Which exchange rate is acceptable to HMRC?

[André]

I purchased some design services from a contractor in India who charged me in USD.

Correct me if I'm wrong, but I think for HMRC purposes I'm supposed to convert the amount to GBP using a 'standard' exchange rate rather than whatever my credit card provider used.

I notice that HMRC publish monthly exchange rates for "customs & VAT purposes" but I don't understand how they can possibly be accurate given that they appear to be published up to a month in advance.

Should I use HMRC's published rates or can I use the daily rates published on xe.com? I'd rather not use ft.com because they charge to see historical rates.

 

[SteveHa]

Provided you remain consistent and can defend your source, you can use any established source for the exchange rate.

 

[André]

Hello SteLacca

Thank you for your reply.

Do you have a particular favourite source that you could recommend?

 

[MyAccountantOnline]

...
I notice that HMRC publish monthly exchange rates for "customs & VAT purposes" .....

That's what I always use.

 

[SteveHa]

I used to use Oanda, though they seem to have switched to a pay only model, now. More recently I've tended to use poundsterlinglive.com for exchange rates across different taxes. (takes a bit of scrolling at first, but you can get to the spot rate on any chosen date).

 

[André]

I've tended to use poundsterlinglive.com

That's certainly a comprehensive source of exchange rate data! I think for my purposes I'll use the HMRC rates. Even though they seem to be less accurate (I'm guessing they publish a monthly average) it looks like you can use the same rate for a whole month, making life easier!

 

[SteveHa]

I'll use the HMRC rates.

For VAT that's what HMRC expect, though if truth be told, it's an HMRC directive rather than being enshrined in legislation, and any reasonable method can be used. Nevertheless, the fact that HMRC use monthly averages makes it easier.

For direct taxes, it can often prove beneficial to use spot rates (though it will, of course, depend on the date of a transaction. I've used annual averages before today).

 

[André]

For direct taxes, it can often prove beneficial to use spot rates

I'm not VAT registered so perhaps I should look more closely at spot rates.

I've used annual averages before today

I'm amazed annual averages are allowed! Can you decide what to use (annual average/monthly average/spot rate) on a transaction by transaction basis or do you have to commit yourself to just one of these for, say, all transactions in a given financial year?

 

[UACU]

HMRC usually accept GBP£ to calculate or reasonable method.

 

[LiveNetworks Ltd]

Not sure there's anything to gain or lose in any approach.

If you're charged US$150 by the contractor and the CC company takes £120 then the job has cost you £120. If the HMRC exchange rate works out that the 'cost' is £100 then you've still got to account for £100 in sub contractors costs and £20 in Bank charges/fees/Exchange rate losses.

Allowable expenses are just that, not sure I'd get too bogged down in which box they go in.

 

[DontAsk]

I just use whatever I actually pay or receive in GBP.

When receiving payment, any difference from the invoice (e.g. bank fees) becomes a discount for that customer, all factored into the price.

No complaints so far.

 

[MikeJ]

If you've paid by credit card, then use what the credit card company charged you. That's what the cost was to the company.