IR35 :Director's liability

Regulation 72(5) Conditions A & B

Introduction

By each 19th May, PAYE registered persons or companies are obliged to file a P35 return with HMRC. Contractors and Freelancers trading inside IR35 have alsoto declare the PAYE deducted on the deemed payment.

As both a Director and/or an employee of a Limited Company many Contractors and Freelancers do not realise that they can be personally liable to repay hundreds of thousands of pounds in PAYE if HMRC apply a Direction under Regulation & 72(5) Condition A or B.ed.

What happens if a company has declared the wrong amounts of PAYE?

If HMRC find that wrong amounts of Tax and NICs have been declared (or not), they have two redressess ( known as Condition A and B ), two entities to address them to (the company and/or its directors) and virtually no time limits in which to apply them.

Direction under Regulation 72(5) Condition A Was the under deduction an honest failure?

It is the employer who carries the prime liability to deduct PAYE. Under Direction 72(5) Condition A, HMRC possess the power to settle or make liable any underpaid or non-declared PAYE on the employee or director if they deem that the error or failure was an honest error on the employer’s behalf.

To do this, HMRC must first satisfy themselves that the employer took “reasonable care to comply with the PAYE regulations”, and that “the failure to deduct the correct amount of tax was due to an error made in good faith”

Contractors and Freelancers who operate their business through a single director owned limited company are in effect both employer and employee with regards to their limited company.

If the company became the subject of an IR35 investigation and as a result it was later established that the Limited Company had been operating in a manner putting them inside IR35, but had declared on P35 that it was operating outside IR35, the Limited Company would then owe HMRC a potentially large amount of PAYE.

HMRC could then seek a Direction under 72(5) Condition A to hold either the employee or the director of the Limited Company liable for this extra PAYE if they have satisfied themselves that the employer had took reasonable care to comply with PAYE regulations.

By virtue of Regulation 72(7) and (8) interest on top of the amount owed will apply and possibly penalties if HMRC assess that either the employer or employee didn’t take “reasonable care and acted in good faith when making the error”.

Contractors and Freelancers need to be aware then, that in cases of an IR35 dispute , HMRC could hold the worker/director/employee personally liable for the unpaid PAYE where the dispute is lost, even in cases where the employee/director did all they could to satisfy themselves that they were outside IR35.

Umbrella Company employees may well need to consider carefully their expense claims as if they have claimed expenses in error, but HMRC are satisfied that the employer has done everything in their power to operate PAYE correctly, the employee could be liable under a Regulation 72(5) Direction.

Was the under deduction a dishonest or wilful failure? – Regulation 72(5) Condition B.

Under Regulation 72(5) condition B HMRC can seek to obtain settlement of the debt from the director of the company where:

“An employee or director received payments knowing that the employer had wilfully (that is deliberately) failed to deduct the correct amount of PAYE from their earnings, and
the prospects of recovery from the employee or director are reasonably good

The regulations are used most frequently against directors in small private limited companies where they are in effect acting in two capacities:

as the employer paying themselves employment income and
as an employee

There must be firm evidence that the director at the time of the relevant payment had some stake in, or control of, the business finances of the company or was in a position to exercise such control”.

So in a case where a Contractor and Freelancer deliberatly ignores IR35 regulations and does not declare a deemed payment on a P35 then HMRC may seek a Direction under Regulation 72 (5) Condition B and hold the director of the Limited Company personally liable for the PAYE.

Company Closure

If an application for a striking off order has been made to close the company down, Companies House will write and advise the Inland Revenue to ensure all debts are paid before the company is removed from the register.

HMRC can object to a company being closed should they wish. They will do so if returns are outstanding or they wish to open an enquiry.

If HMRC choose to apply Regulation 72(5) Condition A and B , then regardless of whether the company is struck off or not; HMRC can claim settlement of the debt from the employee or director.

Conclusion

Contractors and Freelancers can be held personally liable for the PAYE debts in relation to their personal income from either a Limited Company or an Umbrella Company. There is no time limit for HMRC to use these powers, and it makes no difference if a company is closed down.

This article is heavily dependant on one by Phil Richards of BFCA which can be accessed here http://bit.ly/esjeb

Pub leases – Assignment and sub-letting, Repossession & Stamp Duty

Assignment and sub-letting

Most commercial leases will contain provisions restricting the tenant’s ability to deal with the lease or the property: any transfer of the lease will need the landlord’s consent – which cannot normally be unreasonably withheld, though the landlord might insist on the outgoing tenant guaranteeing performance of the incoming tenant’s obligations; subletting might be completely prohibited, or subject to the landlord’s unrestricted approval.

Repossession

The lease will normally include a right for the landlord to “repossess” (take back) the property if the rent is paid late or if any of the tenant’s other obligations is not fulfilled. If the landlord seeks to use this right, both landlord and tenant should seek immediate professional advice, as the law relating to these provisions is both detailed and complex.

Tenants should note that repossession will not “wipe the slate clean”: they will still be liable to pay any money that is due, including (usually) the cost of any “dilapidations”: repairs needed to bring the property up to the standard required under the lease.

Stamp Duty Land Tax

In addition to the Tenant paying Stamp Duty Land Tax (SDLT) when the lease is granted, SDLT returns may be needed, and further SDLT due, if the lease is varied or extended, if there is a rent review within the first 5 years of the lease term or (sometimes) if you remain in occupation of the property after the lease expires.

FAQ - Selling online

The Internet has previously been considered a holy grail for wealth and massive revenues. Although that perception had to be amended, it is still true that your web site can provide you with additional income. However, not every product or service is suitable to be sold online. Always remember that your customers will judge the experience, not only the product. This means if your delivery system is not efficient or your delivery costs are too high people are unlikely to buy from you again. Having said that, most products and even services can be sold online and today’s sophisticated systems make the set up and maintenance of your online shop very easy.

Frequently Asked Questions about selling online

a) How much does setting up an online shop cost?

