing for all VAT invoices for business-to-business and business-to-government transactions from 1 April 2029.
Responding to a consultation launched back in February this year, the government today said it would be conducting “extensive stakeholder engagement from January 2026 to ensure stakeholder views and concerns are considered throughout the policy development process”.
It is expected that a final decision on the exact details of the system will be published at the 2026 Budget.
What is e-invoicing?
E-invoicing is the direct digital exchange of invoice data between buyers’ and suppliers’ systems in a standard format. It is not simply emailing a PDF, Word doc or image to another person or business.
Similar to the government’s Making Tax Digital (MTD) programme, software is required to send e-invoices. While specialist e-invoicing point solutions are available, accounting packages such as Sage and Xero have established capabilities in anticipation of a potential move.
E-invoicing pros and cons
Proponents of e-invoicing point to its ability to process invoices faster and with fewer errors, cut out invoice duplication, avoid fraudulent activity such as criminals intercepting invoices and changing bank details, and allow for a more streamlined audit and reporting process.
A Sage report published last year, based on interviews with 9,000 European small businesses, found that adopting e-invoicing can lead to annual savings of around €13,500 by nearly halving the time spent processing invoices, while Avalara’s research claims it could unlock nearly £9bn for the UK economy.
Widespread adoption of e-invoicing in the UK could also provide HMRC with more information it can use to close the gap between tax owed and tax collected. E-invoicing has proved largely successful in combating VAT evasion in South America, while Italy claims benefits of more than €4bn a year since introducing e-invoicing in 2019.
However, critics point to the additional administration and cost burdens placed on businesses forced to purchase, learn and use external software to comply, particularly for smaller organisations or those that send or receive relatively few invoices.
Phased approach ‘sensible’
Alex Baulf, Avalara’s VP of global indirect tax and e-invoicing, called the rollout a sensible move that gave UK companies a chance to embed e-invoicing as a business-as-usual process before adding tax reporting.
“The government doesn’t want to rock the economy or bring business to a standstill with the move from paper or PDF to e-invoicing,” he said. “With a four-corner model, the government doesn’t have to build any infrastructure to start with, and can look to phase in real-time reporting at a later date.”
For Richard Asquith, CEO of VATCalc, the move feels like an “efficiency drive” to ensure adoption, rather than an all-out drive to cut the tax gap.
“They appear to have gone light with the measures, just mandating exchange of e-invoices between businesses to ensure efficiency without imposing e-reporting to HMRC,” he said. “HMRC was burned by MTD for VAT, where it wanted an API-enabled ability to peer into businesses’ digital records and had to row back on that, so they don’t want to repeat that experience any time soon.”
Asquith added that the move towards standardised data and formats is not only what the industry tends to want, but also reflects HMRC’s preference for accounting packages to take care of the infrastructure side of things.
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