How To Record Foreign Currency Payments in Paypal

How to record foreign currency payments in Paypal

Foreign currencies.

American dollars, Australian dollars, Canadian dollars, Euro, Yen, Krona, Rand, Rupee, Baht, Peso…. (even sterling, if you didn’t know that it’s UK £, one of the world’s main trading currencies).

  • What are foreign currency payments?
  • How do you record foreign currency payments in Paypal?
  • What about currency conversion & fees?
  • How do you record foreign currency payments on your tax return?

It’s not difficult to receive money in foreign currencies and enter it into your tax return.

I’m going to show you how.


What Are Foreign Currency Payments?

Foreign currency payments is money received by your business that is not in the currency of your bank account and the country your business is registered in.

For the UK, that means money received in a different currency to UK £, also called sterling.

It’s really common to receive foreign currency payments. Almost every one of my clients has received foreign currency payments, and some of them, most of their business income (turnover) is in a foreign currency.

It’s the way of the business in our digital corner of the universe.

Why businesses receive foreign currency payments:

  • You charge in £ and only occasionally receive a foreign currency payment (that’s me)
  • You charge in £ for UK clients and in a foreign currency for digital products and non UK clients
  • You have clients who will only pay you in their currency
  • You charge in a foreign currency (e.g. USD) for everyone as it’s better for sales

My clients do all of these so rest assured, if you’re new to this, you’re in good hands.

Foreign currency payments are a normal part of business.


How Do You Record Foreign Currency Payments In Paypal?

I’m going to focus on foreign currency payments in Paypal as that’s the most common way of receiving them for us the-internet-is-our-life-after-cake-and-kids types.

(Learn more about ways of getting paid and professional payment procedures).

There are 3 ways to handle foreign currency payments in Paypal:

(Remember foreign currency is any money received that is not the currency of the country your bank account and business is registered in)

  1. Convert each foreign currency payment to £ as you receive it
  2. Keep a foreign currency balance in Paypal
  3. Select a foreign currency as the default currency in your Paypal account

My recommendation is to convert each foreign currency payment to £ as you receive it, unless you receive regular long standing foreign currency payments.

It’s much less paperwork hassle.

Paypal will ask you whether you want to convert a foreign currency payment when it’s received, so you just need to click that action if it’s what you want to do.

Situations when you may want to keep a foreign currency balance in Paypal:

  • You’re working while travelling and you need to keep a balance in the currency of the country you’re in
  • You have long standing clients who want to pay in a foreign currency so it’s worth keeping a foreign currency balance

For both of these situations, you need to keep track of the currency conversions and be consistent doing it. You can’t forget about it for a few months. The consistency and the need for the extra time and energy on paperwork is why my personal preference would still be to convert each payment when receiving it.

Situations when you may want to select a foreign currency as the default currency in your Paypal account:

  • You charge only in a foreign currency (e.g. USD)

A lot of people will only buy if they’re being charged in a currency they understand, even if you provide a currency converter.

It’s common for digitally based businesses with mostly global-non European or North American customers to have all their prices in USD.

In that situation, selecting USD (for example) as the default currency for your Paypal account may be your best option.

Again, you need to keep track of currency conversions and pay attention to how you’re going to transfer the money into your bank account.

You need to be on top of your paperwork to do this and understand your business financials.


What About Currency Conversion?

Paypal will convert your foreign currency payment within Paypal if you choose for the payment to be converted into your default currency.

Paypal use their own own currency conversion rate, which may not be the industry standard.

It’s one of my bugbears about Paypal. On the other hand, it’s the most trusted payment method of payment and higher sales are more important. (Read more about Paypal fees and what to do with Paypal transactions).

If you carry a foreign currency balance on Paypal or have your Paypal account in a foreign currency you need to do your homework about currency conversions and how you’re going to handle them to be consistent (ask your accountant).

Most fees and charges associated with currency conversion and receiving foreign currency payments are tax-deductible expenses. You need to keep careful track though, especially if you’re using a personal bank account for business.


How Do You Record Foreign Currency Payments On Your Tax Return?

When you convert foreign currency payments in Paypal on a transaction-by-transaction basis, it’s simple recording them for your tax return.

The foreign currency will be converted into £ into your Paypal.

You then transfer the money into your bank account at your own convenience (remember to keep track of the transactions). There is no need to rush to move the money once it’s converted.

The foreign currency payment isn’t ‘foreign income’ on your self assessment tax return as it’s money into your business.

It’s no different to other income, other than the currency conversion.



I hope my guide to recording foreign currency payments in Paypal has helped you feel more confident, informed and empowered to understanding how you receive income in a foreign currency and what to do with the payments for your tax return.

How do you record your foreign currency payments in Paypal?

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If you need support with foreign currency payments in Paypal,  get in touch.

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If you need an at-your-own-pace tax return course that’s easy to understand, have a look at How To Do Your Own Tax Return.

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  1. On the PayPal website I can transfer the existing balance of currencies manually, but I can’t see any option to convert payments to £ when received?

  2. Hi Anthony, you need to ask Paypal about that one. A lot depends on your settings and what kind of account you have. Rosie x

  3. Steph Lewis says:

    I have something slightly different I’m confused about – I have made a purchase in USD (I’m UK-based with a GBP bank account). When it comes to recording my business expenses for my tax return, how will I record this payment I have made? Will I simply need to record the equivalent amount in GBP based on today’s exchange rate (i.e. it will then look as if I made the payment in GBP in the first place as there will be no mention of the USD amount)?

  4. Hi Steph

    The amount will be on your bank statement in £. Use that one 🙂

    Rosie x
    PS. I’m over at now

  5. Hello Rosie! Thank you for this informative article. I have one question about what is a ‘foreign income’. Do I understand it right, If I had income from other EU country, while living and sole trading in UK, ( I did one time sale for EU customer) is it a foreign income? I would say it is not but I wanted to make sure as The HMRC notes on foreign income does not seem to mention this situation. Does it matter if the money that this EU client transfer were transferred into my other foreign(non-uk) monetary bank account in his currency and than transferred to my uk bank account in order to avoid bad exchange rate? Is the situation above similar to the one with pay pal that you described- meaning that although money went through foreign bank account in euros they eventually reached my UK bank account in pounds and this can be declared as if it was a UK income on end of the year tax return? Thank you very much in advance !

  6. Hi Magda,

    Foreign income is a specific category on your self assessment and I don’t go into that.

    What I am talking about are foreign currency payments for your business. There are many variations of what can happen so I listed the most common on the post and I don’t comment on specific situations outside of that 🙂

    Thanks, Rosie x

  7. Hi, i get paid to paypal in USD , paypal take a fee, and i also pay a fee to the website plaform of 33% of earning made there, I then convert whats left into stirling for cashing out and banking. can i just enter the stirling amounts which is what i withdraw to bank and basically what im getting or do i need to figure out the amount paid in stirling then put the paypal fees and website fees into a deduction some where, also needing to work out the stirling amount of each one? its just a lot easier to record my income after everyone has took there bit and use that as income? but obv not claiming any deductions for paypal or site fees if that makes sense? i always have all money cashed out at the end of the month so everything earned matches what i withdraw to bank, no money left in paypal etc. thanks for the help xx

  8. Hi Kath,

    You need to do the detail as that’s your accounts, although I appreciate it’s more work.

    If you need more help, why not join Tax Return Success in September, which includes How To Do Your Tax Return course, support calls and membership of The Money Haven private space with monthly Q&A (find out more here).

    Thanks, Rosie x

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