Set up and maintenance cost for your online shop differ vastly depending on which supplier you choose. You can ask your hosting company to provide you with an online shop facility. Also, it depends on whether you want to accept credit card payments or only allow users to browse your catalogue and then call you to order.

b) Take credit card payments for e-commerce with PayPal?

Yes, there are different ways of accepting credit card payments on your e-commerce site. You can either list your products on your website, provide a telephone number and process every order manually, or (taking advantage of Internet technology) you can accept credit card payments securely online. Winweb can handle the entire process securely for you. You only need to decide what to sell online. Winweb E-payment lets you take credit card payments directly into your bank account.

c) How can I drive customers to my website?

There are different methods of advertising your website. Start by mentioning your online shop on all your business stationery, in your brochures, etc. You need to optimise your site for search engines and register it with them and sending well written announcements to relevant press is also a must. Depending on your product you can also announce your store in newsgroups, place flyers in local shops, at the dentist or wherever your clients are likely to see them.

d) Can I compete with the huge number of suppliers already online?

Yes. You have to make sure that you target the right market and identify your competitive advantage. This might be local knowledge, customised products or better customer service. If you had your business for some time you will know what sets you apart from competitors. Play on these strengths when you set up your online shop. To start off you will give your existing clients a new channel to interact with you. Work with them and ask them what they like and dislike about your product, service and web shop.

e) Is selling online profitable?

Again, the Internet is not the solution to all your sales problems. It has to be seen as an integral part of your business strategy. If you product is not suitable for selling online you shouldn’t force online sales. How ever, if you plan your shop properly and calculate the costs involved, prepare for increased demand and monitor your ROI (return on investment) closely, your online shop can provide a substantial amount of income.

f) How long does it take to set up my online shop?

Setting up your online shop doesn’t take much time. It depends, however on the nature and number of products you wish to sell. You need a description, price and picture of each product. Ideally, you should also have customer testimonials.

If you use a template system entering the single products and modifying the look and feel of your shop is a very straight forward and quick process.

g) How much control can I have over my own online shop?

The online shop you choose should give you the level of control you need. Of course you should be able to add or remove products and change prices or discounts anytime. How much control you want to have over the actual design and look of your shop depends either on your programming skills or the amount of money you want to spend designing your shop.
Checklist for your online shop

Which products / services do you want to sell online?
Will you sell only to UK residents, other countries or worldwide?
How will you send your goods to your customers?
For each product: 100 word description, 500 word description, professional picture, price.
Terms and conditions for your customers?
Who in your company will look after fulfillment of online orders?
How much business do you expect to come through the website?
What is your return and refund policy?
Where will you promote your new shop?

Business Link issues holiday advice for small business managers

Business owners planning for the peak holiday season can now use a ten-point checklist from Business Link to make sure they are fully prepared.

The list offers practical advice on how to avoid annual leave clashes and manage key staff absence. The advice includes keeping a holiday calendar that everyone can access and ensuring temporary replacements for key staff are properly trained.

“Many people want to take their time off during the summer months, but businesses cannot allow themselves to miss delivery deadlines or reduce customer service because of inadequate preparation and staff scheduling,” said Business Link adviser, Alexandra Shoobert.

“This can have a negative effect on your business, especially now when companies are working harder than ever with fewer staff. We’ve issued our holiday checklist to help managers prepare and make the best of their business whatever the season.”

Legislation launched in April of this year guaranteed that a worker’s statutory paid holiday entitlement increased to 28 days per year for an employee working a five-day week, which takes into account public holidays although there is no automatic entitlement to these days off.

A recent Aon survey found that up to 35 per cent of employees were selling extra holiday above their statutory entitlement back to their employer.

The full Business Link ten point checklist is:

1. Plan in advance. Make sure you have clear procedures and a calendar so people can check for clashes and keep a record of annual leave on a central system.
2. Remind employees how much leave they have left. Have a process by which employees can be reminded how much time they have to take and by when.
3. Monitor your busy months. There may be seasonal fluctuations in your workload. If so, you will want to discourage employees from taking holiday at your busiest times.
4. Balance employees’ holidays. Make sure that employees know they can’t all take their leave at the same time. Key specialisms, as well as business areas, need to be covered.
5. Consider employees’ circumstances. You may operate a first-come first-served basis, but also try to take account of the restraints on some employees - for example, those with children.
6. Adapt your holiday ‘year’ for each employee. Some businesses run their annual leave year from the date that an employee starts. This can avoid the rush to book holidays at the end of the year.
7. Encourage employees to take holiday. In the current economic climate, some may be reluctant to take leave due to worries about job security. It is a manager’s responsibility to encourage staff to use their holiday allowance, and to make sure working patterns allow them to.
8. Decide whether employees can carry over holiday entitlement above the statutory minimum which should be taken. Agree a consistent policy on whether employees can carry annual leave over to the following year and if so, by how many days.
9. Train temporary staff. If you need to hire temporary employees to cover for absence, give due consideration to training and induction.
10. Use quiet times to benefit your business. Take the opportunity to do things that will help in the long term, such as reviewing your business plan or undertaking maintenance work.

• Read the Business Link guide to staff leave, ‘Know how much holiday to give your staff’

UK : Recent immigration law

Business Immigration Case Law Round-Up

This round-up of cases over the last five years highlights a range of issues that are relevant to those who employ migrant workers, including:

dismissal relating to lack or expiry of immigration permission to work
illegality of employment and discrimination
facilitation/proceeds of crime legislation
Dismissal cases relating to lack or expiry of immigration permission to work

Klusova v London Borough of Hounslow - Court of Appeal (November 2007[2007]) (EWCA Civ 1127)(

On checking the immigration status of Ms Klusova with the Home Office, the council was informed that she did not have permission to work in the UK. It dismissed her immediately and without following the statutory dismissal procedures then in force. Subsequently it transpired that the Home Office advice was incorrect and there had been no breach of immigration legislation by Ms Klusova.

The court held that a genuine but mistaken belief that the employment breached a statutory restriction could amount to a potentially fair reason for dismissal for 'some other substantial reason'. However, in this case the dismissal was held to be unfair because the employer had not followed statutory dismissal procedures.

