Frequently Asked Questions about the euro - UK companies

Contents

General questions

Accounts questions

Payment questions

General questions

Q. Why was 1 January 2002 a significant date for UK individuals and businesses?

A. On 1 January 2002, euro cash was introduced in the twelve euro-area countries. By 28 February 2002, at the latest, their respective national currencies were withdrawn from circulation and have ceased to be legal tender.

Businesses in the UK that have links with the 12 euro-area countries, must now expect to find all financial transactions being carried out in euro.

Q. Can a UK Tax Return be completed in euros?

A. No. All the taxes that HMRC administers are sterling taxes. Judges have ruled that these taxes can only be assessed and charged in sterling. Therefore, all tax returns must be completed in sterling. If you receive taxable income in euro, or any other foreign currency, it must be converted into sterling. There are no plans for this to change.

For example:

1. If you receive income in euro in the form of monthly interest on your personal euro bank account, then this should be translated at the spot rate for the last day of each month. If you receive annual interest, then this should be translated at the spot rate on the day the interest is received.

2. If you invoice a business customer for 200 euro, then use the spot rate for that day to convert to sterling for your accounts, and when you receive payment of 200 euro, then use the spot rate for that day to convert. Any difference in the two sterling amounts is an exchange rate loss or gain that should be reflected in your accounts. Alternatively, providing the exchange rate has not fluctuated too much, then the monthly average figure can be used for each transaction instead of the daily spot rate.

You can find out what the exchange rate was for any particular day (ie the daily spot rate) from the Bank of England website

Accounts questions

Q. Can a UK business draw up its accounts in euro?

A. A company's accounts should accurately reflect the state of its business and the transactions it has undertaken. In particular, a company is legally obliged to prepare accounts that give a true and fair view. It will depend on the nature of the enterprise and the extent to which it carries on business in euro, and has assets and liabilities denominated in euro, whether euro accounts will present such a true and fair view. You should talk to your accountant before taking any steps to keep financial records in a non-sterling currency, or to change the currency in which you prepare your accounts.

You do not have to get clearance from HMRC to draw up accounts in euro, but you may need to compute the company's taxable profits in sterling.

Q. Can a UK business draw up its tax computation and other supporting calculations in euro?

A. Yes. A UK business can normally prepare and submit most of its tax computation in euro, but it would have to convert the final figures into sterling to complete its tax return.

However, the detailed answer depends on the accounting period that you are referring to, because the Finance Act 2000 simplified the way that Company Tax is computed by companies who keep their accounts in euro (or in any other foreign currency):

For periods beginning after 31 December 1999
Any company that draws up their accounts in euro can compute their profits in euro and translate the result into sterling.

For periods beginning on or before 31 December 1999
If your company had made a 'local currency election', and drew up its accounts in euro, you could compute your company's profits in euro and translate the result into sterling.
If your company had not made a 'local currency election', you would have had to take your euro accounts and work out what exchange gains and losses would have arisen had the accounts been in sterling, then include any taxable gains and losses in your company's tax computation.

The exception is the capital gains tax computation that must be calculated in sterling, as dictated by current legislation.

Q. What exchange rate should I use to convert euro accounts and computations into sterling to complete the tax return?

A. If your company's accounts are completed in euro, you can compute the company's corporation tax (CT) profit in euro and translate the result into sterling for the self-assessment form.

The rules about which exchange rate you should use to do this have been simplified by Finance Act 2002.

For company accounting periods beginning on or after 1 October 2002:

You should use the euro/sterling exchange rate that would be used if the company's accounts were translated into sterling in accordance with generally accepted accounting principles. This might be the exchange rate for the last day of the company's accounting period, or an average exchange rate for the period. Your company's accountants or auditors should be able to advise which is the more appropriate in your company's particular case. Whichever you choose, you should use a consistent approach in successive accounting periods.

For accounting periods beginning before 1 October 2002:

You should use the euro/sterling exchange rate for the last day of the accounting period. You can use an average exchange rate, but only if the company makes a written election to its tax inspector to do so. The election has to be made during the accounting period for which it is to apply.

