HMRC and the Department for Business and Trade published a joint consultation on 13 February (with a closing date of 7 May). They want to understand how different approaches to e-invoicing might improve productivity and help businesses to get their tax right.

Currently, e-invoices can be used in the UK but there are no standards setting out their format, content, application or delivery (other than for suppliers to NHS England who must use a specific network). Take-up of e-invoicing is low. The government believes that increasing its use could improve productivity and business cashflow. It could also simplify tax reporting and reduce the tax gap through reducing error and helping businesses to manage their tax affairs.

The proposals are divided into four areas:

Standards and interoperability

For e-invoicing to provide the intended benefits, all systems would need to interact with each other, based on common standards, so that suppliers and buyers could exchange invoices domestically.

Additionally, other countries are increasingly adopting e-invoicing models, so many UK businesses will have to engage with international systems. Any UK standards would need to support interoperability with international trading partners.

The consultation wants feedback on the data any UK standard should include and views on what works well.

Voluntary or mandatory

Some countries have mandated the use of e-invoicing. It is currently voluntary in the UK, which may reduce the incentives for businesses to invest in an e-invoicing system because they don’t know whether customers and suppliers will accept the invoices. If the UK went down the mandatory route the options could include:

• Requiring e-invoices for all business-to-business supplies.
• Requiring e-invoices for all business-to-government supplies.
• Requiring all businesses over a certain size to be able to receive e-invoices.
• Requiring all businesses over a certain size to both issue and receive e-invoices.

In addition to asking for views and concerns on any move to mandatory e-invoicing, the consultation also asks how long it would take for businesses to implement it.

Decentralised model

A centralised model for e-invoicing would involve invoices being issued via a central government platform. The consultation mentions that this approach has been adopted in some jurisdictions but goes on to say that it “does not always improve business efficiency and is costly for tax authorities to implement”, so it does not explore it in detail. Instead, the focus is on decentralised models which could be complementary to Making Tax Digital and would provide greater flexibility for businesses to choose a platform appropriate to their business needs.

The consultation asks for views on whether it is correct to focus on decentralised models and how such a model would impact businesses.

Reporting data to HMRC

Finally, the consultation seeks views on reporting information to HMRC. In a decentralised model, the invoices would not be issued via a central government platform, but building in a data feed to HMRC would enable additional actions to simplify tax reporting, reduce error (for example, HMRC nudges and prompts) and support businesses in getting their tax right. HMRC would also be able to target its compliance activity more effectively, reducing engagement with compliant businesses.

Information from the data feed could also be used by government, for example, if a business support scheme was needed in a future emergency.

Views are requested on real-time reporting for business-to-business and business-to-government transactions and on the potential usefulness of HMRC nudges and prompts, or pre-population of VAT returns.

ICAS will be responding to the consultation and would welcome any members’ comments on the proposals. Please email tax@icas.com with your feedback

Justine Riccomini, Head of Tax (Employment and Devolved Taxes), discusses what effect NICs and minimum wage rises, together with stronger rights for workers, may have on employers

Last year’s UK Budget contained provisions to increase the amount paid by employers in secondary NICs. The Low Pay Commission recommended a rise in the national minimum wage (NMW). And the Employment Rights Bill is progressing through Parliament, introducing a raft of new measures, including “day one” rights to claim unfair dismissal; restrictions on “fire and rehire” and zero-hours contracts; an obligation for employers to justify a refusal of flexible working and more.

It all adds up to an eventful few months for employers, with many measures they will need to be aware of.

National insurance changes

Employer’s NICs are rising from 6 April from the current 13.8% to 15%. To compensate for this, the government made much in the Budget of providing for a rise in the employment allowance from £5,000 per annum to £10,500 for eligible employers – yet the sting in the tail is that at the same time, the amount of salary liable for secondary NICs has dropped from £9,100 to £5,000 per employee across the board.

Anecdotal evidence tells us that in addition to considering headcount reductions, employers in some sectors are finding it necessary to pass these costs on to customers, while in others pay awards are either non-existent or significantly reduced. From childcare provision to hairdressing, to travel to hospitality and retail – customers are likely to be asked to pay more. Some smaller businesses are also shutting down altogether, due, they say, to the April 2025 measures which are too onerous to bear, particularly for those that are labour intensive.

National minimum wage rise

NMW rises across the board carry an additional cost burden for employers – primarily in terms of salaries and wages, pension contributions and secondary NICs.

For a full-time equivalent role of 36 hours a week, the expected annual salary for a person earning the standard rate of NMW is now £22,857.12 – representing an additional £1,441 of gross pay per employee, per annum.

Employment Rights Bill – impacts

According to some Q4 2024 research recently carried out by the Federation of Small Businesses (FSB), nine in ten small businesses have concerns about the expected changes to workers’ rights, and a third said they are expecting to cut jobs in the near future – double the number considering that in Q3.

In addition, the FSB states that only 10% of small business bosses were making plans to take on more staff, down on 14% in June to September.

Employers generally fear employment tribunals more than they do HMRC. This is because of the length of time tribunals take, together with the onerous administrative burden of producing case materials and the high cost of legal representation and related stress on all involved.

The impact

Naturally, media attention has turned to the question of whether businesses have sufficient capacity to absorb the additional costs and administrative burdens.

Accountants and tax advisers may want to hold conversations with clients affected by the measures prior to them coming in, to ensure that financial forecasting and budgeting are nailed down. Employer clients should ensure that their HR policies are up to date and, if necessary, take advice from a suitably qualified HR professional or employment lawyer – especially where the business is considering reducing headcount or engages workers on casual or zero-hours contracts.

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