Prepare for the euro

Make sure you're ready when the euro is adopted, urges Victoria Jonson, projects officer for the Association of Chartered Certified Accountants' Small Business Unit..

Expert advice

There are several straightforward practical changes that a business needs to make.

Depending on the level of "euro-land" trade a business does, it will benefit in terms of time and costs if it sets up a euro account, particularly as exposure to exchange risk and conversion costs will be avoided. Businesses with only a small number of transactions in currencies which will change to the euro may find a euro account unnecessary.

Accounting practices will be mostly unchanged, with the euro treated as another foreign currency. However, businesses which undertake a significant proportion of their financial transactions with the euro zone, or subsidiaries of an international group which decides to prepare its central accounts in euros, must consider changes to their accounting systems.

Businesses setting prices in euros need to consider the "psychological" price and "convenience" price of the service in euros. In sterling, a psychological price point could be £9.99 and a convenience price point a rounded figure, such as £10. Therefore, businesses will be faced with the choice of setting a psychological or convenience price or a direct equivalent from sterling to euro.

The extent to which a business deals in euros will dictate the level of modifications required to ensure that its IT systems meet the correct specifications. If a company is not wholly reliant on the euro, it is likely that its IT system may not need to run in both currencies.

New software packages have been developed to deal with conversion rules, but this is likely to be expensive and may be worth installing only if the euro is a significant part of a business. If a business's IT system generates reports to Customs and Excise, Inland Revenue, Companies House and other regulatory bodies, it may want to consider what amendments are necessary to avoid currency confusion. In addition, euro invoices will have to satisfy VAT requirements, so IT systems will need to be able to deal with euro and sterling reconciliation.

After 1 January 2002, customers and suppliers may not be willing to deal with non-euro businesses on the same terms, and may wish to deal only with those which use the euro. UK businesses should talk to customers and suppliers adopting the euro and ask if and when they want to pay or to receive payments in euros.

Assuring customers and suppliers of their flexibility to change could mean the difference between keeping or losing business.

The rules

Inland Revenue and Customs and Excise have accounting rules that must be followed. Since 1 January 1999, the two bodies have accepted the payment of taxes in euros and the administrative costs of dealing with these payments are borne by the Government.

In all cases the accounts are credited with their sterling value after conversion, using a prevailing sterling/euro exchange rate. Payments to the revenue departments are processed as quickly as possible to minimise any fluctuations in exchange rates. Records and accounts can be kept in euros but VAT and duty accounts must be kept in sterling.

Check list

• Check to see exactly how much European custom you get.

• You may need to open a euro bank account, upgrade your accounting and IT systems.

• Consider carefully your pricing structure - it will impact on margin or market share.

• Keep tabs on currency fluctuations when setting prices.

• Take advice from the taxation authorities as to their exact requirements.

Contacts

Association of Chartered Certified Accountants
Tel: 020 7396 5726
www.accaglobal.com
Treasurywww.euro.gov.uk
European Central Bank
www.ecb.int
Inland Revenue
www.inlandrevenue.gov.uk
HM Customs and Excise
www.open.gov.uk/customs/c&ehome.html
Further legal advice is available at
www.caterer.com/manager

Beware!

Failure to take account of the euro will mean a loss of business for establishments which cannot take euro payments from overseas customers.

It could mean chaos in terms of accounting and invoicing and will undoubtedly have a knock-on effect with the relevant taxation authorities.