How to take account of an exchange rate difference between a payment request and invoice when paying VAT.
A client services machines for UK car manufacturers and always raises his sales invoices in euros but shows the sterling equivalent for VAT purposes. All his contracts with the manufacturers are on an ongoing basis; in other words there is a continuous supply of services.
In June 2016 he raised a ‘request for payment’ document (in euros) to a dealer with a VAT-equivalent figure of £192 000 shown (based on an exchange rate of 1.2961 euros to the pound).
The ‘request for payment’ was paid by the manufacturer in July 2016. However my client did not raise an invoice for this payment until November 2016 although I am not sure why. By that time the exchange rate had fallen to 1.121 so the invoice showed a sterling equivalent figure of £222 000 for the VAT.
The client accounted for output tax of £192 000...
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