Foreign currency transactions and VAT

There are two standard ways to convert your foreign currency transactions into sterling for VAT purposes.

UK market selling rate

You can use the UK market selling rate at the time of the supply. The rates published in national newspapers are acceptable.

Period rate of exchange

You can use the rates of exchange published by HM Revenue & Customs (HMRC), known as the period rate of exchange. The advantage of these is that you can generally use the same rate for an entire period - usually a calendar month - although you should check to see if there have been any adjustments within the period.

You can use the period rate for all your supplies, or just for a specific type of supply. If you decide to use the period rate just for a specific type of supply, you should make a note of the details in your records. You don't need to tell HMRC. However, if you change your mind at a later date you'll need to get the agreement of the VAT Business Advice Centre for your area.

The rate you use for commercial purposes

You may not want to use one of the above two rates. If you use a different rate for commercial purposes, or a different method of determining a rate, and you also want to use this for your VAT accounting, you may apply in writing to the VAT Business Advice Centre for your area.

When deciding whether to let you use such a rate or method, HMRC will take into account:

• whether your proposed rate or method is based on the UK currency market
• whether the rate can be verified impartially
• how often you will update the rate

You cannot use forward rates, or methods deriving from forward rates.