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TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 17124
Experience:  International tax
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HII think this is a foreign income tax question.I receive

Customer Question

I think this is a foreign income tax question.
I receive regular money (small income payments) from the US, i then withdraw it into my UK paypal account. It sits in my UK paypal account in USD.
This is a secondary smaller income from my usual UK based daytime job.
I fill in an self assessment form every year including all income.
My questions are regarding the exchange rate for the smaller income (between $3k and $7k a year)
I have to put the figures on the tax form in GBP, in the past i have always used the exchange rate at the end of the tax year.
Yet i remove the money from paypal 2 or 3 times a year so the exchange rates will vary.
Not only that, I use the money in the paypal account for purchasing items throughout the year. Some items for business, some are not. Hense more transactions happen than just withdrawing money. Do i need to account for the exchange rate in a different way?
I think i was advised, that i need to claim the income when it was actually made, not when it is requested or withdrawn from the US or from Paypal. Aparently it doesnt matter whether it sits in a differnt companies US bank or my UK paypal in USD or when i actually withdraw it in GBP
Do i remember that correctly?
Sorry for the long explaination
Submitted: 3 years ago.
Category: Tax
Expert:  TaxRobin replied 3 years ago.
Hello and thank you for allowing me to assist you.
You are correct, it is when you earn the income that you will include in your income. You are correct that even if it sits in another account it is still income to you.
Foreign income is converted into, and foreign gains are computed in, pounds sterling in all necessary calculations. Foreign income is converted to pounds sterling at the exchange rate applicable on the day that it was earned overseas.
It used to be that where income credits were frequent throughout the year, the individual could convert their income using the average, or ’mean‘ rate of exchange for the tax year in question. This is no longer the practice.
Customer: replied 3 years ago.

Hi Taxrobin,

thanks for the reply.

I earn small amounts every single day of the year. Do i really have to generate a daily table of income against a daily exchange rate?

A fairly time consuming job.

Currently i keep a monthly record of income from the various overseas sources.

Thanks for the help


Expert:  TaxRobin replied 3 years ago.
If you keep a monthly record then you could use the monthly exchange rates. Daily would be time consuming but it is important to note that waiting till the end of the year though would not be appropriate any longer.
You do have access to the funds (even if you are leaving them in another account. Your records and the conversion should match in your calculations. If you are keeping your records monthly then the conversion would be on that date.
Customer: replied 3 years ago.


So its not set in stone that it has to be daily or monthly conversion rates for daily income? It just cant be yearly exchange rate?

Is it an issue if i dont actually withdraw the money (ie physically convert it to GBP) at the end of each month.

If i withdraw it yearly the exchange rate might be very different than taking it 12 times a year. sometimes in my favour sometime not.



Expert:  TaxRobin replied 3 years ago.
Yes, monthly may change for each accounting period but it is not when you withdraw the money really that is relevant.
Your accounting is really when it is earned not when you withdraw. Monthly would be the correct way to account for the income and the conversion rates.
Generally you apply the conversion rate when you record your transactions. You stated you use a monthly accounting so monthly would be appropriate for making your conversions.
In reality, you are earning the money in a day so conversion would be applied, the advantage of this method in accounting is that you can use the same rate for an entire period, a calendar month.
Customer: replied 3 years ago.

Last point to clarify i promise.

I accept account for monthly conversions when money was earned, good idea.

But I am still not sure from your answer if I HAVE actually physically convert it from USD to GBP monthly.

For example, if i converted $1000 in Jun 2014 it would be worth about £540, If i did it jan 2014 it would be worth £650.

Also its not actually possible to physically withdraw the earned income every month, as at source i can only request the money and it might take them a month (some more, some less) to pay me.

thanks again for the help.


Expert:  TaxRobin replied 3 years ago.
Hi Simon,
Yes I understand but you cannot choose when you will convert. That may sound harsh but fact is you are to convert when you earn the money really.
You may not withdraw but that is not "payment" , payment was when you received the money originally.
Conversion rates change, that is a known factor, but it does not allow an individual to choose based on the rate at a given time.
Expert:  TaxRobin replied 3 years ago.
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Customer: replied 3 years ago.

Hi TaxRobin

Ok thanks, ***** ***** long as i account for monies earnt from source monthly and convert that monthly from USD to GBP for tax purposes, that should be perfectly fine for tax purposes?

The fact i dont (cant) withdraw the money from my $ account to my £ account in sync with the above monthly tax calculations is acceptable to the Tax Man?

The reason for this is some US sources withhold the monies earnt until a certain amount is reached , ie $100, only then can i withdraw, even though i actually earnt it months previous.

Customer: replied 3 years ago.


Just spoke to HMRC, they tell me it is fine to use the yearly average exchange rate as quoted on the HMRC website.

Expert:  TaxRobin replied 3 years ago.
I am not surprised. I can only advise what is the appropriate accounting. If you received specific allowance from HMRC then you can follow that. Make sure to retain the date of the call and the name of the person that advised you, for future reference should you need it to explain your position.