foreign currency transactions & vat

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All information provided by Business Link and is covered by Crown Copyright. All information is based on the UK business system.

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  • 1. Crown CopyrightInformation used with permission and is covered by Crown Copyright

2. IntroductionYou can buy and sell in any currency, but when you keep your VAT accounts, amounts in foreign currencies must be converted into sterling. Invoices must always show sterling figures for the net totals and VAT for each VAT rate, even if they also show foreign currency figures. 3. IntroductionThere are two standard ways you carry out the conversion to sterling. However, you may apply to use a different method if you would prefer. This guide explains what the different methods are and how you should carry out conversions.If you are using the Tour Operators Margin Scheme, the conversion process is slightly different. 4. Purchasing in Foreign CurrenciesYou can use whatever currency you want when you buy goods and services. However, any purchases or sales that were not made in sterling must be converted into sterling for VAT purposes.You must carry out this conversion when you record the transaction in your VAT accounts, so that your VAT accounts show the transaction in sterling. 5. Invoicing in Foreign CurrenciesYou can invoice for the goods and services that you supply in any currency. However, if there is any UK VAT due on the transaction, then your invoices must also show the following in sterling:The total net value of goods and services at each VAT rateThe amount of VAT, if any, at each rateYou do not need to show sterling figures for each line on the invoice. 6. Advance InvoicingThe value in sterling that you show on a VAT invoice must be the value at the time of supply. However, if you issue invoices before you actually make a supply then the date of supply may be in the future. One example is leasing or rental payments. Clearly, you wont be able to convert future foreign currency amounts accurately into sterling, since you dont know what the exchange rate will be. 7. Advance InvoicingAdvance invoices must therefore be in sterling for VAT purposes, and those sterling amounts will be what youll have to enter into your VAT records. You can also show your invoice amounts in a foreign currency, but youll have to make it clear that for VAT purposes, the value of the supply is the sterling figure, and is not a conversion of the foreign currency amount. 8. How you convert foreign currencytransactions into sterlingThere are two standard ways to convert your foreign currency transactions into sterling for VAT purposes.UK Market Selling RateYou can use the UK market selling rate at the time of the supply. The rates published in national newspapers are acceptable. 9. Period Rate of ExchangeYou can use the rates of exchange published by HM Revenue & Customs (HMRC), known as the period rate of exchange. The advantage of these is that you can generally use the same rate for an entire period - usually a calendar month - although you should check to see if there have been any adjustments within the period. 10. Period Rate of ExchangeYou can use the period rate for all your supplies, or just for a specific type of supply. If you decide to use the period rate just for a specific type of supply, you should make a note of the details in your records. You dont need to tell HMRC. However, if you change your mind at a later date youll need to get the agreement of the VAT Business Advice Centre for your area. 11. The rate you use for commercialpurposesYou may not want to use one of the above two rates. If you use a different rate for commercial purposes, or a different method of determining a rate, and you also want to use this for your VAT accounting, you may apply in writing to the VAT Business Advice Centre for your area. 12. The Tour Operators MarginSchemeConverting foreign currencies into sterling for VAT purposes is slightly different if you are using The Tour Operators Margin Scheme (TOMS).If any of the supplies that you buy in order to resell as TOMS supplies are billed to you in a foreign currency, youll normally need to convert the cost into sterling to work out your margin. 13. The Tour Operators MarginSchemeYou must use one of the following five methods to convert to sterling:The Federation of Tour Operators base rate as published in the Financial Times, applying the rate at the time your supplier costed the goods or servicesThe commercial rate of exchange current at the time the supplies in your brochure were costedThe rate published in the Financial Times on the date you pay for the suppliesThe rate of exchange that applied when you bought the foreign currency that you used to pay for the suppliesThe period rate of exchange for the time when you paid for the supplies 14. The Tour Operators MarginSchemeYou must keep documentary evidence relating to the purchase of the currency to show which rate you have used.Once you have decided which method you want to use, you will only be allowed to change to a different method at the start of your next financial year - that is, no later than the due date of your first VAT return for that financial year. You wont be able to change the method retrospectively. 15. FormalitiesAll the information provided is for informational purposesonly and you should seek specialist personalised advice asrequired. As such, we accept no liability for the actionstaken by the readers of this slideshow.All information was provided by Business Link and iscovered by Crown Copyright.All information is available as shown below: BusinessLink (2012) Foreign currency transactions and VAT. Available at:http://www.businesslink.gov.uk/bdotg/action/layer?r.i=1083245693&r.l1=1079717544&r.l2=1087348553&r.l3=1087348570&r.l4=1083245578&r.s=sc&r.t=RESOURCES&topicId=1083245578 [Accessed: 29th 16. THE END - THANKS FOR COMINGFor more information, Twitter: @JasonCates SlideShare: slideshare.net/AdrJasonCates Visit BusinessLink.Gov.ukInformation fromBusiness Link

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