An invoice arrives in euros. Your books are in sterling. Somewhere between those two facts there are four or five decisions, and getting them wrong causes problems that surface months later at year end.
This covers the routine cases. It isn't tax advice, and the details vary by jurisdiction — if you're dealing with significant volumes or unusual arrangements, this is a conversation to have with your accountant.
The four numbers on a foreign invoice
Worth separating, because they're often conflated:
The invoice amount in the supplier's currency. Fixed. It's what the document says — and on a structured e-invoice the currency code is a field rather than a symbol someone has to interpret.
The rate used to translate it into your currency. Chosen, and the choices matter.
The amount recorded in your books. Invoice amount × rate.
The amount you actually pay in your currency when the payment clears — which will be different, because the rate has moved and your bank has taken a margin.
That last gap is the exchange difference, and it's a real cost that needs recording rather than absorbing.
Which rate to use
Generally, the rate on the date of the invoice — not the date you enter it, not the date you pay it. Which is another reason entry delay costs more than it looks: the rate you need is the one from the day the document was raised, not the day it surfaced.
Most jurisdictions accept a few approaches:
Daily spot rate. Most accurate, most work. Sensible when amounts are large or volumes low.
A periodic average rate. Many tax authorities publish monthly rates you may use for a whole period. Considerably less work, and usually acceptable — check the rules where you are.
Your bank's rate on the transaction. Simplest to reconcile when you pay immediately in the invoice currency, because there's no gap between recorded and paid.
The important thing is consistency. Picking whichever rate is favourable per invoice is the approach that causes questions.
VAT and tax: where it gets specific
This is the part where jurisdiction matters most, and where generic advice is worth least.
For UK businesses buying from overseas suppliers, the common cases are:
Reverse charge on services. You account for both the output and input VAT yourself. Net effect often nil, but it must appear on the return. The supplier's invoice typically shows no VAT and says so.
Import VAT on goods. Handled at the border or via postponed accounting. The supplier's invoice is not the VAT document — the import documentation is. Reclaiming from the supplier invoice is a common and expensive error.
A foreign supplier charging their own VAT. Generally not reclaimable on your domestic return. There may be a separate refund route in that country, usually worth pursuing only for larger amounts.
The recurring mistake is treating a foreign VAT line like domestic input tax. It isn't, and it usually isn't reclaimable the way you'd expect.
The exchange difference
You record an invoice at £1,000 (based on the invoice-date rate). You pay it six weeks later and it costs £1,020.
That £20 is an exchange loss. It goes to a gains/losses account, not to the original expense — the expense was the goods, at the rate when the liability arose.
Most accounting systems handle this automatically if you've set the invoice up in the foreign currency properly. If you convert manually and enter a sterling figure, the system can't see the currency and the difference lands somewhere untidy.
Enter foreign invoices in their own currency wherever your software supports it.
Practical points
Record the original amount and currency, always. If a query arises in eight months, you need to know the invoice was for €1,410 — not just that you recorded £1,204.
Keep the rate you used and where it came from. "ECB rate, 14 March" is defensible. A number with no provenance isn't.
Watch for suppliers who invoice in your currency but bank in theirs. The invoice says £1,000; their bank converts and short-pays; you're left with a small unallocated difference that nobody can explain.
Beware documents with two currencies on them. Some suppliers show both. Establish which one is the contractual amount — usually the one matching their bank details.
Don't recalculate the total from the lines. Rounding at line level rarely reproduces the invoice total exactly. The supplier's total is the number that counts.
What good looks like
For each foreign invoice you should be able to say:
- The original amount and currency
- The rate applied, and its source
- The date that rate relates to
- The tax treatment and why
- Where the exchange difference went
| Record | Example |
|---|---|
| Original amount and currency | €1,410.00 |
| Rate applied | 1.1712 |
| Source of the rate | ECB daily, 14 Mar |
| Tax treatment, and why | Reverse charge — services from EU supplier |
| Where the difference went | Exchange gains/losses |
If your process records all five, foreign invoices are routine. If it records the sterling figure and nothing else, they're a year-end problem waiting.
Cribble reads invoices in any currency and keeps the original amount and currency alongside the extracted data — with per-field confidence, so you can see what it was certain of.