VAT on invoices in a foreign currency

You can invoice a UK supply in euros, dollars or any other currency, but the total VAT on a VAT invoice must be shown in sterling. You convert using the UK market selling rate at the time of supply, HMRC’s published period rate, or a commercial rate HMRC has agreed in writing, and the rate is fixed by the tax point, not the payment date. The rules have force of law through Schedule 6 paragraph 11 of the VAT Act 1994 and paragraph 7.6 of VAT Notice 700.

What must a foreign currency VAT invoice show?

Regulation 14(1) of the VAT Regulations 1995 lists the contents of a VAT invoice. It allows the price of each line and the gross total excluding VAT to be expressed in any currency, but requires the total amount of VAT chargeable to be expressed in sterling. Paragraph 16.4 of Notice 700 confirms that if you issue VAT invoices in a foreign currency for supplies that take place in the UK, you must convert the total VAT into sterling.

In practice a compliant invoice in euros shows the net price and VAT rate in euros and then states the VAT total in pounds. Many businesses also show the exchange rate used, which makes the figure easy to check, though the law only requires the sterling VAT total. Every other requirement for a full VAT invoice still applies.

HMRC’s VAT Valuation manual at VATVAL09500 confirms that two UK businesses can trade with each other wholly in a foreign currency, as long as the valuation and invoicing rules are followed.

Which exchange rates does HMRC accept?

Schedule 6 paragraph 11(1) sets the default: the foreign sum is converted at the market rate that would apply in the UK, on the relevant day, to a purchase of that currency with sterling by the customer. Paragraph 7.6 of Notice 700, which has force of law under that paragraph, gives three options:

1. The UK market selling rate at the time of supply. This is the default. Rates published in national newspapers are acceptable evidence.
2. HMRC’s period rate of exchange published for customs purposes. The VAT general enquiries helpline can give details of particular period rates.
3. A commercial rate or method agreed with HMRC. You apply in writing to the VAT Written Enquiries Team to use a rate you use commercially that is not covered by the first two options.

Whichever you use, the appropriate rate is the one current at the time of the supply.

Do I need HMRC’s permission to use the period rate?

No. You do not need to notify HMRC in advance to adopt the period rate. You can use it for all your supplies or for all supplies of a particular class or description. If you choose a particular class only, record the details at the time you adopt it.

Once you have opted, you cannot change without first getting HMRC’s agreement in writing. Schedule 6 paragraph 11(3) backs this up: an option must cover all supplies of a particular description or after a particular date, and cannot be withdrawn or varied without HMRC’s consent. That stops a business picking whichever rate gives the lowest VAT on each invoice.

What makes a commercial rate acceptable?

Notice 700 says HMRC considers whether the proposed rate or method is set by reference to the UK currency market, whether it is objectively verifiable, and how often it will be updated. Forward rates, and methods derived from them, are not acceptable.

VATVAL09500 explains how HMRC officers apply this:

• The UK market must be the main factor in the rate. A rate based only on another market, such as the US market, is not acceptable.
• Objectively verifiable means based on actual exchange rates, not speculative ones. A monthly rate based on the average UK market rate for the previous quarter is given as an acceptable example.
• A method updated less often than monthly will not normally be accepted.
• A rate contracted in advance to buy currency is normally a forward rate and not acceptable. It can be used only if it is one of the acceptable rates and the time of supply is no more than one month after the contract date.
• The rate at the date of order is normally not acceptable either, because an order does not create a tax point, unless the rate is acceptable and the tax point follows within a month.

Which date fixes the rate?

Schedule 6 paragraph 11(7) says the rate is determined by the time the supply takes place, and the day of the supply is the relevant day. So you first work out the time of supply, which for most invoiced supplies is the invoice date if issued within 14 days of delivery or performance, and use the rate for that date or period.

Movements in the exchange rate after the tax point do not change the VAT. If the customer pays later and the currency has moved, the sterling VAT stays as invoiced and the difference is a gain or loss on exchange in the accounts, dealt with under the rules in foreign currency transactions in the accounts.

How does the conversion work?

Illustration only. A UK registered consultancy supplies services to a UK registered customer for 10,000 euros plus VAT at the standard rate of 20%, so 2,000 euros of VAT. The tax point is 3 March, and the UK market selling rate that day is 1.15 euros to the pound.

Item	Euros	Sterling at 1.15
Net price	10,000.00	8,695.65
VAT at 20%	2,000.00	1,739.13

The invoice must show VAT of £1,739.13. The supplier declares £1,739.13 as output tax and the sterling net value in its sales figures. The customer reclaims the VAT shown on the invoice in sterling. If the customer pays in April when the rate has moved, neither party changes the VAT.

What about purchases from overseas suppliers?

Paragraph 11 applies to any supply where a sum used to value it is in another currency. When you buy services from abroad and account for VAT under the reverse charge, the supplier’s invoice will not show UK VAT, so you convert the value yourself using one of the accepted rates at the time of supply.

Some areas have their own rules. Notice 700 paragraph 7.6 points businesses in the Tour Operators Margin Scheme to Notice 709/5 for converting the value of their purchases, and VATVAL09500 confirms that the margin scheme rules override paragraph 11. Imported goods are valued under the separate import VAT valuation guidance referred to in Notice 700 paragraph 7.5.

What mistakes does HMRC see?

• VAT shown only in the foreign currency. The invoice does not meet regulation 14(1)(l), and the customer’s input tax claim is exposed.
• Using the payment date rate. The tax point fixes the rate.
• Switching between methods to get a better rate, without HMRC’s written agreement.
• Using a hedged or forward contract rate where the tax point is more than a month after the contract.
• Using a bank’s own rate that is not tied to the UK market or is updated less often than monthly, without HMRC agreement.

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Related Accountapedia entries

• Foreign currency and capital gains
• Accounting for foreign currency transactions
• Bookkeeping for foreign currency bank accounts
• Paying staff in foreign currency through PAYE
• Share capital in a foreign currency and redenomination

Sources

• legislation.gov.uk: SI 1995/2518, regulation 14
• GOV.UK: Vat guide notice 700
• legislation.gov.uk: Act 1994 c. 23, schedule 6
• GOV.UK: Manual page VATVAL09500
• GOV.UK: Vat rates

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.