Paying VAT when you invoice in Euros

[psychocandy]

Assuming the VAT is paid in Sterling (sadly my accountant is being a bit vague on this)?

If I say, invoiced for 5000E net (6000E gross), what conversation rate do I use to convert this to Sterling for VAT purposes for my VAT return? Thing is I've got two business accounts so after I receive the Euros it could sit in my Euro account for a while so I don't convert it immediately upon receipt.

I'm flat rate VAT registered which makes it slightly easier but, I still need to know the sterling equivalent total of my invoice, dont I? Is there, for example, an official rate to use on 30th June or something? (and other months)

This time I provided copy of invoice (in euros), copy of bank statement showing it being converted to sterling account on same day. Total sales listed is a bit different to what I actually recieved when I converted it which makes me think an official rate for 30th June was used? Strange thing is though Net VAT isnt quite 13.5% of this total listed either. Not far out but its xx.33 when I calculate it as xx.86?

Yes, I know I'm anal but its MY vat return and I want to understand how it works and not take the accountants word for it.

[mooshld]

Assuming the VAT is paid in Sterling (sadly my accountant is being a bit vague on this)?

If I say, invoiced for 5000E net (6000E gross), what conversation rate do I use to convert this to Sterling for VAT purposes for my VAT return? Thing is I've got two business accounts so after I receive the Euros it could sit in my Euro account for a while so I don't convert it immediately upon receipt.

I'm flat rate VAT registered which makes it slightly easier but, I still need to know the sterling equivalent total of my invoice, dont I? Is there, for example, an official rate to use on 30th June or something? (and other months)

This time I provided copy of invoice (in euros), copy of bank statement showing it being converted to sterling account on same day. Total sales listed is a bit different to what I actually recieved when I converted it which makes me think an official rate for 30th June was used? Strange thing is though Net VAT isnt quite 13.5% of this total listed either. Not far out but its xx.33 when I calculate it as xx.86?

Yes, I know I'm anal but its MY vat return and I want to understand how it works and not take the accountants word for it.

HMRC publish the rate you are supposed to use.

HM Revenue & Customs

Hope this helps.

[psychocandy]

HMRC publish the rate you are supposed to use.

HM Revenue & Customs

Hope this helps.

Ah. I understand now. Thanks.

I'm assuming the date on your invoice dictates which months rate should be used?

Makes a difference whether your invoice date is for last day of month in which services were provided or first day of next month I guess as to which rate is used. I'm assuming its up to you as a company when you choose to issue the invoice?

Advantage of issuing on the 1st is that it potentially means you dont have to pay the VAT back for a further 3 months? Is that right?

Only problem for me is that I invoiced on 1st July and exchange rate for Euro for July that HMRC are using is poor. What I'll end up paying VAT on will be a lot more than I get in Sterling but I guess it evens out over time.

[ASB]

Ah. I understand now. Thanks.

I'm assuming the date on your invoice dictates which months rate should be used?

Makes a difference whether your invoice date is for last day of month in which services were provided or first day of next month I guess as to which rate is used. I'm assuming its up to you as a company when you choose to issue the invoice?

Advantage of issuing on the 1st is that it potentially means you dont have to pay the VAT back for a further 3 months? Is that right?

Only problem for me is that I invoiced on 1st July and exchange rate for Euro for July that HMRC are using is poor. What I'll end up paying VAT on will be a lot more than I get in Sterling but I guess it evens out over time.

This might help with the timing thing.

HM Revenue & Customs: Foreign currency transactions and VAT

You have the choice as to whether you use daily or period rates, but you should be consistent. But yes, it's swings and roundabouts - obviously the value involved is that at the point of supply. [Personally I switched to the period rates after an inspection at the advice of the inspector, there wasn't a problem but they did want to check all the rates I'd used so it was a bit of a pain justifying them after the event]

You are also supposed to put the value of goods and vat in sterling on the invoice. (Not that I ever bothered).

I'm slightly curious as to why VAT is involved, obviously you could be supplying somebody in the UK and just happen to be billing in Euros. Equally you could be supplying individuals (or a customer for whom you don't have a TVA number) in EU. In most other cases VAT would not be applicable.

[psychocandy]

This might help with the timing thing.

HM Revenue & Customs: Foreign currency transactions and VAT

You have the choice as to whether you use daily or period rates, but you should be consistent. But yes, it's swings and roundabouts - obviously the value involved is that at the point of supply. [Personally I switched to the period rates after an inspection at the advice of the inspector, there wasn't a problem but they did want to check all the rates I'd used so it was a bit of a pain justifying them after the event]

You are also supposed to put the value of goods and vat in sterling on the invoice. (Not that I ever bothered).

I'm slightly curious as to why VAT is involved, obviously you could be supplying somebody in the UK and just happen to be billing in Euros. Equally you could be supplying individuals (or a customer for whom you don't have a TVA number) in EU. In most other cases VAT would not be applicable.

OK. Need to look into this. So is point of supply month work is done (based on monthly invoicing) or date invoice is submitted? (e.g. invoice on 1st July for work done in June).

