Understanding E-Invoicing Models as UK’s E-Invoicing Public Consultation Ends

As new e-invoicing compliance requirements take effect around the world, tax, finance and IT groups will be hard-pressed to keep pace with tax authorities’ pronouncements, updates and supporting communications related to these mandates.   

Right now, for example, I’m fielding questions about centralized and decentralized models, particularly as the His Majesty’s Revenue and Customs (HMRC) consultation period on e-invoicing has ended in the UK, and businesses await a decision. It’s important for indirect tax groups and their business partners to understand these approaches and what they mean from a supporting technology standpoint.  

Centralized vs. decentralized e-invoicing models explained

Under a centralized e-invoicing model, taxpayers extract e-invoicing data from their finance, accounting and tax systems (often a combination of an ERP system and a tax engine) and transmit that information data directly to a tax authority’s platform. Countries like Italy and Poland favor the centralized approach. On the other hand, in a decentralized e-invoicing model, taxpayers transmit data to a certified third party enlisted by the tax authorities to act on their behalf. These third parties specialize in facilitating data flows, approving submissions, and time-stamping each transmission to help track compliance. Many countries in Latin America, where e-invoicing compliance first emerged in the 2000s, favor a decentralized model.

As the UK approaches final decisions on its own e-invoicing mandate, companies subject to current and approaching e-invoicing requirements evaluate whether their supporting automation supports both centralized and decentralized models (it should).  

A new survey report conducted for Vertex by Sapio Research sheds light on how global finance, tax, IT leaders and their business colleagues are approaching e-Invoicing compliance and supporting automation. The cross-industry survey of 1,150 respondents shows that, while challenges exist, there is widespread optimism regarding e-Invoicing benefits. Here are a few findings that strike me as noteworthy: 

• 79% of respondents expect the benefits of e-invoicing mandates to outweigh the challenges they pose
• More than 50% of respondents report that the primary e-invoicing benefits relate to efficiency gains and cost-savings  
• More than 80% of respondents believe that e-invoicing will improve internal data accuracy and financial reporting – and these strides will in turn lead to better decision-making and planning 

Regarding supporting technology, more than half of survey participants report that their organizations are experiencing difficulties integrating e-Invoicing solutions into existing systems. However, 80% expect their organizations to improve e-invoicing-related systems integrations during the next 24 months. 

In addition to supporting decentralized and centralized models, an e-invoicing solution should provide scalable and streamlined e-invoice management, seamless integration to financial systems and global country coverage as part of an end-to-end VAT compliance suite. (By “end-to-end,” I mean that the system supports data transmission, VAT ID registration, tax determination, compliant traditional invoicing, e-invoicing, e-reporting and periodic reporting and returns.) 

We’ll keep you posted on e-invoicing developments and supporting technology in the months ahead while helping you make sense of compliance developments and pronouncements.