Monthly exchange rates 2021 by HMRC

You may use the monthly exchange rates published by Her Majesty Revenue and Customs (HMRC) to translate your foreign currency transactions into Pound Sterling (GBP) for your VAT, corporation tax and company accounts.

2020 and 2021 exchange rates

2020 HMRC monthly exchange rates2021 HMRC monthly exchange rates
January 2020January 2021
February 2020February 2021
March 2020March 2021
April 2020
May 2020
June 2020
July 2020
August 2020
September 2020
October 2020
November 2020
December 2020
Source: HMRC

Translate foreign currency transaction into GBP for VAT

Say you bought an equipment from Malaysia for Ringgit Malaysia 55,000 on 31 December 2020. You settled the invoice on 8 January 2021. The exchange rate on 31 December 2020 from Ringgit Malaysia to Pound Sterling was 5.4369 and the rate on 8 January 2021 was 5.4683.

For accounting purposes, to record the purchase of the equipment based on the invoice received on 31 December 2020 are as follows:

DebitCredit
Equipment£10,116.06
Trade Creditor£10,116.06
Purchase of equipment from Malaysia (MYR55,000 @ ex rate 5.4369)

Double entries based on the payment to settle the invoice for the purchase of the equipment on 8 January 2021 are as follows:

DebitCredit
Trade Creditor£10,116.06
Bank£10,057.97
Gain on foreign currency£58.09
Payment made to Trade creditor in Malaysia re: equipment (MYR55,000 ex rate @5.4683)

If you are reporting your VAT using the cash accounting scheme then you would report £10,057.97 in your VAT return. Otherwise, you report £10,116.06 under the standard VAT scheme which is based on accruals basis.

Foreign currency transactions in your company accounts

Besides, translating and reporting your VAT transactions to HMRC correctly, when comes to preparing your company accounts for Companies House, you must also include an accounting policy note in your company accounts relating to foreign currency transactions. This is required under the Financial Reporting Standard (FRS) 102.

an example of an accounting policy on foreign currency transactions can be as follows:

Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate at the date of transaction. Exchange rate differences are taken into account in arriving at the operating result.

Another important document you must submit to Companies House is the Confirmation Statement.

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