UK tax on Euro transfers - do I pay tax on GBP amount before of after bank fees?
Téma indítója: claisney

claisney
Egyesült Királyság
Local time: 21:03
angol - francia
Sep 4, 2018

Hi all,

I work in the UK as a freelance translator, and have a new client in Belgium - I invoice them in Euros and they transfer the amount to my UK bank account, which means I have bank fees and don't actually earn the amount invoiced. When completing my tax return, do I mention the original amount of the invoice (converted into GBP) or the GBP amount received after bank fees?

Thank you!

Charlotte


 

Jack Doughty  Identity Verified
Egyesült Királyság
Local time: 21:03
orosz - angol
+ ...
Az Ő emlékére:
Declare & claim back Sep 5, 2018

Declare the gross amount as income but claim back the charges as expenses.

Wioleta Kwiatkowska
 

Thomas Pfann  Identity Verified
Egyesült Királyság
Local time: 21:03
Tag (2006 óta)
angol - német
+ ...
Two options Sep 5, 2018

As far as I know*, you can either use the actual invoice amounts and convert them into GBP (using the official HMRC exchange rates) in which case you'll have to adjust for bank fees/exchange rate losses as expenses OR you declare the GBP amounts you actually received.

I find the second method a lot easier and more reasonable since everythin
... See more
As far as I know*, you can either use the actual invoice amounts and convert them into GBP (using the official HMRC exchange rates) in which case you'll have to adjust for bank fees/exchange rate losses as expenses OR you declare the GBP amounts you actually received.

I find the second method a lot easier and more reasonable since everything I receive is paid into my GBP account. The amounts which show up on my bank statement are exactly what I declare in my tax return. That way I don't have to faff about with exchange rates.

To keep track of this in my accounting system, I use two 'amount' fields for each invoice: one for the original invoicing amount in the foreign currency and a second field for the GBP amount. As soon as I receive payment I fill in the GBP amount.

_____________
*I can't offer a link to support this claim, but I am quite sure that I read about it on the HMRC website or learned about it in an HMRC webinar in the past.
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Jennifer Forbes
Angus Stewart
claisney
 

Samuel Murray  Identity Verified
Hollandia
Local time: 22:03
Tag (2006 óta)
angol - afrikaans
+ ...
@Thomas Sep 5, 2018

Thomas Pfann wrote:
As far as I know*, you can either use the actual invoice amounts and convert them into GBP, in which case you'll have to adjust for bank fees/exchange rate losses as expenses OR you declare the GBP amounts you actually received.


This may be related to whether you're using cash-based or accrual-based accounting. If I understand the HMRC web pages on this correctly, you are not allowed to mix these two types of accounting within a single accounting system (e.g. use accrual-based accounting for UK clients but use cash-based accounting for non-UK clients), so if you choose to use cash-based accounting for non-UK clients, then you have to use cash-based accounting for all your clients.

I find the second method a lot easier and more reasonable since everything I receive is paid into my GBP account. The amounts which show up on my bank statement are exactly what I declare in my tax return. That way I don't have to faff about with exchange rates.


Yes, that is cash-based accounting, which is allowed in the UK.

To keep track of this in my accounting system, I use two 'amount' fields for each invoice: one for the original invoicing amount in the foreign currency and a second field for the GBP amount. As soon as I receive payment I fill in the GBP amount.


Is it legal to alter an invoice like that in the UK?

Of course, annotating an existing invoice with additional information would be fine, but it sounds like you're editing the invoice itself, instead of just [digitally] writing something useful on top of it. (My invoices are PDFs, so if I need to add helpful information, I use a printable PDF comment.)



[Edited at 2018-09-05 09:20 GMT]


 

Thomas Pfann  Identity Verified
Egyesült Királyság
Local time: 21:03
Tag (2006 óta)
angol - német
+ ...
Cash-based accounting Sep 5, 2018

Samuel Murray wrote:

Is it legal to alter an invoice like that in the UK? Of course, annotating an existing invoice with additional information would be fine, but it sounds like you're editing the invoice itself, instead of just [digitally] writing something useful on top of it. (My invoices are PDFs, so if I need to add helpful information, I use a printable PDF comment.)


I guess I wasn't clear. I am, of course, not altering the invoice. It is in my accounting system where I add the GBP amount next to the original invoice amount.

Samuel Murray wrote:
Thomas Pfann wrote:
As far as I know*, you can either use the actual invoice amounts and convert them into GBP, in which case you'll have to adjust for bank fees/exchange rate losses as expenses OR you declare the GBP amounts you actually received.


This may be related to whether you're using cash-based or accrual-based accounting. Are you sure you're allowed to mix these two types of accounting within a single accounting system (i.e. use accrual-based accounting for UK clients but use cash-based accounting for non-UK clients)?


Good point. I don't mix the two but use cash-based accounting in all my accounting.

Samuel Murray wrote:
Here in the Netherlands where I live, only accrual-based accounting is legal for freelance translators, and it's downright silly.


We are talking about the UK, though. Discussing how other country's systems work will only confuse things.


