Convert the income into UK pounds using the exchange rate at the time the income arose
It might be that this is the first time I ever read that bit of the web page properly or maybe they've tweaked the wording from previous years but it's got me worried that my simple use of the overall average for the entire tax year might be in violation of this instruction.
As evidence for the prosecution (prosecuting me) I now see when looking carefully at the link I posted above that the URL ends ".../exchange-rates-for-customs-and-vat-yearly", i.e. no explicit mention of personal income tax, so perhaps it is only acceptable to use those rates for business stuff such as VAT.
As evidence for my defence I note that the phrase "the exchange rate at the time the income arose" is open to interpretation because no definition is given regarding an acceptable level of temporal accuracy. Interpreting the requirement extremely strictly could end up with people filing needing to determine the exact rate to the day for the time each transaction credited to their account after a currency conversion. That would be madness (in my opinion) so I assume that is not the intent hence, if one is allowed to make some approximation to the exact time the transaction occurred, is it acceptable for that approximation to be to the average for the tax year as a whole rather than, for instance, the month (presumably then using the official HMRC monthly rate for the month at the time the income arose)?
I'm really hoping I can get away with annual because that's what I've used for my record keeping spreadsheet where I simply transcribed the totals into the online SA100 submission pages making the submission itself trivial. If I have to go to even monthly conversions I will have to reconvert over a thousand transactions (assuming whatever temporal precision is required for converting income would also be required for converting deductible expenses) which would be a major pain.
If I'm honest I'm asking this question for next year's record keeping and tax return. Whatever the answer is I don't think I'm willing to invest the effort on reworking my 2018/2019 record keeping, I'd rather take the risk that I won't be audited. If I am audited I suspect any discrepancy in tax owed by me would be very low hundreds of pounds, maybe even less than £100, and might even end up in my favour so I won't exactly be committing the crime of the century filing this 2018/2019 return using the average annual rate.
- Julian