Loan from Euro paying back GBP

Loan from Euro paying back GBP

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Hiya

I have a client who took a directors loan from his euro account and because of having to pay transfer fees etc he wants to pay it back to the GBP account.  If he borrowed 10k worth in GBP does he pay back 10k or does he have to pay back what 10k is now worth because of the exchange rates from GBP?

The Euro rate is quite high at the moment so if he paid it back today it would cost extra however if he had borrowed it originally from the GBP account he wouldn't have to pay back more just because the pound is worth more .  

I'm struggling to get my head round the legalities of it?

Thanks

Clara 

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By User deleted
24th Sep 2014 15:51

From whose perspective are you thinking? The bank or the company?

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By johngroganjga
24th Sep 2014 16:31

You need to talk to your client about whether the loan was a Euro loan or a GBP loan.  if there are other shareholders he will have to agree which it is with them.  If he is the only shareholder he can basically decide what he wants it to be.

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By clara-casa
24th Sep 2014 17:20

The problem is the loan was transferred out of the Euro account into a specific GBP value.  The perspective I'm looking at is from the company/director/accountancy point of view.

 

My thoughts are that if he borrowed 10k worth in GBP the amount repaid to the GBP account should be 10k. However as the Euro has gone up he would technically only have to pay back for instance £9980 or if the Euro had gone down would he have to pay back £10020 – this is where my quandary is?

Thanks for your help and thoughts.

Clara 

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By johngroganjga
24th Sep 2014 17:25

It's not a problem.  And

It's not a problem.  And there is no quandary.  It's just something that your client has to decide - which is easy if there are no other shareholders whose interests are involved.

Perhaps you can help him to decide by showing which result each assumption gives.

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By User deleted
24th Sep 2014 17:45

As john says ...

.. if he is sole director/shareholder then what ever works best.

If he borrowed say €12,000 @ 1.20 = £10,000, no reason why he should not pay back €12,000 even though only costs £9,600 @ 1.25, which he can put in sterling account.

If you book the loan as £10,000 then credit £10,000 against that and write off £400 as exchange loss.

If he had paid in €12000 to the Euro account and then transferred it as £9600 to the Sterling account would you still have the same quandary, or if he had transferrred the money to the Euro account as €12,000 would you?

Convionced myself now, doesn't matter if other shareholders as effect the same, if he borrowed €12,000 he only need repay €12,000 or equivalent at time of repayment.

Think of it like this, if he had not borrowed the money and if the company transferred €12,000 to the sterling account today only £9,600 would get there so the company has made no loss, the director has been fortunate.

Had rates gone the other way and he only repaid £10,000 it would be more problematic if other shareholders/directors involved.

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