Q. Can I use average exchange rates if my company's financial year does not coincide with the end of the tax year?

A. No. The HMRC website (see 'Rates and tables') gives average exchange rates between various foreign currencies and sterling, including between euro and sterling, for years ending 31 March and 31 December. Arithmetically, you will not get the right answer if you try to apportion the average rates for two successive calendar or tax years.

The average rates which you can find on the HMRC website are an average of the daily exchange rates published daily in the Financial Times (the London closing rate for each day). However, you are not obliged to use these rates. Your company's accountant or bankers should be able to tell you the average exchange rate for the company's accounting period.

Q. What exchange rate should I use to convert my euro income and expenses into sterling to include in my sterling accounts?

A. The exchange rate to use to convert euro expenses or income into sterling is really an accounting matter, and not an issue on which HMRC can advise. A UK company must follow generally accepted accounting practices when drawing up its accounts. However, as a general rule, items of income should be translated at the rate prevailing when the income arose, and items of expense should be translated at the rate prevailing when the expense was incurred. Further details can be found in SSAP20 (Statement of Standard Accounting Practice), which deals with foreign currency translations.

For example:

1) If you receive monthly interest on your euro bank account, then this should be translated at the spot rate for the last day of each month, or if you have annual interest, then this should be translated at the spot rate on the day the interest is received.

2) If you invoice a customer for 200 euro, then use the spot rate for that day to convert to sterling for your accounts, and when you receive payment of 200 euro, then use the spot rate for that day to convert. Any difference in the two sterling amounts is an exchange rate loss or gain that should be reflected in your accounts. Alternatively, providing the exchange rate has not fluctuated too much, then the monthly average figure can be used for each transaction instead of the daily spot rate.

The Bank of England issues daily exchange rate figures, which can be found on the Bank of England website
The average exchange rate for year ended 31 March or 31 December can be found on the HMRC website under 'Rates and tables' [Select the option 'Exchange Rates' and enter the country as 'European Union'].

3) Any exchange gains or losses on monetary assets (such as bank deposits in euro) or liabilities (such as loans in euro) must be accounted for. To do this the value of the assets and liabilities must be translated into sterling at the year-end exchange rate, and compared to the values at the previous year-end. Any increase in value is an exchange profit, and must be reflected in profit in its accounts, even though it has not yet been realised.

In this respect, euro is no different to any other foreign currency. Therefore if you are used to dealing, say in American dollars, then apply the same rules but use the euro-sterling exchange rate rather than the dollar-sterling exchange rate.

Q. Can I use the same exchange rate to calculate my company's profit in sterling, and to calculate the tax payable in euro?

A. No. The exchange rate at payment is NOT linked to the exchange rate you must use for your tax calculations. The exchange rate used for tax calculations is a historical rate, but the exchange rate used for a payment is the one in force at the time of that payment. Once your tax liability has been calculated in sterling, it will remain the same whether you chose to pay in sterling or in euro.

Q. Does HMRC have a daily exchange rate telephone helpline for VAT?

A. Yes. HMRC does have a telephone helpline (01702 366349), which could be used as one source of information to help you make an estimate of the exchange rate on the day of payment. Other sources include:

a) Bank of England website
b) High Street Banks
c) Ceefax / Teletext

Q. Are there any tax consequences for converting share capital, assets or contracts into euro?

A. Under current law there are sometimes tax consequences if assets or contracts are converted from one currency to another. You will not usually have to pay more tax as a result of conversion as long as the original currency is of a country from the euro area.

Q. Will HMRC regard the automatic conversion of shares to euro as a redemption of shares in which case tax will have to be paid?

A. As far as chargeable gains are concerned, the consequences of changing a company's share capital from nominal value in £ to € are exactly the same as a change from £ to any other foreign currency. A straightforward re-denomination of shares from £ to € would be classed as a 'reorganisation' within s.126 TCGA 1992. This would not be regarded as a disposal for the purposes of capital gains tax. Instead shareholders would roll over the cost of the £ shares into the 'new' shares.

