Your VAT return can only show sterling, so every euro invoice has to be converted - and the key point is that you convert at the time of supply (the tax point), not on the day the client pays or the day you do your bookkeeping. HMRC's guidance on transactions in foreign currencies and VAT sets out two standard methods: 1. The UK market selling rate at the time of the supply. The rates published in national newspapers are accepted for this. 2. HMRC's published exchange rates, known as the period rate of exchange. In practice most small businesses use HMRC's published rates: simple, free and HMRC-approved. Take the rate for the month of the tax point, apply it to the euro net value, and calculate the VAT in sterling on the converted figure. Whichever method you choose, it must be consistent. You can use the period rate for all your supplies or just for a specific type of supply, but you cannot chop and change from quarter to quarter - if you want to switch methods later you need HMRC's agreement. So pick one and document the choice. The ECB rate is not one of the two standard methods: if you wanted to use it for VAT accounting you would need HMRC's agreement under the commercial-rate route (HMRC will look at whether the method is based on the UK currency market, can be verified impartially and is updated regularly). You cannot use forward rates. The invoice itself can be issued in euros - HMRC explicitly allows invoicing in any currency. The invoice must show, in euros, the total net value of goods and services at each VAT rate and the amount of VAT at each rate. You do not need to show sterling figures on every line, although many businesses add a sterling equivalent for clarity. One more check before your first return: if the client is in the EU, the place-of-supply rules for services may mean UK VAT is not due at all (a business-to-business service to an EU customer is usually outside the scope of UK VAT under the general rule). But wherever UK VAT is due on a euro invoice, convert at the tax point using one consistent method - that is what keeps your return right.
