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Zayar Tax Advisor
Zayar Tax Advisor, Tax Consultant
Category: Tax
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Experience:  Over 10 years as Tax Advisor for Individuals and Businesses
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I an a UK citizen, resident in UK, now retired. From a

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Hi, I an a UK citizen, resident in UK, now retired. From a previous employment in the US I receive an annual USD cheque from a 401K account. It takes around 2 months after the date of the cheque for the funds to arrive in my UK account.
JA: Have you talked to a tax professional about this?
Customer: No. Sorry, I did not finish my question- which date of exchange rate should be used when putting in the tax return.? The date of the cheque, or the date I receive the funds to my account. Thanks.
JA: Which tax year are you filing for?
Customer: it will be 20/21
JA: Anything else you want the Accountant to know before I connect you?
Customer: no
It will be the date you received fund in your account.
Zayar Tax Advisor and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thanks for your quick reply.

Could you provide any reference please? The reason for asking is that the Foreign Income notes at https://www.gov.uk/government/publications/self-assessment-foreign-sa106 mention dividends shoild be entered with the value at distribution, but the notes are not explicit about pension payments.

Thanks

There is no specific guidance on foreign income received by cheque. The general rule is you are taxable on foreign income on arising basis. This is on the ground that you have earned the income, i.e. the income is available and accessible to you. In your case, assuming the USD cheque you received is not easily convertible to cash until it is deposited into your bank account and converted into pounds by your bank using their official exchange rate. I have not come acrossed before HMRC questioning what exchange rate you used for converting foreign earnings into pounds.

It is not wrong to pay tax on the income amount you actually receieved (when cheque is deposited) rather than the date of the cheque (as you have no access to this income until it is paid into your account).

You can also use HMRC average exchange rate for the year for converting foreign income into pounds. But it makes more sense to pay tax on income you received (i.e. when USD cheque is deposited), rather than based on the exchange rate on the date cheque issued. For businesses, it is not an issue, as they will report exchange gain or loss on their tax returns. For individuals, it is more practical to report income you actually received in pounds. Otherwise you will have exchange difference for your foreign income.

I found a link from HMRC community customer forum and if you follow the thread, you will find that HMRC has responded that you can use the exchange rate when the money is received in your bank account as long as you don't deduct bank charges when you report the income.

https://community.hmrc.gov.uk/forums/customerforums/sa/0ebf4a32-828f-ea11-99e6-00155d9c871e

Customer: replied 1 year ago.
Thank you very much for the extra information. Very helpful!