Beaglehound wrote: ↑Wed May 20, 2020 11:06 am
There will be currency conversion from sterling to yen as well, so worth checking with the tax office if they will require you to use the exchange rate for the income/expenses on the day they are received/paid out, or if they will let you do it on an annual basis, e.g. using the rate on December 31st of the tax year in question. TBH I have had mixed messages from the tax office on this in the past (I earn a small amount of overseas income) but I calculate using the mid-rate on the day the cash is received.
I'm not an accountant or tax specialist, but I'd bet that it has to be reported as on the day it was received. (same for expenses paid, losses, etc)
On those f/x conversions: I have worked with a global tax audit company for my taxes for 3 years, and their decision seemed to vastly depend on the person I was dealing with, the regularity of the income (per opposition to "one shot" incomes) as well as the amount involved.
In my experience captainspoke's bet is accurate, specifically in my case they told me to use the TTM rate on the day of the event. This was for stock in my case, so they look at the TTM on the day it was acquired for cost basis, and the TTM on the day it was sold for capital gain.
That was for the most specific guy I dealt with. In other cases, I've seen them use an average for the year or the month, not sure how it was calculated, but it looked like "yeah, let's say on average USDJPY was at 107 that year and we'll just do a quick conversion". I think this is acceptable for "small" amounts and when the income is pretty regular throughout the year (e.g. rental income every month probably falls in that category). I think the question to ask ourselves here is a "Return on Investment" one: if I just go with a rough average, how different will the result be compared to doing it precisely*? What would be the extra tax/penalty on that difference? If the delta is a trivial amount, nobody will bother.
Note that even when they did a rough calculation, the accounting company always told me to keep proof, and they provided as much info as possible in an appendix file that was sent to the tax office. It's another way of showing that everything was done in good faith.
*e.g. back of the envelope math: if you look at the past 12 months, USDJPY has moved between 105 and 110, if we ignore the coronavirus period for the sake of argument. That's less than a 5% swing. If you go with the average of 107.5, you're guaranteed that at worst you will be wrong by 2.5% on your conversion. That's really a worst case scenario, considering you had 12 payments throughout the year it will probably average out. On a monthly rent of, say, 200'000 JPY or equivalent, assuming no expenses at all and a tax rate of 30%, you owe about 700'000 in taxes. The question is how much time you are willing to spend to compensate for a potential difference (one way or the other) of 18'000 yen at most on your tax, and how much effort JP tax office would spend to chase you down for an honest approximation mistake of 2.5% on a subset of your tax.
(I realize you're probably using British pounds instead of USD, but the logic is probably similar, on years where the relative value of pound and yen did not vary too much)