One of the biggest "grey areas" for UK based exporters is how to account for VAT on an invoice in a foreign currency. The information below gives an overview of one simple method, however you must seek independent advice (for further information look at the HM Revenue and Customs website at http://www.hmrc.gov.uk).

The rules to issuing invoices in a foreign currency and the UK VAT requirements are not complicated, but must be adhered to:

1. If you issue a VAT invoice in a foreign currency, you must convert all values for VAT into sterling (£GBP).
2. The exchange rate used for conversion into £GBP must be as published by HMRC. Each exchange rate changes each month, and at times the rate is varied during a calendar month. A full table of exchange rates is listed on the HMRC website at:

   HMRC Exchange rates

3. The amount of the invoice (in £GBP) is entered on your Quarterly VAT return, and if for goods, will be included on your EC Sales List form that you must also complete for VAT purposes.

Tip: Take a print-out each month of the HMRC exchange rates to add to your VAT file. Also, create a spreadsheet to track your foreign currency sales invoices, with the associated foreign exchange rate and any other information (e.g. buyers VAT number, bank transaction charges etc). This will ensure that you can track all sales, have a well documented paper-trail and ensure you can check the profitability of each deal and customer.

A full explanation of the HMRC VAT requirements are available on-line. The contents page is hyperlinked for easy navigation, and the section that deals with VAT invoices starts at chapter 16. Click here to go to the website page: