Paying VAT when you invoice in Euros

[psychocandy]

If I were in that position I would ask my vat office for guidance.



When you receive the payment make no difference to the rate to be applied.

Say you raise an invoice for 2000 with 400 vat on top. At the date of invoice (or the month if using period rates) then the rate happens to be 2. In this case the value for VAT purposes is £1000 and the vat is £200. Now, when the invoice gets paid the rate is 1.5. What you actually receive is 2400 /1.5 = £1,600.

So, what you have is £1000 of sales, a now crystallised vat liabilty of £200 and a profit of £400 (this is simply profit as a gain from foreign currency fluctuations, it could of course have been a loss if rates had moved against you).

If you happened to be on the flat rate scheme the I imagine the situation would be different and you would be in the position where you had applicable turnover for the flat rate scheme of £1600.

But if you use cash accounting, doesnt the date of payment count as the tax point? Similarly even if youre on flat rate.

[psychocandy]

It's not about who the client is. It is about whether the UK entity is classed as an intermediary for these purposes (unlikely). It is also about exactly what services are being supplied (very unlikely), there are some services mainly related to electronic delivery, property management, auctioneering, vehicle rental which are treated differently.

In your situation as described it is very unlikely that you should not be charging UK vat to the UK entity you are invoicing, but it is possible.

I used to find my vat office very helpful in this area, though in the main I was invoicing foreign companies directly (which gives rise to yet more different VAT related issues).

Yeh. I will check.

[ASB]

But if you use cash accounting, doesnt the date of payment count as the tax point? Similarly even if youre on flat rate.

I understand why you say that. I have tried to find a definitive clear statement but unfortunately can't.

If you use cash accounting that does NOT affect the tax point. What it does is affect is when you need to pay vat. These are two different things.

As mentioned you are supposed to give the sterling equivalent of the goods/service and the vat thereon. If the tax point change as a result of the payment (i.e. it became the payment date) then you would not be able to do this - it would not be known. There has to be a peg in the ground. [a comparison might be when vat rates changed, did invoice raised suddenly become liable to 20% vat simply because payment was made after the vat rate went up? - This is a slightly erroneous comparison but is only intended to be illustrative].

A further point is that the reason for having to put the sterling equivalent is that these are the values that should be used when the invoicee is supposed to be in the UK. Not doing this would open up all sorts of fraud attempts.

These may help validate my view:-

HM Revenue & Customs (section 2.6)

http://www.accountingweb.co.uk/item/196070

Of course you should not take my view as gospel; but it may help you validate what your accountant says or at least help with any queries you may have as a result of their advice.

[SueEllen]

I understand why you say that. I have tried to find a definitive clear statement but unfortunately can't.

If you use cash accounting that does NOT affect the tax point. What it does is affect is when you need to pay vat. These are two different things.

As mentioned you are supposed to give the sterling equivalent of the goods/service and the vat thereon. If the tax point change as a result of the payment (i.e. it became the payment date) then you would not be able to do this - it would not be known. There has to be a peg in the ground. [a comparison might be when vat rates changed, did invoice raised suddenly become liable to 20% vat simply because payment was made after the vat rate went up? - This is a slightly erroneous comparison but is only intended to be illustrative].

A further point is that the reason for having to put the sterling equivalent is that these are the values that should be used when the invoicee is supposed to be in the UK. Not doing this would open up all sorts of fraud attempts.

These may help validate my view:-

HM Revenue & Customs (section 2.6)

http://www.accountingweb.co.uk/item/196070

Of course you should not take my view as gospel; but it may help you validate what your accountant says or at least help with any queries you may have as a result of their advice.

WHS

You are required to put the sterling equivalent amounts and the exchange rate on the invoice. In addition you need record somewhere in your VAT accounting records where you got the exchange rate you are using from i.e. national newspaper and be consistent in using that source for all your invoices.

And yes you can get historical daily rates. However most of the sources give you bank rates not the tourist rate which you are allowed to use.

[psychocandy]

I understand why you say that. I have tried to find a definitive clear statement but unfortunately can't.

If you use cash accounting that does NOT affect the tax point. What it does is affect is when you need to pay vat. These are two different things.

As mentioned you are supposed to give the sterling equivalent of the goods/service and the vat thereon. If the tax point change as a result of the payment (i.e. it became the payment date) then you would not be able to do this - it would not be known. There has to be a peg in the ground. [a comparison might be when vat rates changed, did invoice raised suddenly become liable to 20% vat simply because payment was made after the vat rate went up? - This is a slightly erroneous comparison but is only intended to be illustrative].

A further point is that the reason for having to put the sterling equivalent is that these are the values that should be used when the invoicee is supposed to be in the UK. Not doing this would open up all sorts of fraud attempts.

These may help validate my view:-

HM Revenue & Customs (section 2.6)

http://www.accountingweb.co.uk/item/196070

Of course you should not take my view as gospel; but it may help you validate what your accountant says or at least help with any queries you may have as a result of their advice.

Ta for the help. I see what you mean.

So all cash accounting does is protect you from having to pay VAT on something you aint had the cash in for yet?

Must admit I'm bemused as to why my accountant never told me to add Sterling to my Euro invoice? I asked him about this and he just said do it in Euros.

[psychocandy]

WHS

You are required to put the sterling equivalent amounts and the exchange rate on the invoice. In addition you need record somewhere in your VAT accounting records where you got the exchange rate you are using from i.e. national newspaper and be consistent in using that source for all your invoices.

And yes you can get historical daily rates. However most of the sources give you bank rates not the tourist rate which you are allowed to use.

OK. Ta.

Can I retrospectively change my invoice?

[SueEllen]

Ta for the help. I see what you mean.

So all cash accounting does is protect you from having to pay VAT on something you aint had the cash in for yet?

Must admit I'm bemused as to why my accountant never told me to add Sterling to my Euro invoice? I asked him about this and he just said do it in Euros.

That's because he was too lazy to check the rules.

You are responsible to do your VAT right for your company.

I suggest you send a polite note to your accountant telling concisely what you have found and remind him you pay him for advice and guidance.

[SueEllen]

OK. Ta.

Can I retrospectively change my invoice?

You can re-issue invoices.

As long as you make a note of why you did it in your records and show clearly that you aren't trying to commit fraud.

[psychocandy]

You can re-issue invoices.

As long as you make a note of why you did it in your records and show clearly that you aren't trying to commit fraud.

I have to physically re-send to the customer? Even though they've been paid.

[psychocandy]

That's because he was too lazy to check the rules.

You are responsible to do your VAT right for your company.

I suggest you send a polite note to your accountant telling concisely what you have found and remind him you pay him for advice and guidance.

Yeh. Cant see me and current accountant having a long term future.