HMRC exchange rate vs. actual paid amount

[skye86]

I am self-employed and VAT registered and have a question regarding my international sales.

I have to submit my VAT return every 3 months. I invoice most of my sales in Euros and use the HMRC currency exchange rates to convert into GBP. Most of my invoices are paid within 60 days, so I do not see the actual amount paid in my bank account at the time of submitting my VAT return. And the actual exchange rate from the bank is usually worse. So depending on the amount of the invoices, this can be a big difference.

Is there a way I can compensate this difference in the following VAT return when I see the actual amount in my bank account? Or how would this be handled?

Thanks a lot for your help.

Sandra

[pawncob]

Which HMRC exchange rate? They publish rates as average for year and spot rate at 31/03.
http://www.hmrc.gov.uk/exrate/european-union.htm

These are used for tax return conversions.
For VAT you can use actual amounts received ( as per cash accounting)

[Generix]

I am self-employed and VAT registered and have a question regarding my international sales.

I have to submit my VAT return every 3 months. I invoice most of my sales in Euros and use the HMRC currency exchange rates to convert into GBP. Most of my invoices are paid within 60 days, so I do not see the actual amount paid in my bank account at the time of submitting my VAT return. And the actual exchange rate from the bank is usually worse. So depending on the amount of the invoices, this can be a big difference.

Is there a way I can compensate this difference in the following VAT return when I see the actual amount in my bank account? Or how would this be handled?

Thanks a lot for your help.

Sandra

I'm confused.

On most international sales there will be nil VAT.

Aside from this any invoices you issue in a foreign currency with UK VAT MUST show the UK GBP equivalent, and this is the amount you must pay to HMRC.

Similarly if you are receiving invoices from your suppliers in a different currency with UK VAT showing then they must be giving you an invoice with the GBP equivalent of the VAT showing, and this is the amount you must recover.

[Iventus]

From a laymans point of view, you submit that figures you know at the time of the VAT return, and then make adjustments on the next quarter to account for the difference in the last one, that you didn't have accurate figures for at the time.

Obvously needs something set up so you remember where you are up to, but you can make adjustments up to 2k per return without penalty - I am sure an accountant will be along soon to put me/us right if this is wrong information, but this is how I would do it

[Generix]

From a laymans point of view, you submit that figures you know at the time of the VAT return, and then make adjustments on the next quarter to account for the difference in the last one, that you didn't have accurate figures for at the time.

Obvously needs something set up so you remember where you are up to, but you can make adjustments up to 2k per return without penalty - I am sure an accountant will be along soon to put me/us right if this is wrong information, but this is how I would do it

Simple adjustment on VAT returns are not possible re these sort of fx differences.

The amount to be accounted for to HMRC MUST BE the VAT amount shown as GBP on the invoice, this is so there is no mismatch when the customer comes to recover the VAT. (i.e. output VAT at one rate versus input VAT at another rate).

As Pawncob states, you can use other methods to calculate the f/x on your invoice. The way I have seen other (small) businesses deal with this, is not to issue the VAT invoice until payment received and you know what the f/x rate is. Else you get in a pickle having to credit note the original invoice and then reissue another invoice for correct f/x (as perhaps Iventus may have been suggesting).

In the case of goods you have to be careful with the pro-forma/invoice route as you may miss some tax points when completing your VAT returns.

(e.g. you sell and deliver goods on 15th March, issue a pro-forma immediately, but then don't get paid until 25th April and issue a VAT invoice then, under normal tax point rules the supply should be accounted for in your March quarter end return, but you won't include it until your June return because you issued the VAT invoice later than the tax point - which for most financial systems will mean the VAT is paid late).

Hope that makes sense and is of use?

[Generix]

Also I should just add that (from memory - so it should probably be checked) if you deviate from using the HMRC published rates or those published in e.g. financial times, then you should seek HMRC permission for an alternative method.

However in practice I have never seen this challenged, except once in a pretty obvious avoidance scheme where the f/x rate were EXTREMELY stupid and the customer was partially exempt.

General rule of thumb is:

when issuing a VAT invoice (with UK VAT) in a foreign currency you MUST state the VAT value in GBP, and this GBP Value is the one you MUST account for on your VAT return.

when receiving a VAT invoice (with UK VAT) in a foreign currency which you will recover (or partially recover) you MUST use the GBP amount stated on the invoice as your basis of recovery.