Comment: This case provides a reminder that while an employer can dismiss an employee who is established to be working illegally on the grounds that the employment breaches a statutory restriction, it is important that such action is fair. Employers should only dismiss employees summarily where they are certain that there is an actual breach of a statutory restriction on employment.

This case also highlights the need for employers to consider independently the immigration status of their employees.

Colleen Kay Kelly v The University of Southampton - Employment Appeal Tribunal ( UKEAT/0295/07) (December 2007)

The facts of this case are unusual in that, at the time of her dismissal, Dr Kelly held a 60 month work permit document which had not expired. She had however only been granted leave to remain for 48 months. By the time Dr Kelly filed her application for indefinite leave to remain, her leave had expired. When this came to the attention of her employer, she was suspended then dismissed because it was concerned that continued employment was unlawful. It also decided that the disciplinary procedure was inapplicable because Dr Kelly's contract had been terminated by operation of the law.

In considering her claim for unfair dismissal, the Employment Appeal Tribunal (EAT) decided that, by virtue of the 60 month work permit, Dr Kelly was 'permitted to work under the Immigration Rules' for the purposes of regulation 3(3) of the Immigration (Restriction on Employment) Order 2004. The EAT's position was that regulation 3(3) could not be construed as applying only where the employee has subsisting leave to remain. It was held therefore that the employer had not committed a criminal offence contrary to section 8 of the Asylum and Immigration Act 1996 and the summary dismissal was automatically unfair.

Comment: Employers should be cautious and follow fair dismissal procedures unless there is absolute certainty that summary dismissal will be found to be fair. They should also have systems in place which alert them in advance to the expiry of the leave of employees who are subject to immigration control.

Cases covering illegality of employment and discrimination

Blue Chip Trading Ltd v Mr A Helbawi - Employment Appeal Tribunal(UKEAT/0397/08) (November 2008)

This case involves illegality of the contract in relation to a claim under the national minimum wage legislation. Mr Helbawi was in the UK as a student and subject to conditions including (i) not working more than 20 hours during term time and (ii) not pursuing a career by filling a permanent full time vacancy. He accepted that he had on occasions breached condition (i).

The issue was whether his employment contract was illegal because of the breach of either of the two conditions. The EAT found that he was not filling a permanent post, ie not breaching the first condition of his leave and so the contract was not unlawful in its inception.

It then considered if the whole contract was rendered illegal by the occasional breach of the 20 hour per week time limit and decided that there could be recovery by Mr Helbawi of the payments due for those weeks when there was no breach.

Comment: Employers and HR personnel should ensure that they understand the significance of immigration conditions. The case also confirms that it is possible to sever the illegal aspects of a contract from the legal aspects. Employers should not assume that they may fairly dismiss a person or otherwise expect their liability under employment legislation to be limited where only part of a contract is unlawful.

V v Addey & Stanhope School - Court of Appeal ([2004] EWCA Civ 1065)(July 2004)

Mr Addey had indicated on his job application form that he had permission to work in the UK when he did not. The issue was whether his involvement in such illegal conduct barred him from bringing a discrimination claim.

The court agreed with the test in Jill Hall v Woolston Hall Leisure Ltd ([2000] EWCA Civ 170) (23 May 2000) - the complaints made of discriminatory treatment in employment were so inextricably bound with the illegality of conduct in obtaining and continuing the employment that, if it were to permit him to recover compensation for discrimination, the EAT would appear to condone his illegal conduct.

The court commented that, even if the employee could prove his allegations of race discrimination, he would still not be entitled to any compensation or other remedy as he had by his own illegal conduct disqualified himself from pursuing his claim.

Comment: The employer in this case had performed approved right to work checks and had obtained a document which appeared on the list of documents that may establish a defence (evidence of national insurance number which is no longer acceptable). Had it not obtained such a record, the employer would also be liable to sanctions.

V Olatokun v Ikon Office Solutions - Employment Appeal Tribunal ([2004] UKEAT 0074_04_1005) (May 2004)

The employee in this instance was initially hired as an agency worker and was then offered permanent employment. Part of the company's recruitment procedure was to request the passports of those who stated on the application form that they were born outside the EU.

The form, which was not completed by the employee until four months after the employment commenced, stated she was Nigerian. The employer accordingly requested her passport.

If the employee was illegal, the employer would not have been able to establish a statutory defence under section 8(2) of the Asylum and Immigration Act 1996 because it failed to perform the check before employment commenced.

The employee did not produce any confirmation of her right to work and, after a six week wait, the employer summarily dismissed the employee.

The policy of requesting passports only from those who were born outside the UK was held to be discriminatory. However, since the employer was acting in order to prevent an offence, it was protected by section 41 of the Race Relations Act 1976 (ie pursuant to legal enactment). The EAT found that if the employer had not made a check before the employment commenced, it was entitled to do so later.

Comment: Employers using agency workers should ensure that the check is completed in the time gap between the end of the agency contract and the commencement of the employee's permanent employment contract. Employers should ensure that they are familiar with the Government's code of practice on avoiding discrimination in undertaking those checks.

Osborne Clarke Services v Mr A Purohit - Employment Appeal Tribunal([2009] UKEAT 0305_08_0902) (February 2009)

Osborne Clarke Services had a policy of not considering any application for training contracts from individuals who required permission to work in the UK. The firm believed that such positions could be filled by resident workers.

Its online application process posed three filter questions. These related to whether the applicant could work in the UK. Candidates answering 'no' could not proceed.

Osborne Clarke's case was that it could not in good faith complete the Border Agency's declaration that it knew of no suitable resident who would be displaced by a migrant worker and, even if it could, the Agency would reject the application thereby wasting funds (an argument found to be an 'unattractive way of justifying indirect discrimination'.)

The EAT referred to the Code of Practice on Racial Equality and Employment which makes it clear that work permit issues should come into consideration at the later stage of selection. The code also states that employers should make an application for a work permit/work authorisation, leaving it up to the immigration authorities to determine the outcome. The claim for discrimination was upheld.

