Lost in Translation: The UK Contractor’s Guide to Getting Paid in Dollars

Originally posted on: 11 June 2025
Updated on: 22 July 2025

Introduction

We get numerous enquiries from UK tax residents who are looking to start work as a freelancer for an overseas firm, often UK-based Kiwis and Aussies working for clients back home. So today we take a good long look at what it means to work remotely in the UK for overseas clients.

After a decade dedicated to school runs, nativity plays, and the relentless logistics of family life, our blogs fictional character Lea was back in the game. Her successful retail marketing career, paused but not forgotten, was being rebooted on her own terms: three days a week, from her home office in the UK.

Cleverly leveraging her old network of contacts back in New Zealand, she’d landed her first contract. A few moments ago, she’d just pressed ‘send’ on her very first invoice. NZ$5,000. The feeling was pure, undiluted elation.

The elation, however, began to fizzle as she stared at the PDF on her screen. The crisp black font of ‘NZ$5,000’ started to look less like a victory and more like a problem set. A wave of questions, began to surface.

• “Hang on, I need to report his income in the UK as pounds…do I use today’s FX rate for my accounting records? Or the rate on the day they eventually pay me? Does it matter?”
• “My client mentioned something about ‘withholding tax’. Hang on, does that mean I’m going to be taxed in New Zealand and then again by HMRC here in the UK? Surely not?”
• “And how do I even get the money from Auckland to my account in Reading without my high street bank helping themselves to a massive slice of it in fees and a rubbish exchange rate?”
• “Ultimately, when it comes to my tax return, what is the exact figure in pounds and pence that I’m supposed to declare?”

That’s why we’ve put this guide together. In this article, we’re going to take a look at the entire process. We’ll untangle the rules on exchange rates, explain how the UK-NZ Double Taxation Agreement (DTA) protects you, and clarify the deal with UK VAT and NZ GST when you’re providing services overseas. Our promise at No Worries Accounting is to provide a clear, no-nonsense guide and a stress-free workflow, so you can get back to feeling that elation from earning the big bucks.

The Exchange Rate Conundrum: Telling HMRC What You Actually Earned

The first thing to understand is a rule that trips up almost everyone new to this: for tax purposes, when did the business earn the money? Was it on the day you do the work, or send the invoice, or the day your client pays you, or when you transfer the money to the UK?

So the question for Lea’s NZ$5,000 invoice is, “when was this money actually earned?”. Before we get to FX rates, you need to make one foundational choice.

First, Choose Your Accounting Method

HMRC gives you two ways to recognise your income. You need to pick one and stick with it.

1. Traditional (Accruals) Basis: You record income on the date you raise the invoice. This is the most common method for limited companies and what most accountants would recommend for a consulting business like Lea’s.
2. Cash Basis: You record income on the day the money actually hits your bank account. It’s simpler, but can be less accurate for tracking business performance, but is the most common form of accounting for sole traders.

For this guide, we’ll assume Lea is using her own limited company so we’ll focus on the accruals basis, as it’s the standard for her type of business. This means the crucial date is her invoice date.

Your Official Toolkit: Four HMRC-Approved Exchange Rate Methods

You can’t just pluck a rate from Google and hope for the best. HMRC needs you to use a consistent, justifiable method. The good news is, they approve several.

1. The Spot Rate: This means using the exact exchange rate on a specific day (e.g., your invoice date). You can get this from the numerous online sources. It’s the most precise method, but if you’re invoicing frequently, looking up daily rates can become a real admin headache.
2. The HMRC Monthly Average Rate: This is the practical, sensible middle ground for most contractors. Each month, HMRC publishes a table of official average exchange rates. You simply use the average rate for the month your invoice is dated.
3. The HMRC Annual Average Rate: Similar to the above, but it’s an average for the whole year. It’s simple, but it can be less accurate if the NZD/GBP rate has fluctuated wildly during the year.
4. The ‘Actual Sterling’ Method: If your client pays NZD directly to your UK bank and the bank converts it on arrival, you can use the actual sterling amount that was credited to your account. This really only works if you use the cash basis for your accounting, and you must keep the bank statement as proof.

HMRC’s own guidance states that any of these methods are acceptable, “provided the business applies the method consistently.” That’s the golden rule. Pick one and stick with it.

Let’s Run the Numbers for Lea

Let’s say Lea sent her NZ$5,000 invoice in May 2025 and decides to use the HMRC monthly average rate for simplicity and consistency.

• She looks up the official HMRC table, which shows the average rate for May 2025 is NZ$2.2443 to £1.
• The calculation is: NZ$5,000 ÷ 2.2443 = £2,227.87
• £2,227.87 is the official income figure she must record in her UK company accounts and ultimately declare to HMRC. It doesn’t matter if the rate is different when the client pays or when she transfers the money. That figure is now locked in.

