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Compliance and Regulations

Tackling the UK’s electronic invoicing landscape with Banqup’s Bern Direito

February 20, 2024
9:00 am

Electronic invoicing mandates are moving at a fast rate around the globe, with more and more countries announcing new mandates on a monthly basis. But why has the electronic invoicing regulation momentum not reached the UK?

We talk to Bern Direito, Country Lead of Banqup UK, whose expertise unravels the complexities of the UK’s electronic invoicing (e-invoicing) situation. With over 20 years of experience in technology, invoicing and automation, Bern provides us with valuable insights into the UK’s electronic invoicing situation and the challenges that may lie ahead if businesses don’t take a proactive approach.

Firstly Bern, what are the current regulations surrounding electronic invoicing and reporting in the UK?

There are only two regulations in the UK, which at first glance makes the process quite easy for local businesses to follow. Firstly, you have mandatory electronic invoicing for any business that invoices the NHS (the UK’s national health service). Secondly, you have a government-led scheme called Making Tax Digital (MTD).

B2G e-invoicing to the NHS

E-invoicing to the NHS is the only mandatory e-invoicing process in the UK at the moment. Any business that supplies the NHS, must be connected to a Peppol Access Point and send their invoice via the Peppol network.

This is the only mandatory electronic invoicing regulation. However, public entities must be able to receive and process electronic invoices, but there is not a general business-to-government mandate.

Making Tax Digital (MTD)

Making Tax Digital is all about transitioning the UK’s tax processes to digital tax processes. In 2019, the UK government (HMRC) introduced Making Tax Digital, implementing a phased approach to incorporate various types of businesses. The first phase included UK VAT registered businesses with an annual turnover of £85,000. Since 2019, businesses falling into this category were required to submit their quarterly returns and then their final tax reports, meaning accountants and businesses needed to report five times a year rather than once at year end.

The scheme was due to include businesses with an annual turnover of £10,000 from 2023. However, this has now been delayed to 2026.

Even though MTD is not electronic invoicing, the principle is still similar - businesses must report their tax, via a digital process, so that the government has more visibility.

So if e-invoicing is not commonly used, how do UK companies carry out their invoicing processes?

The landscape of invoicing processes in the UK is nuanced, dependent on the size and nature of the business:

  • In larger businesses, the most-used approach is to manage invoicing in-house using software platforms, which is technically e-invoicing to a certain point. Many of the businesses I speak to create their invoices on a platform and then send the invoices by email, so not a fully electronic approach. For inbound invoices, there is a reliance on automation tools, particularly OCR (Optical Character Recognition).
  • Medium-sized businesses sometimes follow the same approach, with a reliance on accounting software.
  • For smaller businesses, the scenario usually falls into two approaches. Some use cloud software tools that manage their invoicing and financial activities within these platforms. Alternatively, others use really simple tools such as Microsoft Word or Excel. In this instant, these invoices are then handed over to their accountant or bookkeeper, who manually types up the invoice into their accounting software for future tax returns.

So we can see that all businesses are different, but overall, not many businesses are utilising an end-to-end electronic, digitalised approach.

Do large corporations realise they are engaged in some form of e-invoicing?

Interestingly, a significant proportion of large corporations do not class their processes as electronic invoicing. This is due to the fact that even though businesses create a structured invoice using the right software, they still download the invoice as a PDF and send it by email.

Due to the familiarity and overreliance on PDFs, many businesses, even the larger ones, may not be able to comprehend the intricacies of different e-invoicing formats. Many businesses assume that their selected software will manage a diverse range of formats automatically, but this is not the case.

This lack of awareness can result in challenges during invoice processing, particularly when their invoice receiver is unable to read the invoice due to not having the right software. This will impact internal processes for all parties involved, resulting in more customer queries, delays or even rejections of invoices.

Do you think UK businesses and software providers will become more aware of e-invoicing because of Europe’s regulations?

The increase in European e-invoicing regulations has definitely created a sense of urgency in the UK. However, the UK may be a little slower, because of the lack of local regulations.

You may be asking why we don’t have any e-invoicing regulations on our roadmap like our European neighbours?

Firstly, it’s clear to say that Brexit has been a pivotal factor. The UK wishes to establish its own rules and regulations, therefore there is a delay in aligning with European standards.

Secondly, I believe that Making Tax Digital (MTD) also plays a significant role. MTD has faced many delays, leaving UK businesses apprehensive of when the next rules or mandates may come into play. With more delays, UK businesses and software providers may not bother to act until regulation dates are definite.

Therefore, it is up to the software providers to proactively educate UK businesses about European regulations, and what this actually means for their business processes. Of course, if the providers start educating, it also means that they must have a solution in place.

Do you think software providers will alter their systems to work for UK businesses?

This all depends. If the business demand is there, then many software providers will have to adapt. However, software providers should already be anticipating that e-invoicing in the UK will grow, therefore they have the opportunity to be proactive.

In being proactive, the software providers have two main choices:

  1. Firstly, they can develop their own software. This of course is time-consuming, costly, and requires constant development, especially as global e-invoicing regulations vary from country to country. There also poses a second challenge of ensuring their customers are educated on the new features and processes.
  2. The second option, is most-likely the route that many software providers will go down, and that is a partnership route with specialised solutions providers, such as Banqup. This route allows software companies to sidestep the extensive development process and associated costs. By integrating with solutions that already comply with international regulations, they will automatically have a tried and tested solution in place. This approach is beneficial for those software companies looking to streamline their services without causing significant disruption to their existing user base.

Software providers need to make a decision soon - whether to develop or whether to partner.

What do you think is the best route for software providers?

Overall, for success a collaborative approach is essential.

Software providers should consider forming partnerships to create comprehensive solutions that address inefficiencies, diverse formats, and enhance communication between businesses and their clients. These solutions need to be cost-effective, adaptable to future changes, and driven by an understanding of the fundamental role accountants and bookkeepers play in the UK business landscape, as they are vital for the majority of UK businesses.

The development and adoption of electronic invoicing in the UK over the next few years will be an interesting journey. But without the right education and available solutions in place, many businesses will panic and may make rash choices. Therefore, their providers must show them the right way and show that their solutions, or partnered solutions, can simply do the work for them.

Bern Direito
Country Lead of Banqup UK

Bern has over 20 years of experience in the technology, invoicing and automation industries. Bern now leads our SME Banqup solution in the UK, focusing on the accounting and partnerships market.

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