E-invoicing regulations in Europe & the UK for 2023 & beyond
Every company needs a smooth process to pay suppliers and receive payment from customers. If both sides of this process are efficient and compliant, you can focus on more fundamental goals like product development and finding new customers.
For companies in the EU, there’s good news and bad news. New e-invoicing mandates mean that things will hopefully become more efficient by law very soon. But these reforms require businesses to make some major changes to the way they issue and receive invoices.
Which means new compliance headaches in the near term.
This article is an introduction and explanation of the major e-invoicing rules and concepts coming into force in the EU, and how these compare with the UK and US.
What is e-invoicing?
Electronic invoicing is the process of creating and storing e-invoices in place of traditional paper invoices. But it’s not simply invoice digitization, as we’ll see in a moment. There’s a more formal, technical process in place in many countries.
Today, the EU, US, and UK all require e-invoices when dealing with the public sectoras a way to save taxpayer money and make agencies more efficient. While the primary goal is to make tax authorities more efficient (and to easily recover VAT), private companies also stand to gain from more efficient invoicing.
How does it work?
There are different rules in different jurisdictions, so the best move will always be to check with your local authorities. But broadly speaking, there are two considerations:
Channel (where invoices are shared)
Format (what invoices must look like)
Most authorities have set clear guidance for each of these. The channel is typically a government-controlled portal through which invoices must pass. And in these cases, the portal determines the format, since each invoice needs to be fit for the platform.
We explore both of these below, when we look at the kinds of tools and software available.
E-invoicing vs digital invoices
E-invoices are a form of digital invoice - an invoice in a digital format. But simply digitizing your invoicing process isn’t enough to be compliant, particularly in the EU.
For example, the EU states that they must be sent and received in a “standardised structured data format that provides for automatic reading of the data into computer systems.” This usually means an XML file.
In the UK, a broader definition is used. HMRC allows for electronic invoices to be in a “structured” format like XML, or unstructured like PDF.
Perhaps most importantly, Europe’s incoming e-invoicing rules require you to send and receive invoices through a designated system. And to do that, invoices must be in a compatible format.
Who do e-invoicing reforms impact?
Any business sending or receiving invoices from clients or suppliers will be impacted. Which really means every business will soon need to have e-invoicing in place. At least in the EU, for now.
There are two key parties in the electronic invoicing process:
Issuer (supplier): Issues the invoice for payment by the customer (creates the invoice).
Receiver (customer): Receives the invoice and pays the supplier for services provided. In this article we’ll deal mainly with businesses paying for services.
The process also involves (and may be dictated by) several other parties:
Authorities: Such as HMRC. They set the rules governing invoice storage and VAT.
Accountants and auditors: Need to view and verify the validity of a company’s invoices.
As is often the case with bureaucratic processes, there are plenty of caveats and different timelines to think about.
Let’s look at the rules and key dates for specific countries.
E-invoicing rules in Europe
Note: These rules and timelines are accurate as of May 2023. As with all local regulations, they may be subject to revisions and updates.
The European Union is pushing e-invoicing primarily to improve efficiency and reduce costs. With dozens of countries involved, there are of course differences in the rollout and rules for each.
In 2014, the European Parliament adopted a directive that requires all public sector bodies in the EU to accept e-invoices. This directive also requires e-invoices to comply with certain standards, including the use of structured data and electronic signatures.
In addition to the EU directive, individual countries in Europe have their own rules for e-invoicing. Here are a few of these differences:
E-invoicing in France
E-invoicing has been mandatory for suppliers dealing with the public administration since 2017. Soon, in an effort to better track VAT and make the tax office more efficient, all businesses will be required to submit e-invoices for B2B transactions.
This comes into effect in three phases:
July 2024: Large tax paying businesses must report electronically.
January 2025: Medium taxpayers must submit e-invoices.
January 2026: Small taxpayers must also submit electronic invoices.
All submissions are made through the Portail Public de Facturation (PPF) or through an accredited Partner Dematerialization Platform (“PDP” for short). We’ll look at what this means for your accounting software below.
E-invoicing in Italy
In Italy, e-invoices must be sent through the country's official exchange system: Sistema di Interscambio. This system verifies the electronic signature and other compulsory elements of a compliant e-invoice, then sends the invoice to the authorities.
E-invoicing has been mandatory for public procurement since 2015, and for B2B and B2C companies with more than €65,000 in annual turnover since 2019. If you’re already operating in Italy, you know this. But if you’re thinking of opening a business there, the invoicing and sales process is likely fundamentally different from what you’re used to.
Today, any company wanting to issue or pay invoices in Italy needs access to the Sistema di Interscambio. And thus, any automated invoicing tools you use need to integrate with this service.
E-invoicing in Germany
E-invoicing has been mandatory for public procurement since 2020, although began earlier in certain states and levels of government.
As of May 2023, Germany has not yet mandated e-invoicing for non-government transactions. But the country has made plans to implement e-invoicing requirements as soon as 1 January 2025, but the law has not yet been enacted.
And by the time you read this, that may already have changed.
E-invoicing in Spain
Similar to France, Spain will have mandatory e-invoicing for large companies (€8M+ turnover) by March 2024. All other companies must comply from March 2025.