 

Samuel Murray  Identity Verified
Hollandia
Local time: 22:03
Tag (2006 óta)
angol - afrikaans
+ ...
@Charlotte Sep 5, 2018

claisney wrote:
I work in the UK as a freelance translator, and have a client in Belgium. I invoice them in Euros and they transfer the amount to my UK bank account, which means I have bank fees and don't actually earn the amount invoiced.


Well, either way, you're going to have to have the original invoice on the one hand, and an Excel spreadsheet on the other hand, with several columns that show the various amounts for you to keep track of.

There would be a column for
(a) the EUR invoice amount,
(b) the EUR-GBP exchange rate on the date of the invoice,
(c) the GBP amount on the date of the invoice,
(d) the amount actually received from the client
(e), the EUR-GBP exchange rate on the date that the money was received,
(f) your own calculation of what the GBP amount should have been on the date that the money was received,
(g) the difference between #d and #f (which equals how much money was lost due to different exchange rates and/or correspondent bank fees, etc)
(i) the difference between #b and #d (which equals that invoice's costs)
(j) any additional banking fees that are applied afterwards, after money was received into the account.

If you use cash-based accounting, you declare #d as income, and #j as deductible expenses.
If you use accrual-based accounting, you declare #b as turnover and (#i + #j) as deductible expenses.

IANAL, though.


 

Samuel Murray  Identity Verified
Hollandia
Local time: 22:03
Tag (2006 óta)
angol - afrikaans
+ ...
@Jack Sep 5, 2018

Jack Doughty wrote:
Declare the gross amount as income, but claim back the charges as expenses.


What do you mean by "gross amount"? Do you mean the amount on the invoice or the amount that is paid into the bank account?


[Edited at 2018-09-05 09:22 GMT]


 

Jennifer Forbes  Identity Verified
Local time: 21:03
Tag (2006 óta)
francia - angol
+ ...
Az Ő emlékére:
Ask HMRC or an accountant Sep 5, 2018

I'm pretty sure that cash-based accounting for income-tax declaration purposes is legal in the UK for people in our position. I've been using this system for years. I declare the sums actually paid into my bank account (after the bank has converted it to pounds, where applicable).
If you're worried, contact your HMRC office (they take forever to answer the phone and you'll get tired of listening to Sail Away or the Four Seasons after a while) or search HMRC online for information and advic
... See more
I'm pretty sure that cash-based accounting for income-tax declaration purposes is legal in the UK for people in our position. I've been using this system for years. I declare the sums actually paid into my bank account (after the bank has converted it to pounds, where applicable).
If you're worried, contact your HMRC office (they take forever to answer the phone and you'll get tired of listening to Sail Away or the Four Seasons after a while) or search HMRC online for information and advice. Alternatively, it might be worth consulting an accountant who is used to dealing with sums received by wire transfers from foreign sources. It's money well spent if it puts your mind at ease - and it's tax deductible as a business expense.
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Chris Foster
 

Michael Beijer  Identity Verified
Egyesült Királyság
Local time: 21:03
Tag (2009 óta)
holland - angol
+ ...
TransferWise Borderless Account, to save on conversions / reduce (hidden) bank fees... Sep 5, 2018

As an aside, I see people here mentioning letting their bank convert the other currencies into pounds (!), which is what I used to let Barclays do, but soon discovered that I can save a TON of money annually by using a TransferWise Borderless Account. TransferWise now offers actual bank accounts (with IBAN/SWIFT), and their FX rate is way better than anything your UK banks will ever give you. I literally find myself saving at least £20 on every transfer/conversion from euros if I do it v... See more
As an aside, I see people here mentioning letting their bank convert the other currencies into pounds (!), which is what I used to let Barclays do, but soon discovered that I can save a TON of money annually by using a TransferWise Borderless Account. TransferWise now offers actual bank accounts (with IBAN/SWIFT), and their FX rate is way better than anything your UK banks will ever give you. I literally find myself saving at least £20 on every transfer/conversion from euros if I do it via TransferWise.

Process:

1. Get a TransferWise Borderless Account
2. Give yr clients those bank details (IBAN/SWIFT)(my TransferWise account is actually in Germany)
3. Once money (e.g. €s) is in it, convert to £
4. Send to your regular UK bank account (takes seconds)

TransferWise Borderless Account's recently even got their own debit card in the UK, which you can use to withdraw other currencies abroad (e.g. when on holiday).

Michael

info: https://transferwise.com/gb/borderless/
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Nikki Scott-Despaigne
Rania Ioannou
 

Jack Doughty  Identity Verified
Egyesült Királyság
Local time: 21:03
orosz - angol
+ ...
Az Ő emlékére:
@Samuel Sep 5, 2018

I mean the amount that is paid into the bank account.

 

liz green (X)
Local time: 21:03
francia - angol
account for tax on the actual amount received Sep 7, 2018

I agree with Jennifer. I've been using a cash basis for many years - so my invoice is in, say, Euros, and entered in my accounts as Euros, and when the invoice is paid I then enter the actual sterling amount I received, and use that figure in my turnover calculations at the end of the year. This is far more accurate not to mention quicker and easier - than using an HMRC exchange rate.

Thomas Pfann
 


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UK tax on Euro transfers - do I pay tax on GBP amount before of after bank fees?

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