Comment: Employers who consider immigration aspects too early face increased risks of discrimination claims being upheld. It is of note that the case of Osborne Clarke was dealt with under the old work permit scheme when the Home Office made the decision as to whether or not the criteria for employing a migrant worker were met or not. Under the points based system, employers should consider carefully and record any decision against applying for a sponsor licence. They must ensure that they can justify such a decision against legal and commercial criteria in the event that it is ever challenged by a potential employee who considers that he or she should be sponsored by the employer.

Other relevant reports relating to facilitation/proceeds of crime legislation

R v David Kai Xu: R v Lu Xu - Court of Appeal ([2008] EWCA Crim 2372) (October 2008)

Two owners of a restaurant were found to have employed illegal migrants between 2002 and 2006. The joint owners were convicted by the Crown Court on 7 July 2006 of committing an act which facilitated a breach of immigration law contrary to section 25(1) of the Immigration Act 1971 and were sentenced to several months imprisonment (suspended).

A confiscation order under the Proceeds of Crime Act 2002 was also imposed for the entire receipts from the restaurant throughout the duration of the period for which the illegal migrants were employed (£244,613.17), with sentences of imprisonment to be served in default of payment. The owners appealed.

The court held that since the three illegal immigrants made up a quarter of the restaurant's workforce, it would be appropriate to confiscate one quarter of the receipts of the business during the period they were employed.

Comment: It is often assumed that the only sanctions for employing illegal migrants arise under section 8 of the Asylum and Immigration Act 1996 and, more recently, under section 15 of the Immigration, Asylum and Nationality Act 2006. This case is a warning that there are other sanctions and the use of them is on the increase.

Temptations Chinese Restaurant in Colchester - Harwich Magistrates Court (May 2009)

As reported on UK Border Agency's (UKBA) website, six illegal workers were employed at the restaurant. The company employing them was found guilty of six offences contrary to section 8 of the Asylum and Immigration Act 1996. What makes this case unusual is that, in addition, two directors were personally charged with the offence as co-defendants and were both found guilty.

Each of the three defendants was fined £5,000 per offence - the maximum permissible at a magistrates' court - making a total of £90,000, plus £6,000 costs and £15 victim surcharge. This was a triple recovery for the same offence and demonstrates the heightened risks for directors and other officers.

Comment: This case is one of many that will be appearing before magistrates' courts around the country as the UKBA cracks down on employers of illegal workers. UKBA also publishes on its website details of employers on whom civil penalties have been imposed, including the name of the employer, the name of the business, the level of fine and the number of illegal workers discovered.

Conclusion

The cases above highlight many of the obvious and less obvious risks which employers now face if they employ migrant workers who do not have the correct permission to work in the UK, or take wrongful action in relation to those whom they mistakenly believe do not have permission to work.

10 small business marketing tips

Small business owners have to market their businesses smarter than before these days – With the recession looming with no visible end, every single penny counts. Many small business owners today are bootstrapping and going frugal.

If you are interested in low budget but effective marketing, here are some tips to share with you - Here are 10 marketing tips to help you find more customers and close more sales, quickly:

Don’t advertise like the big guys

Unlike us the smaller counterparts, big businesses advertise to build brand name and nurture future sales. We simply don’t have the budget to do so. Instead, DIY your advertising and/or outsource it to low-cost advertising companies, even freelancers. Make sure you always include an offer in your advertising that get prospects to be more inclined to respond.

Always offer lower cost alternatives

Prospects simply want to hang on their money as much as they can, as long as they receive satisfying result. They want lower price for the best result they can get. Instead of burning your own business in a price war with your competitors, consider creating a “light” version of your services or products by stripping out non-essential features that will keep yours appealing to a certain segment in the market.

Alternatively, offer a premium version of your service or product
Not all prospects want cheap prices. Many are willing to pay a premium to receive high quality product or service. Or contrary to the point above, you can actually combine several products or services into a premium package that is offered at a higher price tag.

Go online

My favourite part :) You should go online for either promotional purpose or selling your products or services. It’s low cost, easy to learn and easy to do. Blog for your small business enhance your branding, while setting up a website will reach more customers from a rapidly growing number of online shoppers. Don’t forget to use available social media, such as Twitter, Facebook and LinkedIn to build a community that can get you marketers and business evangelists.

Try unconventional marketing methods

Spy on your competitors, and learn what they are also doing. If you do your homework well, you may find an innovative idea or two that will increase your profitability while avoiding competition. One idea: Conventional mail box is not obsolete, yet – sponsor your local event flyer (ask for an exclusive sponsorship) that will generate considerable sales leads in exchange for a small amount of money.

Use the power of perception to make your business seem bigger

Customers perceive the value of your products or services. They also do perceive the reliability and dependability of your business based on certain measures. One of the most common measures is company size. Being a two person business doesn’t make you less trusted than your larger counterparts – Setting up an answering machine system that shouts “professional” will do the trick. One tip: Create many “virtual departments” in it, such as marketing department, IT department or customer service department, and have them redirected to your phone – “Inflate” your manpower from two to twenty in no time,



Reduce the size of your ads

Smaller-sized ads will let you advertise more for the same budget. Plus, short marketing messages work better than the longer counterpart. This reminds me of Twitter pushing marketers to create 140-character marketing messages, yet is extremely effective,

Offer giveaways and freebies

Nothing is more compelling than giveaways and freebies. Some argue that freebies are expensive. To certain extent, I agree. However, choosing the right promotional products will cut your cost-per-lead significantly, as unique and free items tend to have emotional bait in them – Having your promo product with your company messages in it neatly placed on a CEO desk is viral marketing!

Do a joint-promotion with other small business

Ask non-competing small business owners serving a similar target market to do a joint-promotion. Cross-selling each others' products or services will give your customers highly related offers, in which will usually produce more sales than marketing on their own.

Benefit from your relationship with your customers

The power of word of mouth. Your existing customers know and trust you – They are your great tangible and intangible assets you already have in your business ecosystem. It’s basically easier to get more business from them than from new prospects. You should “lavish” them by creating special deals – only for your existing customers and make them your PR people – Their endorsement is indeed very effective in term of cost and result than any other advertising campaigns.

