If you're in the UK and receive lots of US $ amounts, how do you record those in your accounts?
A quick question that, sadly, I can't ask on Twitter (if you're on Twitter, you can follow me here!)
I receive a lot of payments in US dollars via PayPal. These are mostly part of my income. At the end of the year, I have generally just included all of the withdrawals as income for my tax return. This has worked well, but recently I have started spending money that's in my PayPal account too, so the amounts I withdraw are not the full income.
It seems that to be 100% legal and by the book, I'd need to track every single amount I receive via PayPal, and have it converted to British Pounds at the prevaling rate on the day of the transaction. All of these items would then be included in my accounts and used for the tax return.
The question, then, is how can I convert a PayPal transaction log into a list of UK £ amounts? I'd need to know the currency conversion rate for every date - and that'd take a long time to establish manually. Also, I'd technically need to include the PayPal transaction fees as business expenses.. How does anyone deal with this? It seems like a total nightmare, all for the sake of a few dollars here and there.
Is there a system / spreadsheet / similar for converting a significant number of payments from the US (through PayPal, specifically) into a form useful for UK accounts?
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Not sure if a pre-baked spreadsheet exists, but I would use http://www.oanda.com/convert/fxhistory to get the relevant exchange history in CSV format, combine it with a CSV history download from PayPay http://ebay.about.com/od/usingthewebsit1/a/wt_ppexcel.htm
For most small transactions on my (Irish) tax return I use an average rate for the year (the first link will give rates for each day along with an average for the period).
Hope it's of some use.
Tom
I'm very interested in this issue too...
Tom: Excellent! I knew about that site, but hadn't found the "range" thing you link to. That managed to give me a range spanning years very easily :)
I think I could write a Ruby script to take a PayPal CSV and these rates (as CSV) and come out with the relevant itemizations :) Thanks again.
I don't think you need a high-tech solution.
There'll be an existing tax law to cover this, I'm sure. UK companies have been trading in multiple currencies and declaring in Sterling for decades. Centuries even.
There'll be some law that says you need to use an end-of-year rate, or the Bank of England's Blah Rate, or "The Office Of Benchmarks' Annual Published Rate", or some kind of yada like that.
Ask your tax office or accountant.
Looking at the HMRC site, it seems that you can choose to use GAAP which means you can use "the exchange rate for the last day of the company's accounting period, or an average exchange rate for the period."
That doesn't sound good to me, though, since the pound is bound to be weaker by next year than now, so I'd lose out. I can figure it out at the time I guess and see what comes out as most advantageous :)
Actually if you used the exchange rate on the last day as opposed to the actual rate on the day you'd only lose out on paying more taxes - the pound is falling and so you have less income to declare.
There are official exchange rates on the HMRC website (averages and spot rates) that you could use as well.
Florian: It should be the other way around.
Let's say I earned $10,000 in US in April and at the then exchange rate ($2 = £1) I got £5000.
If I instead did that at the current exchange rate of $1.60 = £1 then that shows up as £6,250 of income instead. That's hundreds of pounds more tax.
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