Which exchange rate should UK importers use?
Use HMRC's applicable customs rate unless the contract-rate conditions apply. Supplier payments use your agreed bank or provider rate; accounting follows your accounting framework. Reconcile valuation additions, exchange differences and fees separately. Cambridge China Bridge can help assemble the supplier paperwork.
Choose the customs rate by the declaration
For entry to free circulation, HMRC says to use its published exchange rate when the entry is accepted if the fixed-rate conditions cannot be met. Ask your customs agent to record the acceptance date, currency, rate and source. The supplier payment date does not select this rate.
Give the agent any exchange-rate clause in the sale contract. HMRC describes fixed-rate conditions involving a contractual conversion into sterling and payment to the seller in sterling. It also describes a separate conversion process for sterling invoices calculated at a contractual fixed rate. Ask the agent to explain which treatment applies before filing.
Keep payment conversion separate
For supplier payments, retain the bank or payment provider's confirmation showing the foreign currency sent, sterling exchanged, execution date and separately identified charges. A quoted market rate is not evidence of the rate actually applied.
For deposits and balances, match each payment to the supplier invoice and order. Ask whether charges were deducted from the amount received. A short receipt, an exchange-rate movement and a transfer fee are different explanations. See paying Chinese suppliers for payment checks.
Record the purchase under your accounting policy
For ordinary foreign currency purchases in sterling functional-currency accounts, the general accounting approach is the spot rate at initial recognition. Initial recognition means when the transaction qualifies for recognition, so ask your accountant to confirm that date rather than automatically using the invoice, payment or customs date.
Outstanding monetary payables are generally retranslated at the closing rate at the reporting date; settlement and retranslation differences generally go to profit or loss. Confirm your accounting framework and treatment of advances or hedges with your accountant. Use foreign currency supplier invoices for the bookkeeping detail.
Build a reconciliation that explains the gap
Start with the same foreign currency goods amount in each calculation. Compare its customs-rate sterling equivalent with its accounting-rate equivalent to isolate the conversion difference. Then show customs valuation additions and deductions separately. Our customs value guide explains those adjustments.
Next reconcile the payable's carrying amount to settlement, separating exchange differences from identified fees. Keep customs duty and import VAT on their own lines rather than treating the difference between customs value and bank outflow as an exchange loss. See import VAT for the tax base and recovery evidence.
| Record | Attach | Explain separately |
|---|---|---|
| Customs conversion | Accepted declaration, rate source and valuation workings | Conversion difference and valuation adjustments |
| Accounting purchase | Supplier invoice, recognition date and accounting rate | Initial sterling amount and subsequent retranslation |
| Supplier settlement | Payment confirmation and supplier receipt | Exchange difference, fees and unpaid balance |
| Import taxes | Duty calculation and import VAT evidence | Tax amounts and their accounting treatment |
Investigate unexplained differences
Before asking for a declaration correction, compare the original currency amount, acceptance date, rate direction and valuation components. Check whether the published rate expresses foreign currency per pound or pounds per foreign currency. Recalculate using its stated direction instead of copying a spreadsheet formula blindly.
A different bank debit alone does not demonstrate a customs error. Ask the agent to explain any remaining discrepancy and the accountant to explain any ledger discrepancy. Keep their explanations with the order file. If the declared amount or rate appears wrong, use checking and correcting a declaration.
Frequently asked questions
Can I use my bank exchange rate for customs?
Your bank rate does not automatically qualify. For entry to free circulation, use HMRC's rate at acceptance unless the contractual fixed-rate conditions apply. Give the sale contract to your customs agent.
Does the deposit date set the customs rate?
For the normal HMRC-rate route, acceptance of the entry to free circulation selects the applicable rate. Keep deposit conversion records separately and ask your accountant how to record the advance.
Should my ledger match the customs value?
Do not force a match. Explain the accounting conversion, customs conversion and valuation adjustments separately, then reconcile settlement exchange differences and fees.
Should I change customs value after paying more sterling?
A higher sterling payment alone does not show the declaration was wrong. Check the original currency price, customs rate and valuation workings before asking your agent about a correction.