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FreeAgent foreign currency

FreeAgent foreign currency explained


The world is becoming smaller. If you sell your goods and services online, you’re almost certain to have customers outside the UK. But what will this mean for your accounts?

Emily Coltman ACA, Chief Accountant to FreeAgent – who provide an award-winning online accounting system for small businesses – shares five key points to think about.

1. Which currencies will you accept payment in?

As your customer base expands, your customers might well look to pay in their own currencies rather than having to pay you in £ sterling. Which currencies are you happy to take payment in? You need to think about how you’re going to handle this money when it comes in – which we’ll look at in a moment – but you’ll also need to consider how stable the currency is. If a currency’s value varies a lot when compared to £ sterling, you could risk losing money.

At FreeAgent we take payment from our UK customers in £ sterling, and all our other customers in US dollars. Could you do something similar and accept payment in a small range of currencies?

2. How will you collect payment?

If you’re going to accept payment in different currencies, you’ll need to consider how you’re going to collect it from your customers. For example, if you’re a FreeAgent user, you can create estimates and invoices in different currencies and in different languages to send to your customers. And if you’re selling through your website, remember that you’ll need to put your prices online.

You’ll also need to think about banking that money. Your bank may charge to accept payments in foreign currencies. Services such as PayPal can help, but again, check their fees and do the maths. You may need to put your prices up to cover the costs of these bank charges.

3. What will you charge for postage / shipping?

If you’re selling goods outside the UK, you’ll need to make sure that the goods actually reach your customers on time. Some countries’ postal services are very unreliable. I recently sent a birthday gift to a friend in Spain and the time between postage and delivery was two months. Remember too that Royal Mail’s Airsure international signed for service doesn’t operate in every country.

You could consider using a courier service instead if the local postal service is not reliable, but do check which services offer guaranteed delivery in your customer’s home country, and factor in the cost of this when you are setting your prices.

4. What about VAT if you are registered for UK VAT and sell goods?

If you sell goods to businesses in the wider EU (that is, outside the UK but in another EU country) which are registered for VAT in their own countries, you can zero-rate that sale for VAT provided that the goods actually leave the UK and that you have collected a valid VAT number from your customer, which you must also put on your invoice. (FreeAgent can help you do this.)

If you sell goods to consumers in the wider EU, or to EU businesses who are not themselves registered for VAT, you have to charge them VAT as if they were in the UK. These are called “distance sales”, and if you make enough distance sales to customers in other European countries, you have to register for local VAT there and comply with their rules.

For customers outside the wider EU, whether they are businesses or consumers, you can zero-rate those sales for VAT provided that the goods actually leave the UK within 3 months of the sale.

5. What about VAT if you are registered for UK VAT and sell services?

If your business sells services rather than goods to customers outside the UK, the basic rule is that you need to work out what HMRC call the “place of supply”.

If you’re selling services to other businesses, the “place of supply” is where your customer is based, which means that accounting for the VAT is up to them. As far as you’re concerned that supply is outside the scope of UK VAT and you don’t have to charge them VAT.

But if you’re selling services to consumers, the “place of supply” is in the UK and so you have to charge them VAT as if they were in the UK.

It’s worthwhile checking the rules carefully because VAT is a complex tax that gets worse if you are selling overseas!


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About Emily Coltman

Emily Coltman ACA is Chief Accountant to FreeAgent, who provide an award-winning online accounting system designed to meet the needs of small businesses. Try it for free at www.freeagent.com

Emily on LinkedIn and on Google+

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