We discussed in our previous article what e-invoicing is and how it is going to be introduced across the UK and EU over the next few years. With this knowledge, businesses should now start planning for the implementation of the new rules. This is because despite the starting deadlines being spread over several years (for instance, the UK has a 2029 go live date but France is this year), preparing for the changes will take time. The sooner obligations are identified and then plans put into place to manage them, the quicker businesses will enjoy benefits that can be gained.
With the above in mind, we have set out below steps that should be taken to prepare for e-invoicing implementation and the associated change in tax reporting obligations.
Map and confirm your supply chains
Whether the e-invoicing rules and the EU’s VAT in the Digital Age (ViDA) new reporting mandates impact a business will depend on the specific set-up and supply chains that it has. That means reviewing these and reconfirming the positions is critical to ensure the right actions are taken.
To start, all legal entities involved with making and receiving supplies should be identified, including their VAT numbers and establishment status. The supply chains should then be mapped, and the existing VAT treatment of each supply confirmed; this will be for sales and purchases. It’s at this stage that a review of how these supplies are managed against existing rules should also take place, to check on current compliance obligations and note if any amendments are needed.
It’s important when doing this stage to make sure that all the facts related to a supply are gathered, plus consultation and consideration on whether any changes might happen soon. For example, if goods are currently routed from China into France and then distributed across the EU, but it’s expected that instead they may start going directly to each destination country, that needs to be considered. Checks on the VAT registration status of each entity involved are also critical to make sure they are appropriate – are they all on the VIES identification system? Finally, best practice would mean checking legal contracts against the supply chains to make sure everything is aligned.
This is the moment when the base information is gathered and from which all decisions will be made going forward. We recommend the tax team involve legal, logistics and the finance team when doing this work to make sure all views are gathered, and there is a start to having buy-in from those other departments that will be needed to make sure the project can be successfully rolled out.
Overlay the new rules
With the supply chains mapped, the new rules that need to be complied with can be overlapped. Each one should be reviewed in turn and the appropriate e-invoicing and compliance obligations confirmed. This is important because it sets the actions that need to be taken by the business and hence where investment will have to take place.
For VAT purposes, this work should include confirmation of the following:
- a description of the supply
- the place of supply (where VAT is due)
- the rate that applies
- who has an obligation to account for the VAT due (supplier or recipient)
- how the compliance obligations are met, for instance monthly/quarterly returns, etc.
For the compliance obligations, these need to consider upcoming changes such as real-time submission and transactional reporting. While these already happen in some EU countries, many others don’t yet have such mandates, but they are very likely to be invoked as e-invoicing spreads. For instance, at the moment the UK only collects summary sales and purchase data on a quarterly basis, meaning HMRC do not have a great overview of what is happening. This is behind the statement that transactional reporting will probably be introduced, maybe from 2029.
Ideally, the relevant legislation should be included for reference, to track against when any changes might happen and to give certainty on the requirements. If supplies are taking place via marketplaces or involve low-value imports, extra care should be taken given more recent changes to these rules plus the requirement for detailed datasets to be declared when importing.
Each supply will have invoice obligations set by the VAT legislation. This needs to be captured, but also how any e-invoicing rules apply. In many countries, these are not included within the VAT legislation but heavily interact with it; most require only established suppliers making B2B domestic supplies to comply, but that’s not a general rule. The final piece of information to gather
Technology review
The final step to take is a review of your organisation’s current technology position. As a starting point, this should look at the ERP or accounting packages that are used. It will then be necessary to consider if any existing tax engines are utilised, plus map out other systems that integrate and provide data within the technology ecosystem. For example, there might be separate inventory software that is used to manage stock. How invoices are currently issued also needs to be mapped; this will vary but probably will encompass a manual system (i.e. print out and post), digital (PDF creation and email send) or electronic set-up.
Understanding the current technology stack is important because it will help determine what further technology is required to comply with e-invoicing mandates. Some systems will have the capacity to create and issue them (plus receive) already but may need re-configuring. In other cases, it will be necessary to bring in separate and new software to help comply with the obligations. Where that happens, ensuring the software meets all obligations (i.e. does it assist in all impacted countries) is critical to smooth running.
What next
There is a plethora of businesses out there that can assist with e-invoicing technology, and hence the challenge is to find one that is appropriate to your organisation. Taking advice on who to partner with is important, and that can only be done once all the above points have been investigated and confirmed.
It’s also important to remember that these changes will require support from across the business. It is not just the responsibility of finance to make it happen. They might take the lead, but without tax, legal and technology involvement, it’s unlikely that a successful first-time roll out will happen. Sales and client relationships teams will also need to be in the loop to inform customers of the changes. Collaborative approaches are going to be the way forward, and the organisations that adapt to that will be the ones that succeed.
For further information on the above, please get in touch with your usual Crowe UK contact.
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