Ensure your invoicing systems are compliant

Two options

There is no legal requirement to issue electronic invoices to your customers, even if they insist. The format of your invoices is your decision, according to what best meets your accounting system and objectives. However, if you issue both paper and electronic invoices for the same sale, you are running a dual system and this is not acceptable. In such cases, the electronic invoice becomes the legal document for VAT purposes.

HMRC’s guidance about electronic invoicing confirms that there is no problem issuing both electronic and paper invoices for what is described as a “controlled trial of electronic invoicing systems”. But the dual invoicing must then stop at the end of the trial period.

If your business is based in Northern Ireland, and you issue sales invoices to EU customers for goods, then you must comply with additional invoicing requirements. This is because Northern Ireland is part of the EU’s single market for trading in goods.

HMRC policy

There is no need to tell HMRC that you issue, or intend to issue, electronic invoices. Your main priority is to ensure that your invoices include all of the details required of a proper tax invoice. If these details are insufficient or incomplete, your customers might not be able to claim input tax.

However, HMRC might require you to prove that your system is reliable, e.g. do you have a strong audit trail between your electronic invoicing system and the internal application systems which are used to process the electronic invoices?

We're aware of a trader that issued electronic and paper sales invoice to his customers for the same sales and recorded a different number sequence! The dual issuing of documents is incorrect, as explained above, but there is a high risk that customers could be confused by the different numbers and claim input tax twice.

Storage of data

Consider the following situation. If HMRC asked you for a copy of an electronic sales invoice that you issued to a customer three years ago, would your storage system be able to find it easily? Would the format and content of the invoice be exactly the same as when you issued it to your customer? And do you have back-up procedures in place in case of a system failure?

The same rules apply to storage of electronic records as paper invoices, i.e. you must keep them for six years. If the six-year retention period causes your business a problem - unlikely in the case of electronic storage - you can write to HMRC and ask for a reduced period, fully explaining why this concession is needed.

If you outsource the issuing of your electronic sales invoices to a third party, you must be clear that all of the legal obligations with regard to the content and format of the invoices remain with your business. You may wish to include confirmation of this point in the outsourcing agreement with your chosen supplier.