NIC update July 2009

No sign of IR35 this time!


Wright v HMRC Commissioners (TC32)(http://tinyurl.com/lakeqa ) is an employment status case that, for once, does not involve the intermediaries' legislation. The workers of a subcontractor groundworker were ultimately held to be employees of that subcontractor.

The General Commissioners had held them to be self-employed, but that decision was overturned on HMRC's appeal to the High Court, though the case was then remitted back to consider whether the 'employer' in fact had effective control of what had been held to be employees. By the appellants' own admission, they took on staff casually and with little experience of the work they were to perform and even taking a step back and applying the principles in the 1968 Ready Mixed Concrete case, the workers could not be considered to be anything other than employees.

IR35 not doing its job


The Professional Contractors Group (PCG) has obtained, under a Freedom of Information Act request, details of the revenue obtained through the application of the IR35 rules. In the years 2002/03 to 2007/08 inclusive receipts were £9.2 million, an average of £1.5 million per annum.

The PCG is to be congratulated on obtaining this information, as when MPs have in the past put down Written Questions the HM Revenue and Customs reply has been that the information is not collected. Such a reply was given again as recently as 10 June 2009.

The answer does not and cannot, however, reveal the extent to which the fact that the legislation is in existence means that contracts have been structured more traditionally, such that standard PAYE/NIC receipts are obtained and are thus hidden within a large population.

State pension age changes and contracting-out


Although state pension ages are increasing for women from next April (and for both men AND women from 2024), the age at which Guaranteed Minimum Pension is payable remains at 60 for women and 65 for men. The Contracted-out Deduction will be based on the GMP at these respective ages, plus any inflation proofing up to the new state pension age.

Contracted-out rebates to Contracted-out Money Purchase schemes and to Appropriate Personal Pensions will, however, be payable up to and including the tax year prior to the one in which the actual state pension age is reached.

State pension age changes and other benefits


The Social Security (Equalisation of State Pension Age) Regulations 2009, SI 2009/1488, amend with effect from 6 April 2010 various qualifying and disqualifying dates for various contributory and non-contributory benefits, to reflect the rise in state pension age for women. In addition, the age from which men can obtain non means tested Winter Fuel Payment will also rise from the present qualifying age of 60.

Tip of the Month - July 2009


We ordinarily think in terms of the annual maximum for NIC as only applying to people who have more than one job at the same time, or are both employed and self-employed. However, in some circumstances it will apply to someone who leaves their only job and starts a new (sole) employment. Suppose they leave mid-month and are paid monthly in both the old and the new jobs. A full month's limits and thresholds will apply to the final (part month's) payment from the old employer and a full month's limits and thresholds will apply to the first (part month's) payment from the new employer. If the earnings are sufficiently high so that the Upper Earnings Limit (UEL) is reached in each employment in the month of the change, then 13 months' maximum NIC will have been paid. The deferment opportunity is rarely spotted in time in these circumstances so a refund claim after the end of the year will be needed. (Note - even if the UEL is not reached in both jobs in that month but the two rates of annual pay are above the UEL then some repayment may still be due. It may not always be economic to pursue such smaller amounts, though some will eventually be made automatically.)

Credit check your clients

Small business managers have been urged to credit check all of their clients to minimise their exposure to bad debt.

An investigation by a leading provider op factoring solutions discovered that three-quarters of organisations do not examine customers' credit history before doing business with them.

According to the group, the recession has led to rising levels of business fraud and many successful enterprises are putting themselves at unnecessary risk.

Its managing director said: "It is never a good time to take chances with new customers, but it is more important than ever when times are hard to ensure that you are trading with legitimate businesses."

He added that smaller companies should take "every opportunity" to minimise risk and credit check every client as policy.

HMRC reports 20 million tax e-record discrepancies

Taxpayer computer records that contain discrepancies have soared from 2.5 million to 20 million in just over a decade, Computer Weekly has stated.

The record backlog of delays in clearing "open cases", as computer records with anomalies are called, means millions of taxpayers are not being notified promptly of extra tax payable or refunds due.

The backlog leaves HM Revenue and Customs having to divert money and people into resolving discrepancies in the records manually at a time when HMRC's board is trying to cope with competing demands of cutting costs while modernising its PAYE systems.

An open case means the taxpayer record has not been reviewed to check the individual's details are correct and the right amount of tax been paid. Each open case means potentially that a taxpayer has paid the wrong amount of tax.

Accountants and payroll administrators say it is unacceptable that HMRC has not reviewed the tax liability of about half of the UK's employees. In 2007, there were about 27 million pay-as-you-earn [PAYE] taxpayers who contributed about £125bn in tax.

Normally tax IT systems automatically close taxpayer records by the end of the financial year, but not when there is data missing, or there are discrepancies and queries, particularly over tax codes.

Research by Computer Weekly has established that the number of open cases which require clerical intervention has risen from 2.5 million in 1998 to 20 million in 2009.

The numbers started to rise steeply in the 1990s when Inland Revenue brought in a new national insurance recording system NIRS2. For years afterwards, Revenue staff had difficulties synchronising taxpayer data on NIRS2 with COP, the mainframe-based Computerisation of PAYE system.

The Revenue would normally have expected about 2.5 million taxpayer records to remain open at the end of the financial year. But after the go-live of NIRS2 and its links to COP, the number of open cases doubled to 4.8 million in June 1999.

By June 2001, the number had nearly doubled again to 8.5 million. At that time HM Revenue and Customs hired an extra 1,250 clerical staff to clear the backlog of open cases.

Despite this the backlog has continued to rise. In 2007, it was 11.5 million. By 31 March 2008, there were 16 million open cases. At the end of March 2009 the backlog stood at 20 million.

In 2007 when the number of open cases was 13 million, the then head of the National Audit Office Sir John Bourn said: "HMRC's computer systems are no longer well-suited to the efficient administration of income tax, especially where people have more than one job or change jobs frequently."

