Invoicing and Tax regulation in United Kingdom

United Kingdom initiated the modernization of its transaction processes in 2019 by implementing partially mandatory B2G e-invoicing. While B2C and B2B e-invoicing remain optional for now, many companies choose to make the transition earlier. They have recognized significant savings in terms of money, time, and reduction in manual errors, which are particularly prevalent in tax reporting. Given the standard VAT rate in the UK at 20% and the corporate tax rate at 25%, minimizing errors is crucial to avoid increased liabilities and penalties.

 

To ensure you're meeting the requirements while optimizing your financial strategy, explore our comprehensive guide on (e-)invoicing, tax regulations, and digital reporting in the UK.

 

Invoicing Regulations in the United Kingdom

Invoicing regulations in the UK are overseen by HM Revenue and Customs (HMRC). Invoices are required whenever goods or services are sold, including transactions with other businesses or consumers. For VAT-registered businesses, invoices must be issued to the customer within 30 days of the end of the month during which the goods or services were delivered, or sooner upon customer request. Moreover, VAT-registered businesses are obliged to issue a VAT invoice for all taxable sales.

At a minimum, the invoice needs to include:

Date of Issue;

Unique Invoice Number;

Supplier’s Information: business legal name, address and ****VAT number ****If your business is VAT registered;

Customer’s Information: the name and address;

Tax Point: or time of supply;

Description of Goods or Services;

Quantities and Unit Price of Goods or Services: excluding tax;

Total Amount Excluding VAT;

VAT Rate and VAT Amount Charged: applicable VAT rate and the total amount of VAT;

Total Amount Including VAT;

Any Discount Amount.

 

B2G Invoice Specifications

For B2G transactions, you have to issue e-invoices. B2G e-invoicing often utilizes electronic data interchange (EDI) to facilitate the efficient exchange of invoices between businesses and government entities.

 

B2C Invoice Specifications

For most B2C transactions you can issue simplified invoices, which require less information compared to full invoices.

 

Simplified Invoice Templates

You can issue simplified invoices when the total amount including VAT does not exceed £250.

A simplified invoice has to include:

Your business name and address;

Your VAT number;

Description of the goods or services;

Total amount payable: including VAT;

VAT Rate;

Date of supply: if different from the invoice date.

 

Invoice Archiving

You have to archive invoices for a period of 6 years. This period starts from the end of the year in which the invoice was issued. It's crucial for businesses to securely archive electronic invoices to ensure compliance with UK regulations, including HMRC's rules for issuing e-invoices.

 

 

E-invoicing Regulations

In 2019, the UK implemented mandatory B2G e-invoicing for transactions with the National Health Service (NHS). Electronic invoicing, or e-invoicing, is the digital exchange of invoice information between a supplier and a buyer. The benefits of e-invoicing include improved efficiency, faster payments, and compliance with tax authority regulations, making it superior to traditional paper invoicing. Consequently, even though B2C, B2B, and additional B2G e-invoicing remain optional, numerous companies have already adopted e-invoicing. For successful integration, it is essential for businesses to comply with specific e-invoice message formats to ensure compatibility with UK and EU standards, including the European standard EN-16931 and Directive 2014/55/EU which requires public entities to support e-invoice processing. Furthermore, the UK participates in the PEPPOL network, enhancing standardized cross-border e-invoicing within the EU. Rather than utilizing a centralized platform, UK businesses connect to the PEPPOL network through certified Peppol Access Points. These points are software service providers accredited by the UK government, capable of both sending and receiving e-invoices.

 

E-invoicing Process in the United Kingdom

In the UK, you must adhere to HM Revenue & Customs (HMRC) guidelines for managing tax-related activities and register on online portal HMRC Online Services. The platform allows you to manage tax-related activities, including the submission of electronic documents.

The process involves:

Completing a transaction: UK businesses are typically required to issue VAT invoices electronically after the delivery of goods or services.

Upon submission: HMRC does not require a review of each electronic document, but businesses must ensure the e-invoices include all mandatory VAT details and comply with regulations on the integrity and authenticity of the invoice.

After validation: the business issues the invoice which must contain specific details such as the VAT amount, the unique invoice number, and the date of supply.

The customer receives this invoice: which should comply with HMRC’s requirements for electronic records.

