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Electronic invoicing covers a range of electronic options from sending an attachment with an email to an automatic billing system that sends invoices direct to your customer's accounting system.
You can send and receive invoices electronically instead of using paper invoices. You don't need to tell HM Revenue & Customs (HMRC) before you start invoicing electronically, but you'll have to make sure that your systems and procedures are suitable. There are various different methods of invoicing electronically, but whatever method you choose must meet all the necessary requirements for your invoices to be valid VAT invoices.
This guide will help you to understand what you'll need to do to set up and maintain a suitable method of electronic invoicing. It could also help you if you already invoice electronically but want to check that you're doing things properly. The guide deals with both sending and receiving electronic invoices.
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Electronic invoicing covers a range of electronic options from sending an attachment with an email to an automatic billing system that sends invoices direct to your customer's accounting system.
You don't have to invoice electronically. You can use paper invoicing if you prefer. But you may find that more and more of the organisations you do business with are switching to electronic invoicing.
Electronic invoicing isn't for everyone, but businesses that use it often find it helps them save both time and money. The advantages of being able to send and receive invoices electronically include:
You must employ good business practice and your own business controls to ensure the accuracy, security, authenticity and integrity of electronic invoices, as you would for paper invoices.
You don't need to get approval from HMRC to use electronic invoicing, and you don't need to tell them if you start to use it.
If you issue and store electronic invoices but fail to meet the requirements, this may mean that you or your customers do not hold sufficient evidence to reclaim the VAT.
Your electronic invoices must include the same information as paper invoices. As with paper invoices, it is not enough just to produce an electronic invoice - you must actually send it to your customer.
There are several ways of sending invoices electronically. You could use:
As long as you make sure that what you send to the customer is what they receive, any of these methods is acceptable.
Just as with issuing paper invoices, whatever form of electronic invoicing you choose to use, you must be able to:
Get more information on issuing VAT invoices
If you issue electronic credit notes - or debit notes - then they should include the same information as paper versions. They must include:
More about issuing credit and debit notes in our guide to dealing with returned goods
You don't have to show all amounts on your invoices in sterling. But if there's any VAT due you must show this in sterling.
Read more about foreign currency transactions and VAT
You might decide to get someone else to issue your electronic invoices for you. This could be an outsourcing specialist, for example. Or it could be your customers themselves if you and your customer have agreed to use a 'self billing' procedure.
If you decide to outsource your invoicing, someone else will take over some or all of this aspect of running your business. Be aware though that it's still your legal responsibility to make sure you meet all the requirements for invoicing electronically. You might specify in your outsourcing agreement that all the security, storage, invoice content and record keeping requirements are met. It would be a good idea to check that this is the case in practice.
You could agree with some or all of your customers that they'll issue electronic invoices on your behalf. This is known as 'self-billing'. When a customer issues a self-billed invoice they should send you the self-billed invoice for your records and keep a copy for their records.
Both you and your customers need to make sure that your electronic self-billing systems can recognise self-billed invoices so you can account for the output tax and input tax correctly. It remains your legal responsibility to make sure you meet all the requirements for invoicing electronically.
Read more about self-billing and VAT
Even if you don't send electronic invoices, you may decide to accept them from your suppliers. If you are unable to deal with electronic invoices you should discuss this problem with your supplier, who may agree to issue paper invoices instead.
If you receive electronic invoices then you'll need to store them safely as part of your record keeping. The conditions for storing the electronic invoices you receive are the same as they would be for any electronic invoices you send - see the section in this guide on storing electronic invoices.
If you receive paper invoices, you can choose to store them as scanned images on a computer system. You'll have to meet the same requirements for storing them as you would for electronic invoices.
As with paper, you need to keep proper records of all electronic invoices you send and receive for six years. If you upgrade to a new computer system which is not compatible with your old system, you must make sure that the records held on your old system remain accessible for up to six years. If this is not possible, then you must make paper copies.
You can also keep your records on microfilm or microfiche, as long as you have received approval from HMRC and it is easy for VAT officers to view those records when they need to.
You need to store your invoice data securely in a way that allows you to:
At the very least, you should consider password-controlled access to your invoice data, and taking regular backups - and checking that you can recover from backup reliably.
These requirements also apply if you store scanned images of paper invoices electronically.
You can store electronic invoices in any EU country as long as you can produce anything HMRC asks for reasonably quickly and in a readable format. You could keep them in a non-EU country as long as it respects European data protection rules and you can still produce them for HMRC within a reasonable time and in a readable format.
When they check your VAT records, HMRC will need to see your electronic invoices in a readable format. For more complex systems this might mean holding data in a way that allows for it to be converted to a readable format, or it might simply be that you are able to print out an email or invoice attached to an email when requested to do so by HMRC.
All countries within the EU allow electronic invoicing from one country to another. The conditions that apply are normally those of the country where the supplier is based. So if you invoice customers in other EU countries electronically, you'll need to meet the UK conditions.
It's wise to check that your customer can accept electronic invoices in the format you use. In some EU countries, the tax authorities only accept electronic invoices sent using EDI or invoices that include an electronic signature. So if you use a different method to send invoices they may not be acceptable.
Your invoices must include:
Any credit notes you issue should show the same information as the original tax invoice.
Get an EU country VAT identifier code and check which countries are in the EU
You can send electronic invoices to customers outside the EU as long as their tax authorities permit it. You should check this with your customer.
Find out more about VAT and international trade
If you receive electronic invoices or credit notes from suppliers in other countries, they'll use the format that's required by their own country's rules for electronic invoicing. You may want to check that your own systems can cope with this format before you start doing business with them.
The invoices you receive will need to include enough information to work out the VAT on goods, or the output tax for reverse charge services. Any credit notes you receive must include enough information to adjust the VAT shown on the original invoices to which they relate.
Issuing both electronic and paper invoices for the same goods or services, or to the same customers, is known as running a 'dual system'. You can normally only run a dual system if you're doing a controlled trial of your electronic invoicing system. Once you've finished the trial, you have to choose one system or the other for your invoicing.
If you decide to switch to electronic invoicing then the electronic invoices that you issue become the legal documents for VAT purposes.
In a few exceptional cases, a business might need to keep running a dual system for some reason. If you think this applies to your business, contact HMRC to explain your circumstances. They'll look at the details you give them and decide whether or not they can make a special exception in your case.