Details of the latest figures were revealed in the 2008/9 accounts of HM Revenue and Customs published this week.

The National Audit Office estimates that six million of the open cases are likely, when they are reviewed, to entail a tax refund or extra tax payable. The Department should extend its use of data matching to assist in clearing open cases, said the National Audit Office.

UK: New Visa Requirements Rolled Out

Earlier this year the UK government decided to extend its visa regime and impose visa requirements on nationals from five further countries.These countries were South Africa, Swaziland, Lesotho, Bolivia and Venezuela.

The roll out of the new visa regime was staggered, but has now been completed.

Effective July 1 2009, all nationals of these countries (apart from Venezuelans who hold biometric passports, issued since 2007) will require visas to enter the UK.

Company law - Payment of illegal dividends

COMPANY — Director — Breach of duty — Insolvent company paying unlawful dividends — Defendant human director of corporate director of insolvent company — Whether to be treated as de facto director of insolvent company — Companies Act 1985, s 744 — Insolvency Act 1986, ss 212(1)(a), 251
Revenue and Customs Commissioners v Holland and another
[2009] EWCA Civ 625; [2009] WLR (D) 228

CA: Ward, Rimer, Elias LJJ: 2 July 2009

A human director of a corporate director could in certain circumstances be regarded as a de facto director of the subject company but he would not automatically be so regarded.
The Court of Appeal so stated when, inter alia, allowing the appeal of the first defendant, Michael Holland, from a decision of Mark Cawson QC, sitting as a deputy High Court judge of the Chancery Division on 24 June 2008 ([2009] Bus LR 1), finding for the claimant Revenue and Customs Commissioners on their application under s 212 of the Insolvency Act 1986 and holding that the defendant and his wife, Linda Holland, the second defendant, were guilty, as de facto directors of 42 insolvent companies, of misfeasance and breaches of duty in causing payment between specified dates of unlawful dividends. The first defendant was not a de jure director of any of the relevant companies: the sole director of each was a company of which he was a director. However, the judge found that he was a de facto director of each company and was thus answerable to the commissioners’ claim under s 212 of the 1986 Act.
RIMER LJ said that where s 212(1)(a) referred to “a person who is or has been an officer of the company” the word “officer” therein included a de facto director; and the definition of an “officer” in relation to a body corporate in s 744 of the Companies Act 1985 included “a director, manager or secretary”. Furthermore, s 251 of the 1986 Act incorporated that definition and defined a “director” as including “any person occupying the position of director by whatever name called”. The question was accordingly whether, on a true construction, the first defendant was by virtue of his activities to be considered a de facto director. The fact was, however, that although it was not the case that there could never be circumstances in which a director of a corporate director could or would so act as to cause himself to be regarded as a de facto director of the subject company, something more would be required than the mere performance by him of his duties as a de jure director of the corporate director; and on the instant facts the deputy judge’s conclusion that the first defendant was a de facto director could not stand.
ELIAS and WARD LJJ gave concurring judgments.

Right to Legal Representation at Internal Hearings

R (on the application of G) v The Governors of X School and another [2009] EWHC 504, the High Court held that the gravity of the allegations against him meant that the employee in question, a primary school music assistant, was entitled to legal representation during his disciplinary and appeal hearings.


Following allegations of kissing a child, the school took disciplinary action against the employee, a music assistant. His request to have legal representation at his disciplinary hearing ,which led to his summary dismissal, was refused by the school. He was also told that he would be reported to the "appropriate agencies," on the basis that he might be unsuitable to work with children. The employee gave notice of his intention to appeal against his dismissal. His request to have legal representation at the appeal hearing was once again turned down. Subsequently, the Secretary of State was notified of the employee's dismissal for gross misconduct.


The employee applied for judicial review, arguing that his rights under article 6 of the European Convention of Human Rights had been breached by the School's decisions (i) not to allow him legal representation at the disciplinary or appeal hearings; and (ii) not to allow him to cross-examine witnesses at those hearings. As a result, the hearing of his appeal was stayed pending the outcome of the judicial review proceedings.


The High Court held that the employee was entitled to legal representation at the disciplinary and appeal hearings as he could not fairly be expected to represent himself and being accompanied by a trade union official or colleague would not be sufficient. Although it stressed that this decision only related to the particular facts and was not intended to have wider implications, this case does highlight that legal representation during the disciplinary process may be permitted in exceptional circumstances.


Interestingly, no mention was made in that case of the High Court's decision in the earlier case of Kulkarni v Milton Keynes Hospital NHS Trust on similar facts.  Dr Kulkarni was a doctor who, shortly after starting work for Milton Keynes Hospital NHS Trust, was accused of improperly touching a patient. He was not permitted to have legal representation at a subsequent disciplinary hearing and he claimed that this infringed his human right to a fair trial, in terms of Article 6 of the European Convention on Human Rights.  The High Court rejected his claim, but that decision has now been overturned in the Court of Appeal.

Lady Justice Smith ruled that, in effect, the relevant disciplinary procedure provided for a contractual right to be legally represented by a lawyer instructed by the Medical Protection Society.  Whilst the procedure stated that an employee's representative could be legally qualified but would not "be representing the practitioner formally in a legal capacity", Lady Justice Smith ruled that the words quoted above were meaningless and should be "blue-pencilled" (i.e. deleted).  There was, therefore, no requirement to rule on the Article 6 issue.

The decision means that an NHS Trust doctor facing serious disciplinary allegations has the contractual right to a legal representative instructed by his medical defence organisation.


Of wider interest, however, are the potential implications for all public sector employees, owing to the (non-binding but persuasive) observations which Lady Justice Smith made in relation to an individual's Article 6 right to a fair trial. 


Lady Justice Smith indicated that had she been obliged to rule on the claimant's Article 6 argument, she would have held that it was engaged in circumstances where a doctor faced charges which were "of such gravity" that if proven, would have effectively barred them from employment in the NHS.  She went on to indicate that even in the context of civil proceedings, Article 6 would imply a right to legal representation in such circumstances because the doctor faced, in effect, a criminal charge and although it was being dealt with by disciplinary proceedings, the issues were virtually the same and the consequences of a finding of guilt very serious.


