Foreign Currency Invoices and Domestic VAT 

Use

When you purchase goods in a foreign currency but the invoice shows the VAT amount in sterling, you have to post the sterling VAT amount to the input VAT account. A system conversion of the foreign currency amount is not permitted. As the supplier has accounted for VAT in sterling at the rate of exchange on invoicing, the exchange rate for input VAT has to be derived from the foreign currency VAT and sterling VAT total amounts. You have to reclaim the same sterling amount and therefore have to enter the exchange rate used for the UK VAT on invoice entry.

Prerequisites

You have defined your company code.

Activities

You have to set up the system to allow you to enter the exchange rate manually. To do so, in Customizing for Financial Accounting, choose Financial Accounting Global Settings ® Tax on sales/purchases ® Calculation ®Change foreign currency translation. Enter 1 for manual exchange rate entry in the Tx crcy tr field and save your entry.