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VAT values and exchange rates

Can VAT be adjusted after a foreign currency invoice is paid

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A foreign company invoices for an amount in dollars, e.g. $12,000. The invoice is submitted to us through a UK, VAT registered company. On the invoice the Amount is stated in dollars, and also a breakdown in sterling showing the VAT, by using the relevant exchange rate e.g. $12,000 @1.2 = £10,000. This is then split into £8,333.33 + £1666.67VAT. I believe this is all correct and follows the rules.

When the $12,000 is paid, it will always be a different sterling amount. Does this currency difference (plus or minus) have to be taken by the company or can part of it be offset as a change in the VAT amount. Using the example above, if we ended up paying £10,120 to pay off the $12,000 invoice because of the difference in exchange rate, is some of the £120 extra classed as extra VAT?

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Teignmouth
By Paul Scholes
28th Nov 2016 15:21

Hi - there's no relief for exchange losses or extra VAT on exchange gains.

The UK VAT is fixed at invoice, ie at the tax point and your invoice must state the Sterling amount of the VAT. This applies whether you are invoice or cash accounting.

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

and 5.10/5.11 for cash accounting:
https://www.gov.uk/government/publications/vat-notice-731-cash-accountin...

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Replying to Paul Scholes:
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By paul.tsa
28th Nov 2016 16:22

Thanks Paul, I thought that would be the case.

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Replying to Paul Scholes:
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By dutair
17th Mar 2019 11:28

Hi Paul

Does the invoice have to have the Sterling VAT on it when it arrives or can the recipient add this information by using a permitted exchange rate?

What if the supplier will not add Sterling VAT to their invoice (disregarding the law entirely)?

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Replying to dutair:
Psycho
By Wilson Philips
17th Mar 2019 12:27

The law is clear. Everything on the invoice, including VAT, can be in foreign currency. But the VAT amount must (also) be shown in Sterling. If it doesn’t it’s not a valid VAT invoice and HMRC could reject a claim. Whether they would do so would depend on circumstances and amount.

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Replying to Wilson Philips:
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By dutair
17th Mar 2019 14:12

So I have to get the supplier to re-issue the invoice with the VAT also shown in Sterling, and if they won't I should only record the Net in Box 7 (purchases within the scope of VAT).

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Replying to dutair:
Teignmouth
By Paul Scholes
18th Mar 2019 11:17

That's right but you'd include the total cost in box 7 as that's the cost to you, ie you wouldn't be able to claim the VAT.

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By dutair
18th Mar 2019 16:00

That was the conclusion I reached too. However my accountant says that I can convert the dollars to GBP using the HMRC period rate and scribble a note onto the invoice.

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Replying to dutair:
Psycho
By Wilson Philips
18th Mar 2019 16:13

What your accountant has advised might be a practical approach to the problem - but it doesn't get rid of it. But as I said above, whether or not HMRC would take issue would depend to a large extent on the amounts involved.

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By dutair
18th Mar 2019 16:16

It's around £100 and it's just one invoice. I don't know if HMRC think that's a lot or little.

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Replying to dutair:
Psycho
By Wilson Philips
18th Mar 2019 16:20

In which case I'd follow your accountant's advice.

(But tell your supplier to get it right next time.)

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Teignmouth
By Paul Scholes
18th Mar 2019 17:13

Ditto

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