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Accounts and bookkeeping in USD - Filing VAT issue

Accounts and bookkeeping in USD - Filing VAT issue

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I have a potential new company that reports it’s UK company accounts in USD, and the bookkeeping and banks are in USD. 

The company is VAT registered.

When submitting a vat return through MTD what is the best way to convert from USD to Sterling and stay within MTD guidelines? 

I'm guessing export from the bookkeeping software to a spreadsheet, then use one of these 3rd party upload apps to HMRC? Anything out there better than that? 

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16th May 2019 11:55

Just use the UK market selling rate at the time of sale.

Or use HMRC published rates.

https://www.gov.uk/government/collections/exchange-rates-for-customs-and...

should be able to show the £ conversion as well as $ on the sales invoices on your accounting software. So set up the account in £ but choose the invoice currency as $.

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16th May 2019 11:59

According to MTD rules, you need to submit the VAT return based on the original accounting records which for VAT purposes will be in sterling. From VAT guidance:

"...all purchases or sales must be converted into sterling for VAT purposes. You must carry out this conversion when you record the transaction in your VAT accounts, so they show the transaction in sterling."

This is the data you need to aggregate and submit for VAT purposes. So submitting VAT records from a non-sterling set of books is probably not compatible with MTD.

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to Tim Vane
16th May 2019 12:04

From the digital records perspective, however, the records can all be created at any time before the filing date and before the actual submission date. Hence at some point the OP can convert all of the transactions at that day's rate to GBP and then generate the Vat return figures.

That strikes me as the easiest way of doing this rather than doing the figures every day. In any event exchange rates move during the day so this might be better than a daily update.

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to johnhemming
16th May 2019 13:23

Sure, if by easy you mean wrong.

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to Tim Vane
16th May 2019 14:35

Tim Vane wrote:

Sure, if by easy you mean wrong.


OK. So what is wrong with my analysis. I accept that I might be wrong, but you should identify the rules that say I am wrong without just asserting that I am.

I don't think there is any doubt that the digital records for vat only have to be created before the dates specified in my response.

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By Matrix
to johnhemming
16th May 2019 20:22

Where does it say that you use just the one exchange rate for the quarter?

Also what has this got to do with MTD? What was everyone doing before, sorry this is just a general question...

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to Matrix
16th May 2019 20:25

"...all purchases or sales must be converted into sterling for VAT purposes. You must carry out this conversion when you record the transaction in your VAT accounts, so they show the transaction in sterling."

If you do that on one day and potentially using the clipboard or conversion software in a a few hundred micro seconds then the rate would be constant.

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By Matrix
to johnhemming
16th May 2019 21:18

But I fail to see that a quarterly rate would be compliant:

https://www.gov.uk/guidance/foreign-currency-transactions-vat-and-tour-o...

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to Matrix
16th May 2019 21:27

I think the difficulty lies with this particular phrase
"You must carry out this conversion when you record the transaction in your VAT accounts, so they show the transaction in sterling"

When is that? With MTD digital records it can be any time before filing.

It probably needs an analysis of the relevant statutory instruments. I can see, however, that there is an assumption in the page linked which essentially assumes daily rates and a date assumption in the rules on creating digital records that allows them to be created after the end of the period.

Only one of these two approaches can be true.

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By Matrix
to johnhemming
16th May 2019 21:33

Just because the VAT records can be created on a day after the end of the VAT period does not mean that the entry in the VAT account is converted using a single exchange rate.

MTD makes no change to the figures, it is just a new way to submit the figures. The recording of the VAT in the VAT account has not changed regardless of how or when it is recorded.

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to Matrix
16th May 2019 21:57

"...all purchases or sales must be converted into sterling for VAT purposes. You must carry out this conversion when you record the transaction in your VAT accounts, so they show the transaction in sterling."

The question, of course, is what rate(s) to use.

The guidance page says:
How you convert foreign currency transactions into sterling
There are 2 standard ways to convert your foreign currency transactions into sterling for VAT purposes. You can use the:

UK market selling rate at the time of the supply. The rates published in national newspapers are acceptable.
Exchange rates published by HM Revenue and Customs (HMRC). This is known as the ‘period rate of exchange’. The advantage of this method is that you can use the same rate for an entire period, usually a calendar month, but you should check to see if there have been any adjustments within the period.
You 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 supplies, you must make a note of the details in your records. You don’t need to tell HMRC. However, if you change your mind at a later date you must get agreement from HMRC.

The rate you use for commercial purposes
If you don’t want to use either of the standard rates you can use a different method for your calculations. But you must get approval from HMRC if you want to use it for VAT accounting.

HMRC will consider:

whether your proposed rate or method is based on the UK currency market
whether the rate can be verified impartially
how often you will update the rate

That does seem to indicate that a period rate could be used for the quarter.

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to johnhemming
17th May 2019 07:11

Having re considered this, therefore, it seems clear that

The VAT accounts can be prepared prior to submission and could be prepared in a single process at the end of the period.

a) For a monthly vat return a single rate can be obtained from HMRC's period lists and used for the whole of the period.

b) For a quarterly vat return the simplest solution would be to take the three period rates and do a calculation for each month using the relevant period rate.

It strikes me that HMRC could be asked if they were happy to use a single rate for the quarter, but given that b) is quite easy anyway that might be the best approach.

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By Bobbo
to johnhemming
17th May 2019 13:57

I see we're conveniently ignoring this section of the guidance previously linked in this thread:

". If UK VAT is due on the transaction your invoices must also show the following in sterling:

the total net value of goods and services at each VAT rate
the amount of VAT, if any, at each rate"

So there's no need to fuss about whether you can use one rate for a quarter because you've already calculated the sterling VAT on every single invoice... right?

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to Bobbo
17th May 2019 14:26

HMRC do, however, publish the May period rate in April (for example).
https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

So for monthly VAT returns you can get the exchange rate in advance.

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16th May 2019 12:45

We are looking at this with a client. QuickBooks seems to half give you reports in the base currency but includes some weird numbers. Spreadsheet to spreadsheet is the best we could come up with

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By johnt27
17th May 2019 11:39

Does your potential client report management information in USD regularly or just at year end?

You don't mention what system your client currently uses, but QBO, Xero, Sage etc all have the ability to transact in USD and convert to GBP. That would result in reporting being in GBP, but you can use something like Spotlight Reporting to convert back to USD. They use xe.com rates (same as Xero) on either an average or month end basis, minimising discrepancies.

It's convoluted but may well be better to report this way that try to mess with exchange rates/transactions in a spreadsheet.

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