Was'nt aware that Sterling rate needed to go on invoice. I did run my first invoice past my accountant and he never mentioned this. (I guess it would make things easier).

Invoice goes to my agency who are a UK company, thus the need for VAT. Reason I get paid in Euros is because my rate is quoted in Euros. End client is a French company who apparently aint interested in bothering with Sterling.

I would imagine since the agency get paid by the end client in Euros they'd rather pay us poor contractors in Euros and let us lose out exchanging it. Personally, I cant see why the contract between agency and client cant be in euros, but mine between my company and agency (both uk companies) cant be in sterling.

[ASB]

OK. Need to look into this. So is point of supply month work is done (based on monthly invoicing) or date invoice is submitted? (e.g. invoice on 1st July for work done in June).

Invoice date

Was'nt aware that Sterling rate needed to go on invoice. I did run my first invoice past my accountant and he never mentioned this. (I guess it would make things easier).

Well, it's what the rules say. As I say I never bothered, and din't have any problems. Personally I think that quoting sterling equivalents would only confuse the issue, especially since rates constantly fluctuate.

Invoice goes to my agency who are a UK company, thus the need for VAT. Reason I get paid in Euros is because my rate is quoted in Euros. End client is a French company who apparently aint interested in bothering with Sterling.

It might be worth reviewing the place of supply rules. They have changed since they were last relevant to me so I can't be certain.

HM Revenue & Customs: How to work out your place of supply of services for VAT

The general rule would say that the place of belonging of the customer (agency) is the UK and UK vat is therefore chargeable. However if the construction of the contract chain is such that the agency is an an intermediary (in HMRC terms) then the place of supply would be the intermediaries place of belonging (likely france) in which case it may be outside the scope of VAT. I suggest a call to HMRC. (see special rules in the link).

I would imagine since the agency get paid by the end client in Euros they'd rather pay us poor contractors in Euros and let us lose out exchanging it. Personally, I cant see why the contract between agency and client cant be in euros, but mine between my company and agency (both uk companies) cant be in sterling.

It could. But then the agency will be exposing themselves to currency risk and would need to price that into their margins. This is simply a commercial decision on their part. In a similar position to you I have agreed rates in both the foreign currency and in sterling dependant on my view of the prospects for the remote currency and the agencys willingness to negotiate.

[psychocandy]

This might help with the timing thing.

HM Revenue & Customs: Foreign currency transactions and VAT

You have the choice as to whether you use daily or period rates, but you should be consistent. But yes, it's swings and roundabouts - obviously the value involved is that at the point of supply. [Personally I switched to the period rates after an inspection at the advice of the inspector, there wasn't a problem but they did want to check all the rates I'd used so it was a bit of a pain justifying them after the event]

You are also supposed to put the value of goods and vat in sterling on the invoice. (Not that I ever bothered).

I'm slightly curious as to why VAT is involved, obviously you could be supplying somebody in the UK and just happen to be billing in Euros. Equally you could be supplying individuals (or a customer for whom you don't have a TVA number) in EU. In most other cases VAT would not be applicable.

OK. Been reading the HMRC stuff. Yeh, you're right I should have been putting Sterling amounts on the invoice. I know the invoices have gone off now to the agency but wonder if it acceptable to amend my copies?

Not sure how it works if you use cash accounting though? Surely, if the VAT is based on when you recieve the payment then when you invoice you dont really know what the rate will be when you recieve it? Or doesnt that matter?

Seen the bit about using daily rates too. Although I guess it gets a bit complicated if you cash accounting cos you've got to remember to check the rate when the money arrives (unless you can find a historical daily rate).

Again, I did ask my accountant what the issues were with euro invoicing in general and with regards to VAT.

[psychocandy]

It might be worth reviewing the place of supply rules. They have changed since they were last relevant to me so I can't be certain.

HM Revenue & Customs: How to work out your place of supply of services for VAT

The general rule would say that the place of belonging of the customer (agency) is the UK and UK vat is therefore chargeable. However if the construction of the contract chain is such that the agency is an an intermediary (in HMRC terms) then the place of supply would be the intermediaries place of belonging (likely france) in which case it may be outside the scope of VAT. I suggest a call to HMRC. (see special rules in the link).

Hmm. Interesting. I think its UK because all the work I do is in the UK for Client XYZ UK Ltd. It just happens that its a large european company whos head office is in France.

I will check but I guess that otherwise everyone who worked for a client who wasnt 100% british owned would have the same problem.

[ASB]

OK. Been reading the HMRC stuff. Yeh, you're right I should have been putting Sterling amounts on the invoice. I know the invoices have gone off now to the agency but wonder if it acceptable to amend my copies?

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

Not sure how it works if you use cash accounting though? Surely, if the VAT is based on when you recieve the payment then when you invoice you dont really know what the rate will be when you recieve it? Or doesnt that matter?

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.

[ASB]

Hmm. Interesting. I think its UK because all the work I do is in the UK for Client XYZ UK Ltd. It just happens that its a large european company whos head office is in France.

I will check but I guess that otherwise everyone who worked for a client who wasnt 100% british owned would have the same problem.

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).