Mind the VAT gap: How e-invoicing can help reduce lost tax revenue

E-invoicing allows tax authorities to receive invoice data in real time or near real time. This shift from periodic reporting to continuous transaction monitoring provides governments with a clearer view of economic activity and helps reduce opportunities for misreporting or non-payment.

Several European countries, including France, Poland, and Romania, have introduced or are in the process of rolling out e-invoicing mandates. These mandates aim to reduce VAT fraud and improve compliance.

Italy offers a useful case study. Since mandating e-invoicing in 2019, the country has reported significant improvements in VAT collection and a reduction in fraud. The European Commission has taken notice, and e-invoicing plays a central role in its VAT in the Digital Age (ViDA) reform package.

While the U.K. has not yet mandated business-to-business (B2B) e-invoicing, the government is exploring its potential.

In February 2025, HMRC and the Department for Business and Trade (DBT) launched a 12-week consultation to gather views on promoting e-invoicing across U.K. businesses and the public sector. The goal was to understand how e-invoicing could support wider digital transformation and help close the VAT gap.

The consultation focused on several areas, including:

• Evaluating suitable e-invoicing models for the U.K.
• Considering whether e-invoicing should be voluntary or mandatory 
• Exploring how real-time reporting could complement invoice digitisation

The government identified productivity, faster payments, and reduced administrative costs as key benefits. From a tax compliance perspective, standardised e-invoicing could reduce reporting errors and strengthen the U.K.’s response to the VAT gap.

The consultation closed on 7 May 2025. Responses are now under review and will help shape advice to ministers. A summary of the consultation feedback will be published on gov.uk in due course.

E-invoicing is about more than just compliance. For businesses, it can deliver operational efficiencies, reduce manual errors, and improve cash flow. However, it requires planning, investment, and change management — especially for organisations operating across multiple markets. 

As more governments move towards continuous transaction controls, businesses should consider how to futureproof their operations. Choosing the right e-invoicing technology and partner is a key part of that process.

See how Avalara E-Invoicing and Live Reporting can help your business.