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Should the VAT payable on an invoice change with exchange rate movements?
The question relates to an invoice issued by a UK supplier to a UK customer in euros. The invoice amount showed €2m together with VAT of €400 000. The invoice also showed the sterling equivalents around £1 480 000 and £296 000 respectively. There is of course a requirement to show the sterling amount of the VAT on the invoice. I also understand that this is both the amount that the seller and the purchaser must account for in their VAT returns.
My client settled the invoice a few days later by which time the sterling-euro exchange rate had become less favourable. The sterling amount required to settle the €2.4m had risen from around £1 776 000 by about £60 000.
I understand that a foreign exchange loss arose. However is it correct that the amount to pay on the VAT element of the invoice also increased...
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