The UK’s Digital Shift Continues
The 2025 Autumn Budget, due on 26 November 2025, is set to shape the UK’s digital tax landscape for years to come.
Alongside expected tax rises, the government is likely to confirm the next stages of Making Tax Digital (MTD) and introduce a major change: e-invoicing.
While e-invoicing has existed in various forms for years, the UK is now preparing to move beyond voluntary adoption. HMRC plans to extend and standardise e-invoicing across more sectors, including smaller businesses.
At present, only public sector transactions – such as those with the NHS, local councils, or central government departments, require e-invoicing. However, that could soon change.
What Is E-Invoicing?
Put simply, e-invoicing means sending and receiving invoices electronically using a structured digital format – such as XML, JSON, or PDF – that can be processed automatically by accounting systems.
Instead of paper or emailed PDFs that require manual entry, e-invoices move directly from the supplier’s system to the buyer’s, ready for review and payment.
The main steps are:
1. The supplier’s software generates an e-invoice.
2. The invoice data is transmitted electronically to the buyer’s system.
3. The buyer’s system validates and records the invoice.
4. Payment is made automatically or after approval.
This process eliminates delays, reduces errors, and supports faster, more accurate payments.
Why Is HMRC Introducing It?
HMRC wants to make e-invoicing part of the wider digital compliance network under Making Tax Digital.
Its stated goals are to:
• Improve efficiency and accuracy.
• Increase transparency between taxpayers and HMRC.
• Reduce the tax gap caused by reporting errors.
The system will eventually allow invoices to be transmitted to HMRC in real time, giving the tax authority immediate visibility of business transactions.
Supporters say this could simplify tax reporting and reduce admin. But many small business owners fear extra compliance requirements and costs.
How Do the Different E-Invoicing Models Work?
HMRC’s consultation outlines three possible frameworks for how e-invoicing could work in the UK.
Four-Corner Model
Each business uses a certified software provider. The supplier sends data through its provider to the buyer’s provider, who delivers it to the buyer. This model promotes data security and system independence.
Centralised Model
Invoices are transmitted through an approved third party acting for HMRC. The third party checks, time-stamps, and authorises each invoice before it reaches the buyer. This mirrors systems already used in Italy and France.
Data Sharing Model
Invoices are sent directly to HMRC in real time from a business’s accounting system. Each invoice receives a unique tax stamp before being issued to the customer. This model provides the most direct oversight for HMRC – and the most automation for businesses.
When Will It Happen?
E-invoicing is expected to be introduced gradually, following the same pattern as Making Tax Digital.
Currently:
• From April 2026, self-employed individuals and landlords earning over £50,000 must use MTD for Income Tax.
• From April 2027, the threshold drops to £30,000.
• By April 2028, it may cover those earning over £20,000.
E-invoicing will likely start as a voluntary system, with early adopters encouraged to participate. However, full mandatory use could follow within a few years.
How Will It Work in Practice?
Businesses that already file VAT returns digitally under MTD for VAT will find the transition easier. Most modern accounting platforms, like Xero, already support e-invoicing or can integrate with tools that do.
For cash-based traders, it will mean adopting a digital process for every sale. For example:
• Generating a digital invoice using a mobile app,
• Recording the payment, and
• Uploading or transmitting it to HMRC.
This could help streamline record-keeping — but it may also require training and software investment for smaller businesses.
What Are the Pros and Cons?
Benefits
• Faster payments through automated processing.
• Fewer data entry errors.
• Easier reconciliation and VAT reporting.
• Reduced fraud risk through digital verification.
Challenges
• Upfront software or integration costs.
• Learning curve for staff.
• Potential privacy concerns over real-time HMRC access.
HMRC believes the trade-off will be worthwhile. But for small businesses already adjusting to MTD, it could feel like another layer of admin.
Getting Ready for the Change
Even though e-invoicing may not be mandatory yet, it’s smart to start preparing now.
Steps to take:
1. Review your current invoicing and accounting systems.
2. Check if your software provider supports e-invoicing formats (XML, JSON).
3. Train staff on digital invoicing and document management.
4. Keep up to date with HMRC’s announcements and pilot programmes.
If you’re already using cloud accounting, you’re ahead of the curve. Platforms like Xero make it easy to connect data between your sales, invoicing, and tax submissions — all part of the digital journey.
Final Thoughts
E-invoicing is another step towards a fully digital tax system in the UK. It promises efficiency, speed, and accuracy — but will require businesses to adapt and embrace technology.
Whether you see it as an opportunity or an extra burden, preparation will make the transition smoother.
Plan It, Do It, & Profit!
Next Steps
- Read HMRC’s E-Invoicing Consultation Summary
- Explore Making Tax Digital and Cloud Accounting blogs
- Try BudgetWhizz to plan your cash flow digitally
👉 Book a call today with I Hate Numbers to make sure your lending arrangements are both smart and compliant.
Book a FREE 15 min Zoom to see how we can help! Let us simplify your systems.
Explore our podcast here
Learn more on our blog
Plan it, Do it, & PROFIT!