VAT in the Digital Age: How can UK businesses prepare for 2024?by
A wave of e-invoicing and real-timing reporting of invoice data is set to arrive in European Union countries over the next two to four years. Will UK businesses be affected, and what can those trading with the EU do to prepare?
As businesses should now be aware, the European Commission’s proposed ViDA (VAT in the Digital Age) reforms mark the beginning of the body's digital tax transformation programme. While negotiations among EU member states on a final text have yet to conclude, the original proposal states that from January 2024, countries will be able to impose e-invoicing obligations without prior authorisation from the EU. The Commission is also making ambitious changes to the definition of an electronic invoice, sending strong signals that it is serious about forcing the EU market to adopt robust business process automation.
Businesses can therefore expect to see a wave of modern e-invoicing regulation come into place across the EU in the coming years. Many EU countries have not waited for ViDA to be adopted and are pushing ahead with mandates. The majority of EU countries are expected to have laws towards mandatory e-invoicing and near real-time reporting of invoice data coming into force between 2025 and 2027. The revenue benefits tax authorities can expect to enjoy from digital invoices are undoubted, making cases of non-compliance much easier to weed out. In other words, get ready for change!
Will UK businesses be impacted?
Despite the UK no longer being a member of the EU, the region remains the UK’s largest trading partner, meaning British companies with a presence in the EU will more than likely be impacted by ViDA. This means that they will be hit with accelerating changes around electronic invoicing and electronic reporting. UK businesses, therefore, should take swift measures to re-examine their data quality and digital capabilities to ensure they are compliant with new regulation across different member states.
Applicability of these requirements adds to a growing list of EU administrative and fiscal requirements for UK businesses. For example, those exporting to the EU already face complexity when it comes to customs for B2B exports and digital reporting for B2C.
As European VAT law evolves with ViDA coming into force, the very definition of e-invoicing will evolve, with big and small implications that require constant attention. For example, under the Commission proposal, PDF invoices will no longer be considered electronic from 2024, and ViDA also could outlaw summary invoices from 2028.
While ViDA attempts to harmonise requirements, for example invoice file formats, EU countries will continue to have significant freedom to adopt varying process requirements. This will likely lead to a need for country-specific functionality for impacted processes and information systems.
So how can UK businesses ensure they remain compliant with new regulations and what changes do they need to make?
If a business’s in-house resources to monitor tax developments and its existing tech capabilities are not up to scratch, changes should be made to remain compliant and avoid penalties. Businesses will need to have the capabilities that allow them to send e-invoices in the correct digital structure, whilst also having the ability to receive and process invoices sent in such strictly regulated formats.
So, if a firm does not have a technology stack capable of compliant electronic invoice delivery, receipt, processing, and archiving, its IT and finance leaders should look to identify suitable ERP (enterprise resource planning) or transaction management application extensions as soon as possible. Those who are not compliant risk jeopardising their businesses in the EU, so ViDA is certainly something UK businesses need to keep on top of.
Beyond the proposed 2024 e-invoicing regulatory changes, ViDA will also impact UK businesses in other areas stemming from the European Commission’s desire to create a more equitable and harmonised VAT system. Some processes will be made much easier due to the proposed extension of the single VAT registration and the ‘reverse charge'.
ViDA proposes these changes to take effect from 2025, thus reducing the number of countries non-EU exporters will have to be registered for VAT in. Not only will this save time, but businesses should also expect to save money by reducing admin costs and ultimately make compliance less of a headache.
There should be no doubt that any UK firm that operates or does business in any EU member state will feel the impact of ViDA in the short to medium term. While keeping on top of deadlines, new regulation and postponements can be confusing, the wisest thing for businesses to do at this stage is think long-term – but start doing so immediately. Updating your core enterprise systems and tech stacks is crucial in our digital world, especially with tax globally moving towards becoming digital. Keeping your business one step ahead can certainly do no harm.
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As vice president for strategy at Sovos, Christiaan Van Der Valk leads research into trends in the market and tax legislation. His insight and expertise are instrumental in determining business strategy and when to buy, build or partner to create solutions that meet emerging trends. Christiaan’s philosophy is that companies should embrace the...