When it comes to the end of the accounting
period and it is time to draw up the company accounts, companies which
account in Great British Pound, you need to convert payments received
and sent as well as receipts in foreign currencies, and the value of
any foreign currency denominated assets and liabilities, all into Great
British Pound. The company may also be required to make foreign currency
conversions when putting together their tax computations for submission
to Customs and Revenue.
Some organisations may use the London
closing rate for the appropriate day when putting together their accounts
and preparations. However, the London closing rate has no real official
meaning or privileged status so it is not uncommon that companies use
some different exchange rates in their accounts and calculations.
Companies and other business structures,
often get exchange rate data from a variety of sources:
- A company can use the exchange
rates quoted by its bank at any particular time. This is often the most
common way for companies looking to quote the exchange rates.
- HM Revenue and Customs in the United
Kingdom publishes average monthly rates of exchange which traders must
use when preparing their Value Added Tax returns (otherwise known as
the 'VAT rate'). Some companies may also use the VAT rate when recording
foreign currency transactions in their accounts, this makes things easier
for them to keep track of.
For the purposes of direct taxes,
HMRC staff will generally accept the exchange rate which a company uses
in preparing its accounts, provided it uses that rate consistently and
will not question the accuracy of that exchange rate at a particular
time. HMRC do specify however that these businesses should, give
the London closing rate if a customer asks for exchange rate data. The
site gives the average exchange rate for the year for most currencies
quoted in the Financial Times, plus the London closing spot rates on
the last business day in March and December each year for major currencies.
Various Internet sites give data
on current and historic exchange rates. The rates quoted on such sites
are generally not London closing rates, and HMRC staff should not use
the rates obtained from such sites when answering queries from customers