Payment questions

Q. Which tax and National Insurance liabilities can I pay in euro?

A. You can pay any tax or National Insurance liability in euro, and we will convert the payments into sterling.

You can pay by:

  • Bacs Direct Credit, Internet or Telephone banking
  • CHAPS
  • Euro denominated cheque
  • Euro notes (HMRC offices at Ports and Airports only)

You can find further details about euro payment procedures in the area specific guides within the Paying HMRC section of this website.

Paying HM Revenue & Customs.

Q. What charges will be made for converting euro payments into sterling?

A. We will not pass on to you any of our administrative costs for converting euro into sterling unless it is a euro payment drawn on an overseas bank account. However, we will not meet the risk of any currency value fluctuations.

Q. What exchange rate do I use to convert my sterling tax and National Insurance liabilities into a euro amount for payment?

You have to estimate the exchange rate at the time of payment, because the actual rate used is the one in force when the clearing bank presents your payment. This rate cannot be predicted in advance by HMRC, so we cannot set a rate for you.

There are a number of different sources of information that can help you make an estimate of the exchange rate on the day of payment. These include:

  1. Bank of England website)
  2. High Street Banks
  3. HMRC Daily Exchange Rates Helpline (01702 366349)
  4. Ceefax / Teletext

Q. What happens if the converted amount is either too much or too little?

A. The rate of exchange between sterling and the euro can vary many times during the same day, as with any other currency. The exchange rate used is the one in force when your payment is presented by the clearing bank. If the rate used for converting euro into sterling leaves a shortfall, you may have to pay the difference. If you overpay, any repayment arising will be made to you in sterling.

Although you cannot totally eliminate the risk of shortfall or overpayment, you can minimise it by using Bacs Direct Credit, Internet or Telephone banking or CHAPS rather than cheque. All of these methods reduce the time it takes for the payment to be cleared through the banking system.

Q. If I make my tax payments in euro, will any repayments be made in euro?

A. No. All tax repayments are made in sterling, including overpayments due to exchange rate fluctuations.

Q. Can I pay my UK tax bill directly from my euro account based in a euro-area country? If so, how?

A.There are a number of methods of payment that can be used from euro bank accounts held overseas, depending on the value of the payment:

1) A Bacs Direct Credit, Internet or Telephone banking or CHAPS transfer to the relevant HMRC bank account, which will be accepted for any amount. This is our preferred method of payment from an overseas account, and is also the best method for you to minimise your risk of overpayment or underpayment due to exchange rate fluctuations.

2) A euro cheque (drawn on an overseas euro account), which will be accepted only if your tax liabilities are over £50. (Cheques for less than the equivalent of £50 that are drawn on an overseas euro account would be returned, because of the high bank charges for conversion.)

3) A Eurocheque (from a Eurocheque account) will be accepted providing individual Eurocheques do not exceed the equivalent of £700. (Eurocheques for less than the equivalent of £700 cost the same as a sterling cheque to process, but Eurocheques for more than £700 incur higher bank charges for conversion.) If your tax liabilities exceed £700, then more than one Eurocheque can be submitted for a single tax liability, but each individual Eurocheque should not exceed the equivalent of £700.

Paying by Euro

If you choose to use Bacs Direct Credit, Internet or Telephone banking or CHAPS , you will need to provide your bank or building society with HMRC’s bank account details. You should check with your bank or building society to see how long it takes to transfer a payment.

International Bank Account Number (IBAN)

SWIFT Bank Identifier Code (BIC)

Account Name

GB05CITI08321012001020

CITIGB2L

HMRC Shipley

GB74CITI08321012001039

CITIGB2L

HMRC Cumbernauld

Note: You must provide your bank with both the IBAN and SWIFT BIC Code.

You can find further details about euro payment procedures in the area specific guides within the Paying HMRC section of this website.

Paying HM Revenue & Customs.