Exchange rates
Information about exchange rates.
Any foreign currency amount or part amount which needs to be taken into account in arriving at the customs value, must be converted to sterling. Any other part of the customs value shown in foreign currency, for example, freight or insurance, must also be converted to sterling.
Where dictated by a contract of sale, it may be necessary to use a fixed rate of exchange when converting a foreign currency amount to sterling. This might also be necessary where dictated by the contract and where the seller is to receive payment in sterling. If this does not apply, the importer must use the rate of exchange published by HMRC for use at the time the declaration to free circulation is accepted. However, for periodic declarations, the importer may ask HMRC to accept a single exchange rate based on the rate applicable on the first day of the period covered by the declaration in question.
If the supplier requires payment in a foreign currency and the invoices are in sterling at a fixed rate of exchange quoted in the contract of sale, that rate of exchange must be used to convert the sterling amount into the foreign currency. The resulting foreign currency amount must be reconverted to sterling at the customs rate of exchange applicable on the acceptance date.
Monthly exchange rates are fixed under provisions set out in Section 18 of TCTA. HMRC publishes the rates on the internet at the end of every month. These give the rates of exchange to be used during the next month for converting foreign currencies for duty and import VAT purposes. These rates are applicable from the first to the last day of the next calendar month. To account for any sudden currency fluctuations, HMRC checks the monthly rates issued against the commercial selling rates, once a week. If the commercial rate for a currency differs by more than 5% from the last published customs rate, the customs rate is amended from midnight on Tuesday (into Wednesday) of the following week. However, importers may continue to use the exchange rate based on the rate applicable on the first day of the period through that month.
In cases of prepayment, the official exchange rate applicable at the material time of valuation is to be used. That is, the time of entry to free circulation. There is no provision to use the exchange rate at the time of settlement.
Scenario
Many importations of timber and plywood are arranged through UK based selling agents under a written contract of sale. Such contracts may specify a price in sterling or a foreign currency. The supplier invoices the selling agent, exclusive of selling commission, and the selling agent invoices the importer at a full commission inclusive price.
Where the contract is in a foreign currency the selling agent will usually invoice the importer in that currency, but also convert the price payable to sterling at an apparently fixed exchange rate quoted on the invoice. The importer remits the sterling amount to the selling agent, but the selling agent will remit in the foreign currency, exchanged at the rate quoted on the invoice.
Valuation treatment
The sterling amount transferred by the importer is not to be used for customs duty purposes, as the rate of exchange quoted by the selling agent is not fixed in the contract of sale. The value to be declared is the commission inclusive price invoiced to the importer in foreign currency, converted to sterling at the appropriate customs rate at the time of entry to free circulation.
Scenario
Goods are purchased by a UK company from Japan via Belgium. All three companies are related. The invoice to the UK is in Euro, but an unwritten agreement provides for settlement to be in sterling at a fixed rate of exchange. Both the sterling and Euro amounts appear on the invoice. The importer declared the Euro amount and converted to sterling at the official HMRC published rate of exchange.
Valuation treatment
The value to be declared is the sterling amount calculated by the fixed rate of exchange. While the fixed rate was not written into the contract, it was still a legally binding term of the sale. The customs value has to be recalculated based on the fixed rate.
Further information can be found in WCO AO 20.1.