I wondered if anyone was dealing with day to day multi currency transactions, and how they were handling this
My client sends out 40 invoices a month in various currencies (GBP, USD and Euro). These are then paid through Skrill or Neteller in USD or Euro. Both can then deduct fees, or send money to suppliers..
How does one even start to convert each transaction into GBP? I am trying to use transfers into the GBP bank account as a guide to the exchange rate, but its super tricky and long winded..
When I had a proper job many decades ago, we used to issue standard exchange rates at the beginning of each month that were used for all currency conversions. Differences in the actual transactions were posted to "Profit and Loss on Exchange" and treated as an overhead. This was a much bigger business than you're talking about, but it might help. I think we just set the rates by looking at published rates on the day we set them.
Worry not, its free unless you are using data feeds into your software (which is great for large scale daily processing of thousands of entries with Excel Macro's but total overkill for a client with under 500 invoices a year... That would work out between £1 and £8 in XE fee's per invoice! (fee's dependant upon the rate refresh frequency).
Just pulling out a rate for any currency on a given day is really easy... Also good for when your pricing up the beach front condo that you might be pondering from the rightmove site (been there, done that, estimate that I'm currently looking at a budget able to buy a fixer up project changing hut five miles inland in a war zone).
Anyway, hope that helps with finding historic rates,
laters.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
My client who buys in Euros & USD uses an exchange rate in Quickbooks which they set and then we post any difference in the actual transaction to exchange loss/gain. I'm lucky though as there aren't too many and now I have got them up to date they are only in the last month.
I find working with multi currencies laborious and long winded, whichever way you do it.
I always use the HMRC exchange rate tables for the month of invoice, then when the the payment is made I use the table for that month. These go back for years, and HMRC can't argue, if you use their rates (can they?)
This usually generates a gain or loss, as the rates fluctuate (slightly simpler if both are in the same month). In this case I do as John did, and post to an expense account, which in Sage is 7906 (I think).
Sage suggest raising a credit, or invoice as appropriate to the customer account using nominal code 7906.
I separate the transaction fee to an expenses account, using the exchange rate when the fee is taken.
Foreign currencies are simple to deal with. You invoice in whatever currency you are dealing with (remembering to translate any VAT into GBP) The payment received (always converted to GBP by the bank unless you have a currency bank account) dictates the final conversion rate. Any discrepancy is processed either as a currency adjustment or an adjustment to sales value, depending on how you choose to deal with it.
If you are dealing with a purchase, the value is whatever the conversion was at time of payment.
VAT is not an issue because you have...
1) provided your vat registration details so the transaction is zero rated.
2) decided that the value of the transaction is such that reclaiming VAT would cost more than it is worth.
3) registered for VAT in that country and you can reclaim VAT according to their rules (which may differ from ours)
My issue is not really the translation of currencies, its that I am dealing with a lot of transactions, and its very time consuming going through each one. Every GBP bank transfer is after the deduction of fees, so I am having to work out the exch rate using the transfer, then use that to convert the fee, then add the transfer to the fee to arrive at the sales figure. Not bad when there are one or two a month, but there are 45-50! They are not massive amounts either, so it feels my fees are actually higher than the value of these items, once I have finished! LOL
I am interested in what you said about converting the VAT into GBP - the client is preparing the invoices during the year, then I have to prepare an annual VAT return, and the accounts.
I notice that he invoices an IOM company in Euros, because that's what they pay in - he shows the VAT in Euros too, and I have been wondering if that was right? Can you show the UK VAT in Euro or USD?
I assumed as long as I calculate the correct VAT on the GBP bank receipt (which would be grossed up to account for any fees deducted), that things must work themselves out. I am not sure what the IOM company would use for it VAT claim. They will have thousands of transaction a month, so wouldnt be doing one transaction at a time, for sure!
If your accounting system does not deal with foreign currencies, why not set up a spreadsheet to do the conversion? All the standard calculations could be in the sheet and you just type is the GBP value and the currency value. Most UK banks charge a standard £20 for TT's or £12 for a normal international transfer and they should be detailed separately on the paperwork from the bank. Using this method should provide your posting document too, because you can add to the spreadsheet over the period.
As far as VAT is concerned, HMRC rules allow for any UK business to invoice in any currency but the value of VAT has to be stated in GBP on the invoice. You can just show the exchange rate used at time of invoice but I prefer to show the amount charged. That is the value of VAT that has to be returned to HMRC
I am using Neteller and Skrill activity spreadsheets so not quite as easy as banked income. They seem to be accounting for different exch rates dependent on which way the money is flowing. I'll have to have a think, and see if there is a way I can use a blanket formula on the sheets that the client sends.
Thanks for confirming the VAT has to be shown in GBP. The client uses annual accounting, on flat rate cash basis - just to make things fun LOL, but I agree that it makes sense to show the customer the VAT that you deem to be inclusive. The flat rate gets calculated on top of the gross income, which is why I am being extra careful about how I'm converting foreign currency in... though, a lot of it is from non VAT countries, thank goodness.
