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VAT: Electronic Invoicing (eInvoicing)

By   21 August 2023
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The rules for sending, receiving and storing VAT invoices in an electronic format.

What is an eInvoicing?

eInvoicing is the transmission and storage of invoices in an electronic format without duplicate paper documents. The format may be a structured format such as XML or an unstructured format such as PDF.

The benefits of eInvoicing

eInvoicing offers significant advantages over paper invoices. The electronic transmission of documents in a secure environment usually provides for:

  • structured data for auditing
  • improved traceability of orders
  • decreased reliance on paper reducing storage and handling costs
  • rapid access and retrieval
  • improved cash flow
  • security and easier dispute handling

Currently, a business does not have to use eInvoicing, but if it does, in conjunction with paper invoices, (a so-called dual system) it can only do this for a short period, ie; if eInvoicing is being trialled.

It is not necessary to inform HMRC that a business is using eInvoicing.

Requirements

eInvoices must contain the same information as paper invoices.

A business may eInvoice where the “authenticity of the origin”, “integrity of invoice data”, and “legibility” can be ensured, and the customer agrees to receive eInvoices

  • authenticity of the origin means the assurance of the identity of the supplier or issuer of the invoice
  • integrity of content means that the invoice content has not been altered
  • legibility of an invoice means that the invoice can be easily read

A business is free to select a method of ensuring the above requirements. Examples of ensuring authenticity and integrity include:

Formats

HMRC accepts a variety of eInvoice message formats, including:

  • traditional EDI standards such as UN/EDIFACT, EANCOM and ODETTE
  • XML-based standards
  • comma-delimited ASCII, PDF

The eInvoices must be transmitted in a secure environment, using industry-accepted authenticity and security technologies, including, but not limited to: http-s, SSL, S-MIME and FTP.

Internal controls required

A business will need to demonstrate that it has control over:

  • completeness and accuracy of the invoice data
  • timeliness of processing
  • prevention, or detection of, the possible corruption of data during transmission
  • prevention of duplication of processing (by the person who receives the invoice)
  • prevention of the automatic processing, by the person who receives the invoice, of certain types of invoice on which VAT may not be recoverable – for example, margin scheme invoices
  • a recovery plan in case of a system failure or loss of data
  • an audit trail between eInvoicing systems and the internal application systems which are used to process the eInvoices

Storage

The same rules apply to storage of eInvoices as to paper invoices. A business must normally keep copies of all invoices for six years.

HMRC Access

HMRC may request access to:

  • the operations of any computer systems which produce or receive VAT invoices, and to the data stored on them
  • supporting documentation including; file structures, audit trail, controls, safe keeping, and information about how the accounting system is organised
  • information about the system’s interrogation facilities

HMRC must be able to take copies of information from the system.

If a business cannot meet the conditions for transmission and storage of eInvoicing, it will have to issue paper invoices.