So I have a question surrounding purchase invoices and postponed VAT accounting and Exchange Rates.
So I have an EU purchase invoice from a supplier.
We ordered /purchased the goods in January 2021, we paid the supplier for them in March and the customs declaration was made by a customs agent also in March 2021.
The supplier invoice was in Euro’s.
We paid for the goods using an currency exchange company, so we got a spot rate on the day and they paid the supplier within 2 hours of us agreeing the spot rate.
The way that process works is that you tell exchange company the amount of Euro’s you wish to pay (invoice value) on the day and they give you sterling figure to transfer to them based on an agreed exchange rate/spot rate.
They transfer the directly to your supplier for you.
I have tagged the amount directly to the supplier invoice and set up the ’ currency exchange company’ as a sterling bank account in QF, so it all flows nicely from a paper trail persepctive.
So although my supplier invoice is in Euro’s we have inputted it into QF as sterling amount based on the above spot rate (amount we paid on the day). I know this is incorrect and should now follow the HMRC guidance.
Having read the HMRC guidance, they say that for postponed VAT accounting purposes you should use their published monthly exchange rate.
So here’s my question…
If I enter the purchase invoice into QF as sterling using the published exchange rates by HMRC using the date on the invoice (say 10th of Jan 2021) then pay my supplier 2 months later (say 10th of March) at a different exchange rate, how do we account for that rate difference between the HMRC rate and the actual rate we paid, when factoring in that we used a currency exchange service instead of a Euro bank account.
Currently we have a difference between QF and HMRC declaration regarding import VAT due to the above.
So example of this would be…
Supplier Invoice Amount = 2720.44 Euros
HMRC Published Exchange Rate Jan 2021 = 1.1075
Supplier Invoice Value based on HMRC rate = £2456.38 (inputted correctly into QF at this value)
Exchange Service Sent 2720.44 to supplier
Exchange Rate 1.15533
Sterling Amount = £2363.17
Difference between £2456.38 - £2363.17 = £93.21
We have applied the ‘postponed VAT accounting’ rules in QF to the aforementioned supplier invoices.
Many thanks in advance for your help and guidance. Simple layman’s explanations would be very helpful.