The Easy Button: How Accounting Software Handles This

If all that sounds like a manual spreadsheet nightmare, you’re right. It would be. Thankfully, modern accounting software like Joy Pilot automates the entire process, keeping you compliant without the headache.

When you create an NZD invoice in Joy Pilot, it automatically converts it to sterling for you using a fully HMRC-compliant rate. The spot rates are updated in the background several times a day.

The software records the correct GBP income figure and the source of the rate automatically. If you later bring those funds across to the UK at a difference FX rate, it will correctly calculate any currency gain or loss as a separate transaction. This means you don’t need to worry about the different methods– the system is designed to handle it correctly, keeping a perfect digital audit trail for HMRC.

Elevate Your Accounting Experience

Dive into a world of exceptional tax, planning, and accounting solutions crafted for freelancers like you.

Take charge of your financial future.

Email us, call us, send a message from our Contact Us page, or even sign up online right away.

Your path to financial clarity starts here.

“…the service has been fabulous.”

Ah Mike, we think you’re pretty fabulous too!

The Double Tax Trap: Keeping Both the IRD and HMRC Happy

Alright, you’ve navigated the exchange rate issues, and have your official income figure in pounds sterling. Now you have the IRD in New Zealand and HMRC in the UK, both eyeing up your hard-earned income and keen to see their slice of the pie.

Will Lea be taxed twice on the same income? The short answer is No, but lets take a closer look.

The reason she is protected is the UK-New Zealand Double Taxation Agreement (DTA). Think of it as a formal set of rules agreed between the two countries, specifically designed to decide who gets to tax your income, ensuring you don’t pay twice.

For contractors like Lea, who are living and working physically in the UK for clients in New Zealand, the DTA makes things very simple. Here is the most important principle you need to know:

If all your work is performed physically in the UK, your income is considered UK-sourced and is only taxable in the UK.

Your New Zealand client should therefore pay your invoices in full, without deducting any New Zealand tax. In this standard scenario, you simply declare the income on your UK tax return and pay UK tax on the profits. Job done.

So, Why Might a Client Mention Withholding Tax?

If the rule is so clear, why would a client in New Zealand even bring up the topic of deducting tax? It’s because the rules change the moment you, or your work, have a physical presence in New Zealand. This is where New Zealand’s domestic tax laws, like the Non-Resident Contractors Tax (NRCT), can be triggered.

NRCT is a 15% tax (that is the default rate) that NZ clients are required to withhold from payments to overseas contractors for services performed in New Zealand.

Here’s the good news: the system has built-in exemptions that mean for most short-term work, it’s still not an issue.

When Does New Zealand Tax Bite? The Tripwires to Watch For

Think of these as the triggers that can switch on NZ’s right to tax your income.

• You’re 100% remote like Lea: You perform all your work from your UK office.
  • Verdict: No NZ tax. Your income has no physical connection to New Zealand, so your client has no basis to withhold NRCT.
• You pop over to NZ for a short work trip: You visit for client meetings or to work on-site for a few weeks.
  • Verdict: Almost certainly no NZ tax. You are automatically exempt from NRCT as long as you stay below these two thresholds:
    1. You spend 92 days or fewer physically present in New Zealand in any 12-month period.
    2. Your NZ-sourced income remains NZ$15,000 or less in that same period.
  • As long as you don’t breach both of those limits, your client should not withhold tax.
• You have a longer assignment in NZ: You breach the 92-day or NZ$15,000 limits.
  • Verdict: Now it gets real. Your NZ client is legally required to withhold 15% NRCT from your payments. The only way to prevent this is to apply to the IRD in advance for an NRCT Certificate of Exemption, which is usually granted if you can prove you don’t have a “permanent establishment” (like a fixed office) in New Zealand.

What if Tax is Withheld? Claiming it Back with Foreign Tax Credit

Let’s imagine a scenario where Lea did have a longer project that required her to work in New Zealand for four months, breaching the 92-day rule. Her client correctly withholds 15% NRCT. This is where the DTA comes to the rescue on her UK tax return.

The process works like this:

1. Declare Your Gross Income: You still declare your full, pre-tax income to HMRC.
2. Claim Your Credit: You then claim the amount of NZ tax that was deducted as a Foreign Tax Credit (FTC).

The FTC acts as a direct, pound-for-pound discount on her final UK tax bill.

The VAT & GST Question: Navigating Sales Tax

Just when you think you’ve got your head around income tax, here comes sales tax. Does Lea need to add UK VAT to her invoice? Or what about New Zealand’s GST?

It’s a common point of confusion, but for most UK-based contractors providing remote services to NZ businesses, the answer is refreshingly simple.

UK VAT: Do You Charge It? In short: No.