The system should also be largely the same as France, with a government portal to submit invoices and certified software providers that can access it on your behalf.
E-invoicing in Ireland
As an EU member, Ireland will be watching responses to the EU directive and their results with interest. As of writing, there is no clear plan for a mandate in Ireland for all businesses.
The country does already have e-invoicing in place for business-to-government transactions.
HMRC’s rules for issuing e-invoices in the UK
In the UK, e-invoicing is not mandatory for B2B payments, but is for payments to and from public entities. So it’s up to you whether you choose to adopt this practice.
But you cannot use both for the same suppliers or to the same customers. This dual system is forbidden by HMRC, except while testing out a new process. Once the tests have taken place, you must not issue both paper and electronic invoices for the same supplies.
To issue electronic invoices, a few conditions must be met:
The customer must agree to receive e-invoices.
You must be able to ensure that the indentity is authentic and that information has not been altered.
It must be clearly readable (PDFs need to be of sufficient size and quality).
To achieve this, you can rely on:
Certified electronic signatures.
Electronic data interchange (EDI), an established system used for high volumes of exchanged documents. Both parties will need to be users.
Your own processes with business controls that create a clear audit trail and ensure that documents aren’t altered improperly.
Any other system that HMRC agrees will “impose a satisfactory level of control over the authenticity and integrity of your invoice data.”
Required contents for electronic invoices
E-invoices need to include certain information to be compliant. Put most simply, everything required for a paper invoice is also required for its electronic counterpart. Invoices must include:
Identification number unique to each invoice (usually termed “invoice number”)
“Time of supply” - the date when work was done and/or payment was received.
Supplier’s name and address
Customer’s name and address
Supplier’s VAT number
Description of the goods or services
Price, ideally in countable units
Quantity or extent of goods sold
Amount owed or paid, exclusing VAT
Total amount of VAT charged
Any discounts applied
How to choose an e-invoicing solution or software
As with any repetitive finance process, your goal is to automate and streamline as much as possible. And of course to stay compliant.
But as you look for tools and solutions to help, you’ll have choices. So you need to know what your options actually entail. And it becomes trickier where e-invoicing rules - and their technical implementation - haven’t been clearly set out. You want a software provider that can meet the reporting requirements, without knowing exactly what those are.
We’ll use the French system as a guide, because there the process is already relatively well defined. It’s quite likely that much of Europe will follow a similar system, and eventually the UK and US as well.
Channel and format
These are the two critical considerations when choosing how to handle e-invoices.
Channel: Does this solution send and receive invoices via the designated government portal?
Format: Does the solution create and manage invoices in the correct format, as determined by the authorities?
Both should have relatively technical but straightforward answers. As we saw above, HMRC has fairly broad standards for format - a PDF may well be fine for now. But in mainland Europe, each jurisdiction will designate the exact format(s) required and your solution must be able to work with these. It makes no sense to have to reformat every invoice manually come reporting time.
As for channel, there are usually two main choices:
Public or private (PPF or PDP)?
All tax authorities will create their own portal through which to issue and receive e-invoices - like the PPF in France. This lets you manage the invoicing process yourself, and connect it with any tools you’re otherwise using.
Provided your spend management or accounts payable software integrates with the PPF (or the equivalent platform where your business is), that’s what counts.
Certain software providers will also choose to become a PDP - an accredited partner. This lets you deal only with this specific provider, which will then transfer the data to the authorities.
Both are compliant options, and can have their own advantages. And many software providers will tout their own status as a PDP to show that they’re valid.
But solutions that use PPF are still effective, efficient, and legitimate. And in fact, since the government authorities set the rules and maintain the system, it may make sense to stick closer to this system. This way if the systems update or change, you have the freedom to change with them.
Benefits of e-invoicing
E-invoicing will soon be mandatory in Europe, and other countries are likely to follow suit. So it’s natural to this as a negative - another administrative hurdle to overcome as a business.
But there are great reasons to be happy about this change. Aside from reducing errors and streamlining the invoicing process, e-invoicing offers several other benefits for businesses. These include:
Reduced costs, as automation handles all the operational processing. So fewer human resources are needed.
Faster issuing and payment, since most of the exchange is automated and there are no postage delays.
Secure transmission, often with encrypted files and verified electronic signatures.
Immediate analysis and reporting, because it doesn’t require data entry to have the data in your systems. And much of the reporting process can be automated.
Better accuracy, without all of the common, costly errors that come with the human touch.
Easier cross-border trade, which is a major reason why the European Commission prioritizes e-invoicing.
Environmental responsibility, by avoiding the unnecessary use of paper and postage.
There may be some unexpected wrinkles to iron out along the way, but once these are in the rearview mirror it should be smooth sailing.
E-invoicing can be a game-changer for businesses looking to streamline their invoicing process, but it's important to understand the rules and regulations governing e-invoicing in Europe and the UK.
As we’ve seen, these will have regional peculiarities. Which means every new market you enter and maintain may bring its own challenges.
The best course of action is to stay up to date on legal changes, and choose an invoice processing provider that keeps you compliant along the way.
Good finance software should take most of the administrative burden from your team. So choose wisely, and then let the tools do the heavy lifting.