Customers or other interested parties can verify the transaction: if necessary, through their own record-keeping systems, as HMRC does not provide a public web application for this purpose.

 

UK’s Tax Authorities Responsible for E-invoicing

The governmental body responsible for e-invoicing in the UK is HM Revenue & Customs (HMRC).

 

E-invoicing Formats

The UK’s e-invoicing formats also align with the European standard EN 16931. The infrastructure for e-invoicing is supported by Peppol, which serves as the framework for interoperable exchange across Europe. In the UK, issuing electronic invoices must comply with HMRC regulations, including acceptable formats such as UBL and PEPPOL BIS Billing 3.0a, ensuring they meet the legal requirements for VAT purposes.

E-invoicing formats commonly used in the UK:

UBL (Universal Business Language)	Internationally recognized standard that includes a suite of XML-based business documents specifications.
PEPPOL BIS Billing 3.0a	Internationally recognized standard, providing a unified XML-based specification for electronic billing.
UKCIUS	Country-specific adaptation of the European standard, which includes additional requirements for e-invoicing in the UK.

 

E-invoice Validating

Ensure that your e-invoices comply with the European standard EN 16931 as well as specific UK requirements. Further validation of e-invoices is not mandatory in the UK, but you can use a qualified digital certificate. If employed, the certificate must be verified to ensure that the invoice remains unaltered and originates from a trusted source.

 

E-invoice Archiving

In the UK, you must archive e-invoices for a minimum period of 6 years. The archiving period starts from the end of the year in which the invoice was issued. Archiving abroad is permissible under certain conditions, provided that the storage facility is located within the European Union or in a country that offers an adequate level of data protection, consistent with UK standards.

 

 

Tax Regulations

The standard VAT rate in the UK is 20%, applicable to most goods and services. A reduced VAT rate of 5% applies to essential goods and services, such as children's car seats, home energy, and sanitary hygiene products. An exception are most food, children’s clothes, books and newspapers with 0% VAT rate.

 

Corporate Income Tax

The standard corporate income tax rate in the UK is 25%. There is a reduced corporate tax rate of 19% for the profits between £50,000 and £250,000.

 

VAT on Digital Products

In the UK, digital products including software, digital images, music downloads, and e-books are subject to the standard VAT rate of 20%.

 

 

VAT Payments and Returns

In the UK, businesses are required to file a VAT Return with HM Revenue & Customs (HMRC) to declare the VAT they have collected and the VAT they have credited for business purchases. The VAT Return should detail:

VAT collected on sales,

VAT credits for VAT paid on business purchases.

Accounting software plays a crucial role in managing VAT payments and returns, enhancing accuracy and ensuring compliance with tax regulations.

The net VAT amount, which is the difference between the VAT collected on sales and the VAT credits on purchases, is indicated on the VAT Return and must be paid to HMRC. If the VAT credits exceed the VAT collected, the business can claim a refund.

The reporting frequencies are:

Monthly: Reports must be submitted by the 7th of the month following the reporting period.

Quarterly: Reports must be submitted by the 7th of the month following the quarter’s end.

Annually: Reports must be submitted by midnight on 31st January of the year following the tax period.

HMRC encourages the electronic filing of VAT Returns and Payments through its online portal (HMRC Online).

 

VAT Registration Thresholds

VAT registration threshold for domestically established businesses is currently £90,000.

For EU-based businesses engaged in distance selling of goods or services to UK consumers, the threshold is £70,000.

Non-EU businesses selling into the UK have no VAT registration threshold; they are required to register for VAT immediately upon beginning sales of goods or services to UK consumers.

 

 

E-invoice Requirements

In the UK, the required e-invoice components are:

Date of issuance;

Unique invoice number;

Tax point: (time of supply) if different from the invoice date;

Seller’s Information: Full name and address, contact details, VAT registration number;

Buyer’s Information: Full name, address (for B2B VAT registration number);

Description of goods or services;

Quantity and Unit Price of Goods or Services;

VAT Information: VAT rate applied, total VAT charged,

Total amount payable excluding VAT;

Total amount including VAT;

Additional Details: Payment terms, discounts, bank account details;

Additional Regulatory Information (if applicable): Reverse charge, details for exemption or zero-rated supplies.

