Can my small company invest in Euros?

lovinituk

I run a small company and receive the proceeds of some sales in Euros. As the exchange rate is not very favourable for converting these in to GBP at the moment, I have left them building up in a currency account for a few months. I assume the company can invest these Euros somewhere but its certainly not a field I have any experience in.

The currency account they are collecting dust in doesn't pay any interest and I would imagine it will be some while until its worth converting back to GBP.

Any advice would be welcome.

TakeCareOfThePennies_2

You can invest in Euros, just open a Euro denominated account and Robert is your uncle.

Whether you should is another matter that could be open to debate.

In the end, only you know your business and what it needs the foreign currency exposure for. Trying to be clever with small sums of money is probably going to end up with a bigger loss for you than just converting to GBP at an unfavourable exchange rate. Especially if the EURs are just coming from customer payments and you don't need the forex exposure for anything else.

Unless you're talking about millions of euros (in which case you'll be able to get professional assistance in your quest, rather than some random online forum), quite frankly it's probably for your own good if you just leave it "gathering dust" in a EUR account whilst you wait for an exchange rate you're happy with.

lovinituk

TakeCareOfThePennies wrote: »

You can invest in Euros, just open a Euro denominated account and Robert is your uncle.

Whether you should is another matter that could be open to debate.

I suppose I was thinking of more longer term investments than just a simple savings account. Plus opening accounts in other EU countries is difficult if you don't have a physical presence there. The currency account the funds are currently in is French based account but is actually a client account held with a FX company. So essentially my company doesn't actually have the account in France.

I do have a UK based EUR currency account with Barclays but you can't have Euros from Amazon sales disbursed in to it without Amazon first exchanging the EUR to GBP and then Barclays having to convert it back to EUR!! Hence the reason I have to have the client account in France to be able to receive the disbursements from Amazon in Euros.

At least its not as bad as Paypal. I have thousands of pounds worth of Euros and AUD sat there and I can't get them out without converting them to to GBP first. As it currently stands, there is no way of getting other currencies out of a UK Paypal account. Got me right by the short and curlies they have!

lovinituk

TakeCareOfThePennies wrote: »

quite frankly it's probably for your own good if you just leave it "gathering dust" in a EUR account whilst you wait for an exchange rate you're happy with.

Just seen your edit. I guess I'm thinking that if I'm happy for it to sit and collect dust then why not take a punt in some longer term investments. I'm not risk adverse and these funds are not critical to our cash flow. Is it not sensible to make investments in Euros if the value is less than 'millions'? I'm currently talking about EUR10,000 but that is climbing all the time.

TakeCareOfThePennies_2

lovinituk,

why not take a punt in some longer term investments.

Because I'm guessing your business is not in the business of investment management ?

The usual way of dealing with forex exposure in business is to do fancy things on the currency markets, hedging and such like. But that's tricky to do right and needs experience, which is why its normally only done with large sums of money where the risk vs reward makes it worthwhile.

The only time you really get involved with investing is if you're dealing with the company's pension fund that has some investments. But I guess you don't have enough spare to put some into a pension fund !

Of course, if you were to pay yourself the Euros and invest them on a personal level that would be another matter, but to simply invest within the business would, at least as I understand it, be a little bit unusual and perhaps raise some eyebrows at your accountants and/or tax authorities.

Others on here may of course say I'm wrong, I'm just stating my view of the world...

It does sound like you are in a bit of a rock and hard place scenario with Amazon and Paypal though ! I will come back to this thread if I can think of any alternative options.

lovinituk

TakeCareOfThePennies wrote: »

lovinituk,

Because I'm guessing your business is not in the business of investment management ?

The usual way of dealing with forex exposure in business is to do fancy things on the currency markets, hedging and such like. But that's tricky to do right and needs experience, which is why its normally only done with large sums of money where the risk vs reward makes it worthwhile.

The only time you really get involved with investing is if you're dealing with the company's pension fund that has some investments. But I guess you don't have enough spare to put some into a pension fund !

Are they the usual ways, or the only ways? The company already pays in to pensions for my wife and I, who are the only directors. But that still doesn't help the Euro situation as they would still need to be converted to GBP first.

TakeCareOfThePennies wrote: »

Of course, if you were to pay yourself the Euros and invest them on a personal level that would be another matter, but to simply invest within the business would, at least as I understand it, be a little bit unusual and perhaps raise some eyebrows at your accountants and/or tax authorities.

I had a quick flick through some Google search results the other day and it appears its good advice to invest surplus funds through the business (although this all related to GBP investments) rather than take them out on a personal level and pay income tax prior to the investment.

