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.

VAT tax point

The VAT tax point or time of supply is the date the VAT on the goods you supply and services you provide to your customers become collectable on behalf of and payable to HMRC. Your time of supply for each VAT transaction can vary depending on the situations.

SituationTax point
Where you have issued a VAT invoiceDate of Invoice
Where a VAT invoice is issued after 15 days of the date of supplyDate of supply took place
Where no invoice is issued or needed.Date of supply
Payment or invoice issued in advance of supplyDate of Payment or invoice (whichever is earlier)
Where payment received in advance and no VAT invoice issued yet.Date of Payment
source: HMRC

Your VAT return

Determining your tax point correctly allows you to record your VAT transactions correctly in your VAT return.

For example, if you are a kitchen supplier and installer, you usually issue invoices to your customers after installation is complete. For VAT return purposes, the date of supply is your tax point, not your invoice date.

VAT cash accounting scheme

If your business has joined the VAT cash accounting scheme, your tax point is always the date you received payments from your customers. If you are not using this scheme, generally you follow the situations guideline above to decide your tax point.

Other tax point rules

Further read about tax point rules, click here.

Companies House filings

Additionally, if your VAT registered business is a limited company, you must also deliver your company accounts and confirmation statement to Companies House promptly.

If you require any help with your VAT returns, feel free to contact our accountants, they will be more than happy to assist you.

Keep digital VAT records

VAT registered companies and businesses with sales of more than £85,000 must sign up and follow the Making Tax Digital (MTD) rules for VAT. You must keep digital VAT records afterwards.

VAT companies and businesses with sales less than £85,000 per year can sign up voluntarily. By 1 April 2022, It is compulsory for all VAT registered companies and businesses to enrol for the Making Tax Digital scheme.

VAT records to keep

Here are a list of digital VAT records you must keep under the MTD rules.

Your business details

For your business, you must keep your business name, address and VAT registration number.

VAT accounting scheme

You must have a record of any VAT accounting scheme you use. For example, the margin scheme, annual accounting scheme, cash accounting scheme and/or flat rate scheme.

Your sales records

The VAT on everything you sell, lease, transfer or hire out. In other words, the supplies you made.

Your purchases records

The VAT on goods and services you receive. For instance, everything you buy, lease, rent or hire. Put it simply, the supplies you received.

Adjustments on VAT returns

If you are or have made an adjustment to your VAT return, you must keep a detailed record of the adjustment.

The tax point

Your tax point can vary depending on the goods and services you buy and sell. The tax point is also known as the time of supply. Read more about the time of supply here.

Your VAT rate

The current standard VAT rate is 20%. some businesses charge different VAT rate on their goods and services. For example, businesses that sell baby clothing and footwear charge zero per cent on VAT.

Other transactions for VAT

  • reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
  • your total daily gross takings if you use a retail scheme
  • items you can reclaim VAT on if you use the Flat Rate Scheme
  • your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme

Companies House filings

Besides, complying and maintaining good digital VAT records and submitting your VAT return on time to HMRC, if your VAT registered business is a limited company, you must also deliver your company accounts and confirmation statement to Companies House promptly.

If you require any help with your VAT returns, company accounts and confirmation statement filing, feel free to contact our accountants, they will be more than happy to assist you.

File a VAT return under the Annual Accounting Scheme

There are special rules that apply to file a VAT return under the VAT Annual Accounting Scheme. This VAT Annual Accounting Scheme is suitable for businesses with a turnover of up to £1.35 million. If your turnover has exceeded this threshold, your business can stay in the scheme as long as your turnover does not go over £1.6 million significantly. Thereafter, your business must leave the scheme at the end of the annual accounting VAT Return year.

Even though you only require to file a VAT return under the Annual Accounting Scheme, you must pay your VAT by instalments. You can choose to pay quarterly or 9 monthly. You estimate the amount of VAT you expected to owe to HMRC at the end of your Annual Accounting VAT return period. Your VAT instalment payments must be paid by Direct Debit, Standing Order, bank transfer or by BACS.

Under this scheme, you complete your VAT return in the normal way for the VAT period.

How to complete and file a VAT Return under the Annual Accounting Scheme

Box 1VAT due in this period on Sales£100,000.00
Box 2VAT due in this period on EC acquisitions£0.00
Box 3Total VAT due (the sum of Boxes 1 and 2)£100,000.00
Box 4VAT reclaimed in this period on purchases£45,345.00
Box 5Net VAT to be paid to Customs or reclaimed by you (Difference between Boxes 3 and 4)£54,655.00
Box 6Total value of sales, excluding VAT£500,000
Box 7Total Value of purchases, excluding VAT£226,725
Box 8Total value of EC sales, excluding VAT£0.00
Box 9Total value of EC purchases, excluding VAT£0.00
Source: GOV.UK

How to fill in each box is explained

You will fill in Box 1 to Box 9 as you would normally do under the Standard VAT scheme except for Box 5.

BOX 5 – Do not deduct any instalments you paid to HMRC from net VAT to be paid to HMRC.

Say, you choose to pay your VAT instalments in 9 months at £6000 per month. You do not deduct £54,000 already paid to HMRC from £54,655. Instead, you file your annual accounting VAT return and the balance of the payment owed to HMRC of £655.

Companies House filings

Besides, maintaining good VAT accounting records and submitting your VAT return on time to HMRC, if your VAT registered business is a limited company, you must also deliver your company accounts and confirmation statement to Companies House promptly.

If you require any help with your VAT returns, company accounts and confirmation statement filing, feel free to contact our accountants, they will be more than happy to assist you to comply with your filing requirements.

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