HMRC Publish Research on E-Invoicing and SMEs Ahead of UK Mandate

HMRC published data gathered from a research study where 800* small and medium sized VAT-registered businesses in the UK were asked a series of questions on e-invoicing. HMRC are using the findings to further understand:

• How many SMEs understand what an e-invoice is
• What is the prevalence of e-invoicing use across the SME population
• For SMEs not using e-invoicing today, what systems do they currently use

The results are both interesting and encouraging, and no doubt useful in directing the HMRC where to focus their efforts.

Important: The definition of e-invoicing stated in the research glossary is: “Electronic invoices which are issued, sent, and received in a structured data format that allows for automatic and electronic processing. This does not include PDFs or emails.”

Findings:

Familiarity with E-Invoicing:

Around three-fifths (59%) of SMEs surveyed were familiar with the above e-invoicing definition. 19% said that they were very familiar.

The bigger the company, the more familiar they were: a higher proportion of medium-sized businesses (70%) were familiar with e-invoicing compared to small businesses (58%).

Use of E-Invoicing

Around a third (29%) of SMEs surveyed reported using e-invoicing. A higher proportion of medium-sized businesses (36%) reported using e-invoicing. PDFs or emails were the most commonly used method of both sending (95%) and receiving (98%) invoices among the SMEs surveyed. Fewer SMEs sent e-invoices (15%) than received them (24%), with only 10% of SMEs reporting both sending and receiving e-invoices.

Accounting Software

90% of respondents use accounting software, with the most commonly used being Sage (48%) followed by Xero (17%). Only 5% of SMEs said they did not use any accounting software. Of those surveyed, a higher proportion of SMEs in the manufacturing and construction sectors (9%) did not use any accounting software compared to the transport, retail, and accommodation sectors (3%). 

Awareness of HMRC Communications About E-Invoicing

Around the time of fieldwork, there had been an HMRC communications campaign where e-invoicing was mentioned in an email bulletin which had over 100,000 recipients. The majority (91%) of the SMEs surveyed did not recall having seen any communications from HMRC about e-invoicing at the time of the research.

These findings strike me as positive for three reasons:

1. Awareness of what “real” e-invoicing is (structured data transmitted electronically between supplier and buyer not including emails or PDFs) among the SME respondents was high (59%)
2. Awareness of the HMRC communications on e-invoicing was low. HMRC now has this data, and will no doubt use it to amplify awareness. This is fixable.
3. Use of an accounting system is high. It is likely that SMEs will use e-invoicing through their existing accounting systems like Sage and Xero. When April 2029 rolls around, SMEs will likely have a button embedded within their accounting software saying “Send e-invoice”. In fact, Xero has this functionality today, but its use is optional. The SME cohort will likely have a lot less to manage in terms of the transition from analogue to digital when the mandate initiates.

These results are positive. They illustrate that awareness is largely there, communications needs to be amplified, and the “basic” infrastructure (accounting software) to assist with smooth transition for the SME market is widespread.

Read the full finding here: https://tinyurl.com/ycykfv6d

*Although 800 SMEs were interviews, 495 responses were “usable”. Respondents had less than 250 employees.