Currency Conversions under TOMS

[GG1]

Hi all,

I hope to hear your views on one issue relating to accountancy side of the small business I run.

The company operates under TOMS. We organize conferences for business clients from countries outside the EU, and most often get paid in Euro and USD. When issuing our invoices we set, as I understand it is, a commercial rate of exchange, which is around 10% greater than the rate on the day of issuing.

For example, if the cost of all inclusive one week stay for one client is £3450, and current rate for Euro is 1.12 (which equals to 3864 Euro) – I would put the amount on the invoice 3864 x 1.1 = 4250 Euro.

They have a choice, but majority of the clients make their payments either in Euro, or USD, as these are most commonly held currency accounts. Very few clients have accounts in British pounds.

We add that 10% for the purpose not to lose on the currency fluctuations, as it may be a few weeks, or even months until the payment is received. As a relatively small business we can't afford any type of losses.

The questions are:
1) What sales figure do we account for when doing our VAT returns? So far I've been accounting on £3450 sales figure, although the actual converted to GBP payment we receive is nearly always larger than £3450.
I could give a proof of accounting by this method by quoting from HMRC website (can supply a link):

"Advance invoices must therefore be in sterling for VAT purposes, and those sterling amounts will be what you'll have to enter into your VAT records. You can also show your invoice amounts in a foreign currency, but you'll have to make it clear that for VAT purposes, the value of the supply is the sterling figure, and is not a conversion of the foreign currency amount".

2) Sometimes, the conversion of the foreign currency amount to sterling could come up to £500 larger than £3450. Is this treated as a gain on difference in exchange rates? Is it VATable?
Here I can say that on several occasions we actually incurred a loss to the original amount, although 10% seemed to be sufficient.

3) As the pound hasn't been the most stable currency for the last several months, we set the price for one of our recent conferences in Euro. What will be the base value in GBP for VAT purposes?
I would probably not choose this base value to be the amount of Euro converted to GBP on the day of payment, if I had a choice. This would exclude the possible gain we could show as the gain on currency rate fluctuations.
Can it be the actual converted to GBP amount on the day of payment, minus 10%?

…minus 15% J

I would very much want to hear the view of professionals on the above.


Thanks in advance.

Andy

[accountantpete]

Off the top of my head GG1 I would deal with the vat reporting aspects purely on invoiced amounts - currency gains/losses will of course be posted to the profit and loss- and are not vatable but are taxable.

Also all vat reporting should be based on the invoice date - not the date of receipt.

Hopefully a vat expert will come along and give a far better answer than me.