For businesses with repeating customers, setting up recurring invoices can streamline the billing process by automating regular, automatic payments.

 

Utilizing invoicing software can significantly benefit businesses in creating, sending, and managing e-invoices in compliance with UK regulations. These tools not only help in generating professional invoices but also in streamlining the invoicing process, improving cash flow, and ensuring that payments are received on time.

See how Space Invoices can help.

 

B2G E-invoice Specifications

B2G e-invoicing is mandatory.

 

B2C E-invoice Specifications

For most B2C transactions you can issue simplified invoices, which require less information compared to full invoices.

 

Simplified E-invoice Requirements

You can issue simplified e-invoices for transactions where the total invoice amount, including VAT, does not exceed £250.

Simplified e-invoices include:

Date of Issue;

Tax point: date of supply;

Supplier’s Identification: Name and adress and VAT number;

Description of Goods or Services;

Total Amount Payable, including VAT;

VAT Amount.

 

 

Digital Reporting Regulations in the United Kingdom

Digital reporting in the UK is governed by the Making Tax Digital (MTD) initiative, which aims to enhance tax accuracy and efficiency for individuals and businesses through digital record-keeping and electronic submission of tax information. Here are the key components of MTD:

MTD for VAT requires all VAT-registered businesses to maintain digital records and submit VAT returns electronically, including those with revenues below the VAT threshold.

MTD for ITSA (Income Tax Self-Assessment) will become mandatory for self-employed individuals and landlords with annual business or property income over £50,000 starting 6 April 2026, and for those with income above £30,000 from April 2027.

MTD for Corporation Tax is currently in the consultation phase, with implementation expected sometime after 2026.

 

SAF-T

SAF-T is not mandatory in the United Kingdom.

 

Real-Time Reporting

The UK has introduced real-time reporting for PAYE (Pay As You Earn) systems. Employers must report wages and taxes to HMRC each time they pay their employees, rather than on an annual basis.

Additionally, through the MTD for VAT, VAT-registered businesses are required to maintain their records digitally and submit VAT returns using MTD-compatible software. This system essentially provides HMRC with near real-time data on VAT-related transactions.

 

Data Breaches

If a data breach occurs, you must notify the UK Information Commissioner's Office (ICO) within 72 hours of becoming aware of the incident. If the breach poses a significant risk to individuals' rights and freedoms, affected individuals must also be notified without undue delay. This protocol ensures timely actions to mitigate any potential damage and uphold data protection standards.

 

 

Penalties

If you fail to register for VAT, the penalty will be based on the VAT due and can range from 10% to 100% of the VAT due.

Penalties for submitting a VAT return with errors due to a lack of reasonable care range from 0% to 30% of the additional tax due. For deliberate errors, penalties range from 20% to 70%, and if the error is both deliberate and concealed, the penalty can increase to 100% of the extra tax due.

For each missed VAT submission deadline, you will accrue a point. Once you reach a certain threshold of points, which varies depending on the frequency of your submissions, a penalty is imposed. The penalty for each missed submission is £200.

 

Digital Reporting Penalties

If you fail to maintain proper VAT records, you will be subject to a fine of up to £3,000 for each instance of non-compliance.

 

 

Streamline Global Invoicing and Digital Reporting with Space Invoices

One way to comply with (e-)invoicing, tax and reporting requirements in the United Kingdom is to use a credited provider like Space Invoices.

You will be able to:

Utilize a single API for current and future worldwide compliance, including in the UK

Support and upsell your clients globally, including in the UK

Become the one-stop shop for current and future clients

Streamline processes to save time and reduce costs, while also eliminating manual errors

Rest assured all documents are properly archived and reported to the relevant authorities

Achieve rapid integration, typically completed in less than a week.

 

Having questions about how to achieve compliance in the United Kingdom?

We are here to assist.

 

 

This guide is provided by Space Invoices and does not constitute professional tax advice or opinions tailored to the specifics of any particular business or situation. Space Invoices does not accept responsibility for the accuracy or applicability of the content within this guide. Tax regulations, e-invoicing requirements, and digital reporting standards are subject to frequent changes and complex interpretations that require validation by qualified tax professionals. It is the user’s responsibility to evaluate the relevance and accuracy of the information provided and to consult appropriate professionals. Space Invoices does not offer professional tax opinions or advice through this publication.

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