EU e-invoicing: UK Businesses Have Nothing To Worry About For Many Years
The EU will require businesses outside the EU (like the UK) to receive supplier invoices that are generated by a business in an EU member state in an e-invoice format from 1 Jan 2024.
An e-invoice is understood by the EU at this time as an invoice that has specific compulsory data (eg: date, VAT amount, net, Gross, address etc) in a structured format that can be read by other computer systems without the need for character recognition software or AI.
Does this mean that accounting software from January 2024 outside the EU needs to be able to read the EU supplier invoice data electronically behind the scenes and import it directly into the accounting software without human intervention, say via a connected API?
Answer: Er, No. Absolutely not. And from what we heard from Accountingweb's On Demand Episode hosted by Tom Herbert at the end of April 2023 with panellists, we can infer that this won't be likely until at least 2030+. It won't happen until at least 2028 and most likely will, as usual, be pushed back at least a couple of years more.
So What Is Going On?
The EU, like many other countries around the world, wants to ensure the same sales tax data is recorded correctly by a supplier and a customer of a transaction to reduce error and fraud. Governments want the sales tax data of the customer to be the same as that of the supplier. This can be achieved by ensuring the seller's invoice details are sent directly and put into the accounting records of the buyer, without manual intervention, by the issue of an e-invoice.
This sounds (and is) a great idea. Gone will be the days of scanning invoices and using scanning apps as an intermediary step to doing one's bookkeeping. The supplier will send the invoice by clicking a button on their software, and the same information via an API will appear in the customer's ledger accounts. This is certainly the way of the future, and one wonders how long receipt capture software have left before their days are numbered. One might worry about uses of spreadsheets, but Excel is a software programming platform that can have an Excel Add-in, working with the API, so this is not a problem for spreadsheet users if developers make the software available.
The Big Joke
The large barrier to this happening any time soon of course is a common API - so we are taking about potentially a decade or more of the e-invoice system being in a mess. Software vendors are not going to be developing software that works with hundreds of different APIs or systems of other software to import the data. So until that issue is resolved, the EU allows an e-invoice to be a digital file which can be universally read by computers such as a csv file, or an xml file (think similar to an ixbrl-looking file) - at least that is what we have been told during the Accountingweb episode on demand last week. Interestingly, this does includes PDF files, if the PDF file has embedded code around data in a structured format, something that 123 Sheets already does in its spreadsheets that produce PDF VAT Return files that are machine-read by their website. The advantage of a data structured PDF is that it can be viewed well by a human person, stored on computers, downloaded and printed out easily, and of course read easily by a computer. Users prefer PDFs to xml and csv files naturally for these reasons.
So non-EU businesses from January 2024 only need to be able to receive a csv file, PDF or xml file from suppliers, which of course can be sent in an e-mail. Therefore, all that is required by UK businesses from January 2024 is to provide an e-mail address for such e-invoices to be sent to. If the supplier already sends PDF invoices, then they just need to included structured data of the invoice in the PDF additionally, which to the human eye need not be noticeable.
Even if in some EU countries where an API is used, the seller's software might also need to send an e-mail of a csv, xml or pdf file, so that customers that do not use the API of a particular accounting software vendor (elsewhere in the world) can access the data.
So What Is The Effect For UK Businesses?
It puts into EU law from 2024 that UK customers must at least be able to RECEIVE e-invoices from EU businesses, not that the UK businesses actually have to do anything with that data. So importing of the data is not required on the part of the UK business. The UK entity can just provide an e-mail address, that they probably won't even monitor, and will only refer to if there is a dispute about an invoice.
What Is The Advantage To The EU?
By legally requiring the invoice to be received by a UK company in a particular format, means that in the situation where a UK customer is much bigger than an EU supplier, the UK customer cannot force the EU supplier to change their invoice formatting to a structure that will potentially mean that EU governments lose out. So the EU is protecting its own revenue and also providing some protection to small businesses within its borders against non-EU larger businesses they might do business with. This will enable smaller businesses in the EU to argue that they have to invoice in a particular way as its is a legal requirement for them to do so.
So all that UK businesses will need to do is provide an e-mail address for csv, xml or structured PDF files to be sent e-invoices, and if there is ever a dispute on an invoice, the EU invoice provided by the supplier wins out.
Until at least 2030, there will unlikely be much by way of need for significant changes for UK businesses, until a universal globally recognised API is accepted for e-invoicing, which will mean significant change for software developers, but its just not going to be coming anytime soon.
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