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VAT on Foreign Currency Invoices within the UK

VAT on Foreign Currency Invoices within the UK

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A client receives and pays invoices in various currencies from suppliers within the UK.

The VAT guide (VAT700) makes it clear that the suppliers must show the sterling equivalents of the Net and VAT amounts on the VAT invoice.

What is apparently not mentioned is what the customer should do.

Does the customer need to record the sterling Net and VAT amounts from the invoice and use these on the VAT return? Or can he convert the currency amounts into sterling using the exchange rates that he uses for accounting purposes (provided that these comply with the provisions for acceptable currency conversion methods as detailed in VAT700)?

Having to record the VAT amounts separately in Sterling seems slightly onerous - is it really necessary? I have found one reference dating back to 1999 in VAT Notice 920 Para 2.2 to the need to do this for Euro invoices. Does this still apply? Is there a similar requirement for invoices in other currencies?

Any help on this would be much appreciated.
Jim Etherton

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By jimeth
19th Mar 2009 11:08

HMRC Don't update all the pages on their website
Richard,

Sadly, the page you quote doesn't appear up to date. It is consistent with VAT 700 (dated April 2002) but not with VAT700/21 (dated December 2007).

This is one thing that makes it so hard to work out what rules we should be complying with!

Certain rules on what constitutes a valid VAT invoice have changed but the main VAT Guide VAT700 has not been updated to reflect these changes. Even worse - there is nothing on the website pages based on VAT700 to indicate that there have been changes.

No wonder everyone gets confused!!!

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18th Mar 2009 19:47

Have a look at this
Hi Jim

Have a look at http://www.hmrc.gov.uk/vat/int-currency.htm where the relevant rule is spelled out and can be viewed by your client.

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By jimeth
18th Mar 2009 16:56

Thanks
David,

Thanks for that. I think that should give adequate explanation, even if the legislation and guidance does not spell things out as clearly as one might like.

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18th Mar 2009 12:47

References
The places to look for references are Schedule 6, Para. 11, of the VAT Act 1994. Notice 700 Para. 7.7 (which you've already looked at and which has force of law), and Reg 14 of the VAT regs 1995.

As far as I can see it doesn't give a single sentence which makes the statement you need however this would be my logic on the issue:
Now these are perhaps not as explicit as the client might like, but what Notice 700, Para 7.7 says is that for VAT purposes amounts must always be expressed as Sterling figures, what Sch 6 and the rest of 7.7 does is give you the options as to how an amount may be converted where it is expressed in a currency other than sterling.

Regulation 14 (1) requires that all UK issued VAT invoices should have a sterling value upon them. This means that although there may be mention of other currencies on a UK invoice it will for VAT purposes always be expressed in Sterling, and as such Sch 6, Para. 11, wont apply to that transaction and no conversion is necessary, or allowed.

As Richard says HMRC are always fairly keen on the idea that you cannot recover more VAT in relation to an invoice than is declarable to them on that invoice, and since the sterling amount writen on the invoice is what is due to HMRC that is the maximum that they will allow credit for.

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By jimeth
18th Mar 2009 11:12

Do you have references for this?
Richard,

Thanks for your response.

Yes the customer and suppliers are all within the UK. Do you have any references within HMRC Guidance or Legislation stating that the customer must use the Sterling figures which the supplier is obliged to put on the invoice? Although this appears to be the intention, the only reference I can find is the one given in my question, which applies only to Euro transactions, not other currencies.

As I am sure you will appreciate, clients somtimes need chapter and verse before they will accept that they have to do something!

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18th Mar 2009 09:30

Assuming that the customer is aslo in the UK
Hi Jim

Your question implies that the customer is aslo in the UK. Assuming this is correct they will have to convert ALL their VAT transactions into sterling in order to make their VAT returns. Most up-to-date accounting packages should allow the VAT amount to be adjusted when invoics are entered.

The rules state that the buyer must use the seller's sterling figures, which as you rightly say should be shown separately on the invoice. This is so that there is no difference between the amount paid over by the seller and the amount claimed back by the buyer, either inadvertently or fraudulently.

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