The matter came before the Court of Appeal on 23 July 2009 ([2009] EWCA Civ 789 [2009] WLR (D) 257} Kulkarni v Milton Keynes Hospital NHS Foundation Trust and another

The court comprise Lord Justices Sir Mark Potter P, Smith, Wilson.

A medical practitioner, pursuant to his contract of employment, was entitled to be represented by a lawyer instructed or employed by the Medical Protection Society, or other defence organisation, in disciplinary proceedings brought by his employer.

The Court of Appeal so stated in a reserved judgment, allowing the appeal of the claimant, Dr Kunal Kulkarni, from the refusal of Penry-Davey J on 1 August 2008 to make a declaration that he be entitled to legal representation in disciplinary proceedings brought by the employer, Milton Keynes Hospital NHS Trust. The Secretary of State for Health appeared on the appeal as an interested party.

SMITH LJ said that the employer’s position was that its procedures were based upon the Department of Health policy document “Maintaining High Professional Standards in the Modern NHS” (“MHPS”) which did not permit legal representation at disciplinary hearings. The claimant argued that the employer had a discretion to allow representation either under the express terms of his contract of employment or pursuant to the implied term of trust and confidence. Alternatively, the denial of legal representation was a breach of natural justice and a denial of his rights under art 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms. Modifications to the contracts of doctors took place in 2005 when MHPS was promulgated. Para 22 in Part IV provided that “ the practitioner may be represented in the process by a friend, partner or spouse, colleague or a representative who may be from or retained by a trade union or defence organisation. Such a representative may be legally qualified but they [sic] will not, however, be representing the practitioner formally in a legal capacity”. Exactly what was meant by the proviso that the legally qualified companion would not be acting “in a legal capacity” was not clear. The task of the court was to decide what para 22 meant and what it permitted. The subjective wishes of the parties was not relevant and it was not relevant that the Department of Health wanted to remove the right to legal representation which doctors and dentists had enjoyed for many years. In Her Ladyship’s view, properly construed, para 22 permitted a practitioner to be represented by a legally qualified person, employed or retained by a defence organisation. “Retained” included “instructed by”. The two words meant the same. However the doctor was not permitted to bring a legally qualified person whom he instructed or retained independently. The expression “not representing the practitioner formally in a legal capacity” was devoid of meaning. If “legal capacity” were intended to be synonymous with “professional capacity” then one could understand that the lawyer who was a friend spouse or partner or colleague could be said to be acting in a personal capacity as opposed to a professional capacity. Even so, that person would be entitled to do all the things that lawyers do when representing clients. Those functions were set out at the end of para 22. But when it was seen that a legally qualified person either employed or retained by a defence organisation might represent the practitioner, it was meaningless to say that a person was not acting in a “legal” or “professional” capacity. Once a lawyer had been admitted as a representative, he or she was entitled to use all his or her professional skills in the practitioner’s service. The claimant was contractually entitled to be represented at his disciplinary hearing by a lawyer instructed by the Medical Protection Society. Other issues, now not germane in this case, including whether it was lawful for the employer to restrict the employee’s rights of legal representation, could be framed as a question of natural justice in purely domestic law, or of breach of rights under art 6 rights, if engaged. The answer should be the same. Had it been necessary to decide the issue, her Ladyship would have held that art 6 was engaged where an NHS doctor faced charges which were of such gravity that, if proved, he would be effectively barred from employment in the NHS and, in circumstances of this kind, a right to legal representation would be implied because the doctor was facing what was in effect a criminal charge.

WILSON LJ and SIR MARK POTTER P agreed.

This decision clearly has significant potential implications for all public sector employees, not just doctors.  For example, public sector employees in areas such as social care and teaching are likely to seek to rely on these comments, where dismissal leads to mandatory reporting to an external body which may lead to it being extremely difficult, if not impossible, for an individual to work in that field again. 


Given the potential impact on internal disciplinary proceedings for public sector employees, permission to appeal to the Supreme Court has been granted on the ground that this is a point of law of public importance.

Small firms 'need government internship scheme'

Public help should be offered to small businesses who wish to take on graduate trainees, an industry group said.

A new report from the Federation of Small Businesses (FSB) shows that 20 per cent of small firms would happily take on a university leaver - but that overall apprenticeship places have dropped by 28 per cent in the last year due to the recession.

Official figures have also shown unemployment rising to a 14-year high of 2.4 million, as the effects of the downturn continue to filter through to the labour market.

As a response, the FSB said that the government should launch a new project to get 5,000 more interns into small business placements.

John Wright, FSB national chairman, said: "Graduate unemployment is set to soar to unprecedented levels this year as businesses struggle to make ends meet and cut back on recruiting university leavers.

"However, in a graduate internship scheme, graduates can offer key skills to help businesses move forward while at the same time ensuring they are learning new skills and not unemployed at a crucial time in their careers."

Around 69 per cent of current UK apprenticeships are thought to be offered by small businesses.

Business startups - seeking professional advice

Before making a major business decision or starting something new it is often beneficial to have a quick telephone consultation with a professional. At the very least, you will benefit from hearing a second opinion about what you are aiming to do as it may help highlight some issues you overlooked.

There are experts in many fields available to help you – for instance, accountants will help you to set up the payroll and bookkeeping structure, solicitors can help with contracts and insurance brokers will help make sure all your business assets are covered.

The best time to speak to a professional is to discuss issues before they develop into problems. This is especially true with legal disputes or tax queries that could become quite serious if mishandled.

Here are a few points to remember when dealing with a professional:

Choose someone you are comfortable talking with and who will always make time for clients
Find out the best way to get a message to them (phone, fax, e-mail or snail mail).

Make sure you find out the billing rates and payment terms straight away so you do not get a nasty surprise later on.

At the end of your first meeting have a mutually agreed list of things that you want them to do for you and a time-scale in which they will be completed,

Check if they will consult with professionals in other fields on your behalf when dealing with complex issues.

