Invoicing in
a foreign currency

Working with clients abroad is ordinary for freelancers and small businesses, and invoicing them in their own currency often gets you paid faster. The UK rules are relaxed about the currency of the invoice itself. They are strict about one thing: VAT and your tax records are always in sterling.

Agree the currency first

Settle the currency with the client before you quote. Invoicing in their currency moves the exchange risk to you: if the pound strengthens between invoice and payment, you receive fewer pounds. Invoicing in pounds moves it to them. Either is fine; what matters is that both sides know which applies.

What the invoice shows

The invoice carries the usual details: a unique number, your name and address, the customer's name and address, a description, the dates, the amounts and the total, all in the agreed currency. Add clear payment instructions for an international transfer, including the account details your bank gives you for incoming foreign payments.

If VAT is on the invoice

VAT Notice 700 is explicit: for VAT purposes, amounts of money must always be expressed in sterling. If you issue a VAT invoice in a foreign currency for a supply that takes place in the UK, you must convert the total VAT payable into sterling and show it. The rest of the invoice can stay in the foreign currency.

To convert, use one of these bases:

• the UK market selling rate at the time of supply, with rates published in national newspapers acceptable as evidence
• or, as an alternative, the period rate of exchange HMRC publishes for customs purposes, adopted for all your supplies or for a particular class of them

You do not have to tell HMRC in advance before adopting the period rate, but once you have chosen it you cannot change without writing to HMRC and getting agreement. A third option, another method agreed in writing with HMRC, exists for businesses with unusual needs.

Is there VAT at all?

Many services to overseas business customers fall outside the scope of UK VAT under the place of supply rules, and exports of goods are generally zero rated. Whether VAT belongs on an invoice to an overseas client depends on what you supply and to whom, so check before you add it. If you are not VAT registered, the question does not arise: you charge no VAT. The guide do I charge VAT on my invoice starts there.

Recording the income

Your accounts and tax return are in pounds, so each foreign currency invoice and payment needs a sterling value in your records. Use a consistent method, for example the rate on the day the money arrives if you use the cash basis, and keep a note of the rate you used. When the payment lands, record what actually reached your account; a difference caused by the rate moving is part of your business income or costs.

Goods sent abroad

A shipment of goods across a border usually needs a commercial invoice for customs, which carries extra details such as the goods' origin and commodity codes. That is a customs document alongside your sales invoice, not a replacement for it.

A worked example

A UK designer who is VAT registered invoices a UK client that prefers to be billed in euros: €2,000 plus VAT. On the day of supply the market rate is €1.18 to the pound. The net is about £1,694.92 and the VAT at 20% is about £338.98. The invoice shows the €2,000 net, €400 VAT and €2,400 total, and states the VAT as £338.98 in sterling, with the rate used noted alongside. The VAT calculator handles the VAT arithmetic once the net is in pounds.

Which rules apply to which invoice

The two conversion bases compared

VAT Notice 700 paragraph 7.6 has force of law, and gives you a choice of basis for converting to sterling.

Once you adopt the period rate, you need HMRC's written agreement to change. You can adopt it for all supplies or for one class of supplies, recording your choice at the time.

Managing the exchange risk

Invoicing in a foreign currency means the value in pounds can change between the day you invoice and the day you are paid. Ways to limit the effect:

• Invoice in pounds, so the client takes the risk. Many overseas clients accept it.
• Keep payment terms short, so there is less time for the rate to move.
• Use an account that can hold the foreign currency, and convert when the rate suits you.
• Build a margin into your price for larger or longer contracts.

Whatever you choose, record what actually lands in your account. The difference between the invoiced sterling value and the amount received is part of your business result.

Getting paid from abroad

Put full international payment details on the invoice: the account name, IBAN and the bank's BIC or SWIFT code, as your bank provides them. Say who pays any transfer charges. Ask the client to quote the invoice number as the payment reference, just as you would for a UK customer; it matters more when the payment arrives in a different currency and amount.

Recording foreign currency income

For your accounts and tax return, every amount must be in pounds. If you use the cash basis, record the sterling amount that reached your account on the day it arrived. If you use accruals, record the sterling value at the invoice date and adjust for the difference when paid. Keep a note of the rates you used. Your invoices, the payment records and the rate evidence are part of the records you must keep; see how long to keep invoices.

Common questions

Can a VAT invoice be entirely in euros? The prices and totals can be. The total VAT must also be shown in sterling.

Do I charge VAT to an overseas client? Often not, for services to overseas businesses, because of the place of supply rules; goods exported are generally zero rated. Check your case, and remember that none of this applies if you are not VAT registered. Start with do I charge VAT on my invoice.

Which exchange rate do I use if I am not VAT registered? VAT rules do not apply, but your records must still be in pounds. Use a consistent source, such as the rate your bank applied or a published daily rate, and keep a note of it.

Does a foreign customer need a different invoice layout? No. The same details apply: see what a UK invoice must include. Add international payment details, and consider showing the currency code next to every amount so there is no confusion.

A worked example: recording the income

A web developer who is not VAT registered invoices a Dutch client €3,000 on 2 May, due in 30 days. On the invoice date the rate is €1.17 to the pound, so the invoice is worth about £2,564. The client pays on 30 May, and after the rate moves and the bank converts it, £2,531 arrives. Under the cash basis, the developer records £2,531 of income on 30 May: the amount actually received. No VAT is involved, because the developer is not registered. The invoice, the bank statement showing the conversion and a note of the rates go into the records together.

Had the developer been VAT registered and the service been to a UK customer invoiced in euros, the invoice would also have shown the total VAT in sterling, converted at the market rate on the day of supply or at HMRC's period rate if adopted.

Chasing an overseas client

The Late Payment of Commercial Debts Act can apply to contracts governed by UK law, but chasing across borders is harder. Agree clear payment terms and the governing law in your contract, take a deposit for new overseas clients, and invoice promptly. If a payment is late, the same steps apply: a reminder, a phone call, then a formal letter. The guides on invoice payment terms and how to chase an unpaid invoice cover the process, and the late payment interest calculator works out statutory interest in pounds.