As directors, my wife and I have already drawn the maximum in salary and dividends before hitting the higher rate tax bracket so any further dividend drawings from retained profit would see 25% in income tax needing to be paid (or 40% if we took the additonal funds as wages!) before any personal investment could be made. That's really not a sensible move!

bowlhead99

lovinituk wrote: »

As directors, my wife and I have already drawn the maximum in salary and dividends before hitting the higher rate tax bracket so any further dividend drawings from retained profit would see 25% in income tax needing to be paid (or 40% if we took the additonal funds as wages!) before any personal investment could be made. That's really not a sensible move!

So, just to check your thought process, you think it would be better to invest the Euros, make profits/ gains, pay corporation tax on the profits and then later take the net proceeds out of the business, and pay the 25% dividend tax or the 40%+ wages taxes at that point instead?

Whether this is a shrewd move is perhaps dependent on your future business profits and whether you are always going to be paying high rate income taxes when you take the money out of the company -or can perhaps structure it as gains when you later exit the business.

Certainly if you take the money out of the business when it's reasonably small, you can then use ISAs, annual capital gains exemptions etc. So maybe paying yourself a Euro dividend and then investing the Euro proceeds personally is an opportunity that shouldn't be dismissed out of hand. But unlikely to be as beneficial as making company pension contributions.

You suggest it is not "worth" converting to GBP at current rates, implying the value of a Euro is currently less than what it is really worth on a long term view. So, that implies it is "worth" having Euros and it is not, relatively, worth having any pounds sterling. Why do you think then, that so many people living in the UK who do not immediately need all their pounds sterling have not gone out and bought a monster amount of Euros with their pounds?? Is it perhaps that the Euro price is what it is because we, the market participants, say that its value *is* fair at the moment, on the basis of all the information currently known by the market...

lovinituk

bowlhead99 wrote: »

So, just to check your thought process, you think it would be better to invest the Euros, make profits/ gains, pay corporation tax on the profits and then later take the net proceeds out of the business, and pay the 25% dividend tax or the 40%+ wages taxes at that point instead?

No, not at all and I'm not sure where I ever implied that?! The gains can be invested directly in to the pensions and/or at a later date when the company is sold prior to retirement, taking advantage of the much lower entrepreneur relief.

bowlhead99 wrote: »

Whether this is a shrewd move is perhaps dependent on your future business profits and whether you are always going to be paying high rate income taxes when you take the money out of the company -or can perhaps structure it as gains when you later exit the business.

As above.

bowlhead99 wrote: »

Certainly if you take the money out of the business when it's reasonably small, you can then use ISAs, annual capital gains exemptions etc. So maybe paying yourself a Euro dividend and then investing the Euro proceeds personally is an opportunity that shouldn't be dismissed out of hand. But unlikely to be as beneficial as making company pension contributions.

As above, pensions is the way to go in the long term in my mind.

bowlhead99 wrote: »

You suggest it is not "worth" converting to GBP at current rates, implying the value of a Euro is currently less than what it is really worth on a long term view. So, that implies it is "worth" having Euros and it is not, relatively, worth having any pounds sterling. Why do you think then, that so many people living in the UK who do not immediately need all their pounds sterling have not gone out and bought a monster amount of Euros with their pounds?? Is it perhaps that the Euro price is what it is because we, the market participants, say that its value *is* fair at the moment, on the basis of all the information currently known by the market...

Some do invest in Euros if they know what they are doing. If I wasn't receiving Euros, I doubt I would be thinking in investing in them. Perhaps the exchange rates will return to a better level for me to exchange back to Sterling in the future... perhaps they won't. Isn't that what investment risk is all about?

TakeCareOfThePennies_2

lovinituk,

This link may contain some food for thought.....

http://www.accountingweb.co.uk/anyanswers/question/investment-company-or-maybe-not

lovinituk

TakeCareOfThePennies wrote: »

lovinituk,

This link may contain some food for thought.....

http://www.accountingweb.co.uk/anyanswers/question/investment-company-or-maybe-not

I'm not sure how that's relevant to my situation? We are an active retailer/wholesaler and our turnover from the sales dwarves any potential investment made with the Euros. I don't see how the two scenarios can be compared?

bowlhead99

lovinituk wrote: »

As the exchange rate is not very favourable for converting these in to GBP at the moment...

...The currency account they are collecting dust in doesn't pay any interest and I would imagine it will be some while until its worth converting back to GBP.

The above is the voice of a man who naively thinks he can second-guess the global currency markets and that the number of pounds his Euros are worth is somehow not the number of pounds that the Euros are *really* worth.

I assume the company can invest these Euros somewhere but its certainly not a field I have any experience in.

A reason not to try to exploit the "opportunity" of having assets in a currency you don't have any use for.

If I wasn't receiving Euros, I doubt I would be thinking in investing in them. Perhaps the exchange rates will return to a better level for me to exchange back to Sterling in the future... perhaps they won't

Better!

By all means, invest the company's money in pensions now or later. No specific reason to invest it in Euro-denominated assets is jumping out at me.