Finally, if there is something about the process you do not understand get them to clarify it for you,

New Registrar's rules

New Registrar’s Rules

Companies House published the final draft of the new registrar's rules on 1 July.

This will be the final draft of the regulations published before they come into force on 1 October as part of the final Companies Act 2006 implementation.

The draft is not intended for general comment, as the Registrar carried out a consultation last year and only minor details now remain to be finalised. Companies House says that the draft's principal function is to give companies advance notice of the new regime.

Additionally, though no concrete date has been given for the publication of the draft forms, Tim Moss, Director of Corporate Strategy at Companies House, says that the registrar intends to publish them ‘very soon’ after 1 July, along with guidance for companies on the new powers.

Small business failure - Fixed Costs

I have decided to write a little mini series on why small business and personal businesses, like contractors, freelancer, self-employed, sole-trader and virtual assistants, fail and how to find out if your small business is in danger, too.

In this first part, I would like to talk about fixed costs in small business. To perform a basic small business fixed cost health check, ask yourself the following questions:

Do I know where all the money is going every month?

You should know where all your money is going at all times - if you don not know, it is important that you find out.

How comfortable am I with the current level of costs?

Are you able to generate reserves in your small business, or is your business just making ends meet.

Are large parts of the costs for non-core business tasks and do I get value for my money?

No matter how well your business is doing, you should never waste money - so if you can outsource do it, it will make you small business more focused and far more resilient and efficient.

Do I have a cash-flow forecast for my business?

Having no cash-flow plan is like driving with your eyes closed - cash-flow planning is easy, and you will have a better feeling about your small business.

Are there any spending issues with business partners or colleagues?

Are other people spending your money (?) and you cannot control them - deal with it, sort it or get rid of them even if they are partners in the business, find a way or get help.

Am I in control of my spending or have I abdicated this function to someone else?

Even if you have staff - outsourced of employed - doing your bookkeeping and organize the payments for you, you need to make the decisions of when your suppliers get paid, so you can control your cash-flow.

There are many more questions you could ask yourself, here I just wanted to get you going. If you have any more issues or are uncomfortable with any of your costs and answers to the above questions, then you should get some professional advice.

Running out of money is the reason most small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer-, Professional-, Personal businesses, fail - not controlling your fixed costs is one of the main reasons for this.

New rules for Limited Liability Partnerships

New Regulations applying the terms of the Companies Act 2006 to LLPs will come into effect on 1 October 2009. Important changes include:

Names

Currently it is possible to form a limited company with the same name as an existing LLP.  From 1 October the same rules will apply to companies and LLPs.

Minimum Membership

LLPs will still need to have 2 or more members but after 6 months a sole member will be jointly and severally liable with the LLP for debts incurred after expiry of the 6 month period.

Members' Details

Every LLP will be required to keep a register of members containing a service address for each individual member.  The LLP must tell Companies House where the register is available for inspection unless it is held at the registered office.  The register must be open for inspection by members free of charge and for any other person on payment of a fee.  Residential addresses will need to be kept on a separate register and disclosed only to the Registrar of Companies.

Publication of Details

The new trading disclosures regime which applies to companies will apply equally to LLPs from 1 October.  This will require LLPs to display their name and registered office at their registered office and any other business location, the name need not be placed on the outside of a building but must be in a place clearly visible to any visitor.  The LLP’s name, number and details must also be included on correspondence including emails and on any website.

Accounts

The same penalties which apply to companies for late filing of accounts will apply to LLPs for financial years beginning on or after 1 October 2008.  These have increased and now start at £150 just for a one month delay in filing, so it is particularly important that accounts are filed on time.  Incidentally, the method by which penalties could be avoided as long as accounts were filed within 14 days of the filing deadline shall cease to exist from 1st October 2009.  A company or an LLP will therefore no longer have 14 days from the date of the rejection letter in which to amend and return accounts in an acceptable format.

Auditors

Audit reports for LLPs will need to be signed by the senior statutory auditor who is a named individual for years commencing after 1 October 2008.

Service of Documents

The new rules for companies contained in Sections 1139 to 1142 of the 2006 Act will apply to LLPs.  These clarify what addresses are valid for the purposes of service of documents and define "service".

Execution of Documents

In England and Wales and Northern Ireland a document is to be executed by an LLP by applying its common seal, by signature of two members or by signature of a member of the LLP in the presence of a witness.  An LLP may by a document executed as a deed empower a person as its attorney to execute deeds or other documents on its behalf and a deed or document so executed in the UK or elsewhere will have effect if executed by the LLP.  Execution formalities in Scotland remain unchanged.

UK: Data protection - employers' obligations

Recent enforcement action by the Information Commissioner's Officer (ICO) against The Consulting Association, which led to the firm being shut down for its breach of data protection legislation and significant fines for its owner, is a stark reminder to all companies of their obligations under the Data Protection Act 1998 (the Act) and the penalties for non-compliance.

The action concerned the firm's operation of a database containing personal information on construction workers, which was sold to construction companies to vet workers for employment. It not only highlights the risks in using third party databases for recruitment processes, but also the extensive obligations on companies processing personal information. It seems likely that the newly appointed Information Commissioner, Christopher Graham, will also continue the trend towards more aggressive enforcement action.

As an employer 'processes' considerable amounts of information relating to its employees, contract workers and applicants, it falls within the remit of the Act. Employers must, therefore, be aware of their duties towards that information and to the individuals to whom it relates.

The Act requires employers to follow eight data protection principles concerning the way in which data is collected, processed and stored. Employers must ensure compliance at every stage of the employment process, from the application process to providing references following termination of the relationship, and are usually also required to register with the ICO as data controllers. Clear internal policies will be required at each stage of the process and the adequacy of security measures must be assessed. In addition to these general obligations, the Act and ICO guidance on the Act provide specific rules concerning the transfer of data, both in the merger and acquisition process and internationally through intra-company transfers.

The importance of adhering to these obligations cannot be overstated, as a failure to do so may lead to criminal and civil liability, as well as adverse publicity for the employer.