All eyes are on the 2025 Budget, due on 26 November 2025. It’s widely expected to set the tone for the UK’s long-term economic direction, with potential tax increases on the way.
But alongside the headline-grabbing tax announcements, another major shift is coming:
HMRC is expected to reveal more detail on its digital strategy, including the next steps for Making Tax Digital (MTD) and a significant expansion of e-invoicing.
E-invoicing has been used internationally for years, with more than 80 countries already operating mandatory systems. The EU is planning an EU-wide requirement from July 2030. While the UK currently takes a lighter approach, HMRC is clearly gearing up for a major rollout.
So, what could this mean for UK businesses?
What is e-invoicing – and who already uses it?
In simple terms, e-invoicing replaces traditional paper or PDF invoices with structured digital invoice data, such as XML or JSON files. These can be processed automatically and instantly by accounting software.
Right now in the UK, e-invoicing is mostly voluntary for small and medium businesses. Some large organisations, especially those involved in international trade, already use it, and it is mandatory for transactions involving public sector bodies, such as:
-
- The NHS
- Central government departments
- Local councils
HMRC’s long-term goal is clear; a system where all business invoices are submitted directly and automatically to HMRC.
This would give HMRC real-time access to sales and purchase data, much like other countries already operate.
How e-invoicing works in practice
E-invoicing speeds up the whole invoicing process by removing manual steps. Typically:
- The supplier creates the e-invoice
- Their software sends it to the customer
- The customer’s software receives and processes it
- The customer makes payment to the supplier
The benefits include:
- Faster processing and quicker payments
- Fewer errors, because data transfers automatically
- Better compliance, as invoices follow set standards
For many businesses, the switch to e-invoicing can shave days or even weeks off cash collection times.
HMRC’s plan: faster, digital, and standardised
In recent consultations, HMRC says it expects e-invoicing to bring improved efficiency, greater accuracy, and more transparency.
The consultation asked for views on which model the UK should adopt. These were the main options:
- Four-corner model
Supplier → their software provider → buyer’s software provider → buyer
(Each party uses certified software to exchange data.)
- Centralised model
Businesses send invoice data to a certified third party approved by HMRC, who validates and time-stamps the data.
- Data-sharing model
Businesses transmit e-invoice data directly to HMRC in real time, receiving a digital stamp before sending the invoice to the customer.
Based on the consultation wording, HMRC appears to favour building a direct data-sharing feed, similar to models used in Europe and South America.
How will e-invoicing be rolled out?
HMRC sees e-invoicing as the next phase of Making Tax Digital. The likely plan will start with voluntary adoption, gradually expand to mandatory use over time, and link it closely to existing MTD requirements.
Those already submitting VAT returns digitally will feel the smallest impact, as their systems are often closer to being e-invoicing ready.
The phased MTD timetable is:
- April 2026 – Self-employed people & landlords earning £50,000+
- April 2027 – Those earning £30,000+
- April 2028 – Expected expansion to those earning £20,000+
E-invoicing will sit alongside these requirements, gradually becoming part of the UK’s wider digital tax ecosystem.
Who will be most affected?
The biggest changes will be felt by cash-based businesses, such as tradespeople or small retailers.
They will need to:
- Generate a digital invoice – even for cash sales
- Record payment digitally
- Ensure the invoice is stored in their accounting system
- Ultimately transmit the invoice to HMRC
For some, this will be a significant shift in how they operate.
Supporters vs critics: is e-invoicing a good idea?
HMRC believes that mandatory e-invoicing will:
- Simplify tax reporting
- Reduce errors
- Help businesses “get their tax right”
- Close the tax gap through better accuracy and real-time data
However, critics argue that:
- Small businesses could face higher costs for software
- New digital requirements could increase their administrative burden
- The rollout may feel like “digital overload” when combined with MTD
The 2025 Budget should reveal the direction HMRC plans to take – and how quickly.
Need help preparing for the digital tax changes?
E-invoicing and Making Tax Digital will transform how businesses record and report their finances. Whether you’re already using digital tools or still relying on spreadsheets, planning early will make the transition smoother.
Contact Jon and the team at Jon Davies Accountants for tailored guidance so you can stay compliant and avoid surprises as HMRC’s digital requirements expand.
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