The key is something called the ‘place of supply’. For business-to-business (B2B) services like marketing consultancy, the rule is that the supply is deemed to happen where your customer is based. Since your client is in New Zealand, the service is officially ‘outside the scope of UK VAT’.

The best part? Because this income is outside the scope, it does not count towards the UK’s £90,000 VAT registration threshold. You could earn well over this limit from NZ clients without ever needing to register for VAT, as long as your UK-based sales remain below the threshold.

New Zealand GST: Do You Charge It? Again, it’s usually a No.

New Zealand’s rules for remote services are designed to tax sales to private consumers, not to other businesses. As long as your client is a GST-registered business in New Zealand, you have no obligation to register for or charge NZ GST. The responsibility sits with them.

Putting It Into Practice: Your Invoice

This means your invoice to your NZ client should be clean and simple, with no VAT or GST added. And if your business was VAT registered in the UK, you would still leave VAT off your invoice completely.

Getting Paid Without Getting Fleeced: Your NZD-to-GBP Workflow

Great, you now have a better understanding of the exchange rate rules and how the double-taxation rules work. Now for the final, practical step: physically getting your NZD$5,000 from your client in Auckland into your UK business bank account without losing a small fortune in the process.

This is where contractors are now is a much better position that was possible 10 years ago.

The Old Way (The Money Pit)

The traditional route is to give your NZ client the IBAN and SWIFT/BIC code for your UK high-street bank account. It seems simple enough, but it’s a guaranteed way to lose 3-5% of your income before it even lands.

Here’s why it’s a financial trap:

1. Poor Exchange Rates: Your bank won’t give you the real, mid-market exchange rate you see on the news. They’ll give you their own ‘tourist rate’, which has a hefty margin baked in for their benefit, not yours.
2. Exorbitant Fees: You’ll likely be hit with a receiving fee by your UK bank, and your client’s bank may also charge a sending fee. Sometimes, an intermediary bank in the middle of the transfer will even help itself to a slice.

On a NZ$5,000 invoice, this combination of bad rates and multiple fees could easily cost you £100-£150. That’s a significant chunk of your profit, sacrificed for nothing.

The Modern Way

Thankfully, there is a much better way. Modern fintech solutions like Wise, Revolut, or Airwallex are non-negotiable, essential tools for any serious international contractor. They are built specifically to solve this problem.

Here’s the genius of how they work: they provide you with your own set of local bank details in different countries. When you sign up for a business account, you get a unique NZ bank account number.

You simply give these NZ bank details to your client. To them, it’s just a standard, local bank transfer – simple, fast, and free. The NZD$5,000 lands in your dedicated NZD wallet within the platform, completely untouched. Now, you are in control.

Your Step-by-Step Workflow for Perfect Payments

Here is the exact five-step process to follow for every invoice, ensuring you maximise your earnings and keep your accounts pristine.

1. Invoice: Send your invoice for NZ$5,000 from your UK company, including your dedicated NZ bank details from your multi-currency platform.
2. Receive: Your client makes a simple local payment. The full NZ$5,000 appears in your NZD wallet moments later.
3. Record: In your UK accounting software (like Joy Pilot), you record the sale. The system, using the current FX rate from your invoice date, logs the income as, for example, £2,227.87. This is your official, taxable UK income.
4. Convert & Transfer: When you want, you now convert the NZD to GBP within the platform. You’ll get a transparent, mid-market rate with a very small, upfront fee. You then transfer the final GBP amount to your main UK high-street business bank account.
5. Reconcile: The amount that lands in your UK bank (say, £2,225) might be slightly different from the £2,227.87 you recorded as income. This is perfectly normal. It’s simply due to the exchange rate moving between the invoice date and the transfer date. Your accounting software will handle this automatically, posting the £2.87 difference as a ‘realised currency loss’.

By following this workflow, you not only save a huge amount on fees but also create a perfect, clean audit trail that keeps your accounts accurate and your tax reporting simple. You’ve successfully navigated the entire process, from invoice to income, like a pro.

Wrapping It Up

Lea is back in control. The cloud of currency confusion has lifted, replaced by the clarity of a solid, repeatable process. That initial buzz of excitement she felt when sending her first invoice is back, and this time it’s here to stay.

Contracting for New Zealand clients (or any overseas clients for that matter) while living in the UK is a fantastic and increasingly popular way to build a flexible, rewarding career. But as we’ve seen, it comes with a unique set of administrative hurdles. Getting it right means you keep more of your hard-earned money and stay stress-free.

Knowledge is power, but a great process is freedom. The freedom to focus on your clients and grow your business, rather than worrying about compliance.

Don’t let the administration overshadow your achievement. Whether you’re just starting out like Lea or you’re an established business expanding your client base to New Zealand, the principles are the same. If you’re feeling unsure about any step in this process, we’re here to help.