UK: E-Billing: Some VAT Issues To Bear In Mind

Last Updated: 24 November 2004

Originally published in the Summer 2004 edition of BLG Business Law Quarterly

There may be significant benefits for companies, in terms both of cost and of efficiency, in operating an electronic or e-billing system in preference to traditional, paper-based billing. However, before making the switch, companies should be aware of certain issues which arise in relation to electronic billing and payment under EU and English law. In particular, a number of procedures should be followed to ensure that electronic invoices are acceptable to the authorities for VAT purposes.


Other general tax issues may of course need to be borne in mind in the context of ebilling, as well as a number of other legal issues, not least in relation to e-security and data protection. However, these are largely beyond the scope of this article, which will focus instead on VAT issues. Clearly, many of the following considerations will only apply where the company or business concerned is registered for Value Added Tax (‘‘VAT’’) purposes.


Aimed at simplifying VAT and encouraging e-invoicing across the EU, Council Directive 2001/115/EC introduced a right to send invoices electronically, without having to seek authorisation, on condition that the authenticity of origin and integrity of data are guaranteed by electronic signatures or electronic data interchange. This Directive has now been implemented into UK law.


The main UK legislation on VAT is contained in the Value Added Tax Act 1994. This legislation is supplemented by further statute law and regulations. The regulations on electronic invoicing, which implement the EC Directive, are contained within the Value Added Tax (Amendment)(no 6) Regulations 2003 (‘‘the Regulations’’). These are helpfully summarised in Notice 700/63 (‘‘the Notice’’) which is produced by HM Customs and Excise (‘‘Customs’’), the body responsible for administering VAT in the United Kingdom.


So what requirements do the VAT rules impose in relation to e-billing? First of all, if a UK company intends to issue electronic invoices after 1 January 2004, it must let Customs know within 30 days of beginning to do so. From this point onwards, it should not issue paper invoices for the same supplies unless it intends to run a controlled trial of its electronic invoicing system. Under the new rules, the electronic invoices are the relevant legal documents for UK VAT purposes.

In addition, further safeguards must be put in place. A UK company may only issue electronic invoices where the authenticity of the origin and integrity of the invoice data is guaranteed by means of:

  • an advanced electronic signature;
  • electronic data interchange (EDI); or
  • by other means permissible for supplies within the UK.

The Notice goes into further detail (at paras 4.2 – 4.4) as to what is meant by an ‘electronic signature’ and by an ‘EDI’, as well as setting out other means by which security requirements can be met. The basic principle is that ‘a satisfactory level of control’ must be imposed over the authenticity and integrity of invoice data.

Further requirements apply specifically in relation to e-transmission. Invoices must be transmitted in a secure environment, using industry accepted security technologies on the message themselves, or communication links/networks over which the invoices are transferred.

Also, certain internal controls must be put in place to ensure the ‘authenticity and integrity’ of invoices. In particular, the company would have to show that it has control over the:

  • completeness and accuracy of the invoice;
  • timelines of processing;
  • prevention of, or detection of, possible corruption of data during transmission;
  • prevention of duplication of processing (by the recipient);
  • and prevention of the automatic processing by the recipient of certain types of invoice on which VAT may not be recoverable.

The company would also have to demonstrate that it has a recovery plan in a case of system failure or loss of data, and maintains an audit trail between the electronic billing system and its internal application systems that are used to process the invoice.


There are also specific rules governing the content of electronic invoices, but essentially they must contain the same information as paper invoices. Provided the invoice contains the relevant information then Customs will accept a wide variety of electronic invoice message formats.


The Regulations also impose conditions as to the storage of electronic invoices and as to the granting of access to Customs officials. In terms of storage, the requirements closely mirror those relating to paper records. For instance, the same 6 year time limit that applies to the storing of paper invoices applies to the storing of electronic invoices. Regarding access to stored records, the Notice provides that, in order to assure electronic systems, Customs may request access to:

  • the operations of any computer systems which produce or receive VAT invoices or disagreement documents, and to the data stored on them;
  • supporting documentation including file structures and information on how the accounting system is organised; and
  • advice on interrogation facilities available on the system.
  • Customs must be able to take copies of information from the electronic billing system, if required. The Notice states that the company may be able to meet its obligations regarding the production of records by giving Customs:
  • physical access to the system;
  • indirect access (e.g. providing information on electronic media, or via remote access);
  • a resident audit programme installed at the request of the visiting office; or
  • any other reasonable method agreed with Customs.


Clearly, there may be situations where it is cost-effective for a company to outsource the physical responsibility for the issuing of electronic invoices to a third party. However, it is important to remember in these situations that all legal obligations as outlined above relating to the content, storage and production of the invoices will remain with the company. Therefore, it is important that where this responsibility is delegated to a third party that such party confirms in the outsourcing contract that they can meet these obligations on the company’s behalf.


Once a company is satisfied that it can meet all the conditions for setting up an ebilling system in accordance with the Regulations, it may do so without prior authorisation. However, it is important that the company should notify the Customs within 30 days of beginning to use the system. Where the company switches to an electronic system and then fails to fulfil its obligations under the Notice, it will have to issue paper invoices until Customs is satisfied that the system is acceptable. However, persistent breaches may incur liability for a penalty.


Customs recommends that suppliers contact the National Advice Service at 0845 0109000 (or +44 208 929 0152 for non-UK callers) for further information on the requirements relating to e-billing.


Companies may see real benefits from the introduction of an electronic billing system and should not be put off by the existence of detailed regulation in this area. In many respects, the requirements are common sense and closely mirror the conditions which already apply to paper invoicing. The key principles are that e-invoices should be secure and capable of authentication, that appropriate records should be kept, and that these should be accessible to Customs on request. While prior authorisation is not required to operate a system of e-billing, perhaps the single most important requirement under the Regulations is that Customs should be notified within 30 days of such a system coming into effect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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