The Chancellor of the Exchequer delivered his Budget on 22 April amid the worst economic conditions since the second world war.

Click on the link below to see how it might affect you.

Budget Summary 2009

The poorly thought out and impossible to follow statutory disciplinary and grievance procedures that required employers to jump through a variety of hoops in the form of steps and stages has been repealed.  In its place is a new semi-voluntary code.  Employers may need to amend their terms of employment to take account of the new code which can be found on the ACAS website: http://www.acas.org.uk/CHttpHandler.ashx?id=1041

Simple failure to comply with the new Code does not automatically make an employer liable to proceedings, but if an employer unreasonably fails to comply with the Code the tribunal can increase any award by up to 25%. Conversely, if an employee unreasonably fails to comply with the Code awards can be reduced by up to 25%.

The main elements of the new Code provide that:

• Employers and employees should raise and deal with issues promptly and should not unreasonably delay meetings, decisions or confirmation of those decisions.
• Employers and employees should act consistently.
• Employers should carry out any necessary investigations, to establish the facts of the case.
• Employers should inform employees of the basis of the problem and give them an opportunity to put their case in response before any decisions are made.
• Employers should allow employees to be accompanied at any formal disciplinary or grievance meeting.
• Employers should allow an employee to appeal against any formal decision made.

What reasonable care amounts to is not defined in the legislation, but HMRC have said it includes:

Penalties are as follows:

• Where the taxpayer fails to take reasonable care the penalty can be up to 30% of the potential lost revenue (generally the lost tax),
• or up to 70% where there has been a deliberate understatement of liabilities.
• Deliberate understatement and concealment (basically fraud) will attract a penalty of up to 100% of the lost tax.

Companies House penalties for filing accounts late from 1st February 2009

What are late filing penalties?

Late filing penalties were introduced in 1992 to encourage directors of limited companies to file their accounts on time because they must provide this statutory information for the public record.

What are the new late filing penalties?

The new table of penalties is a follows:

In addition where there was a failure to comply with filing requirements in relation to the previous financial year (and that the previous financial year had begun on or after 6th April 2008), the penalty will be double that shown in the table.

Spreading your tax payments

If you are having cash flow problems, you can probably arrange to spread your tax payments to suit your business circumstances. 

To see how, go to HMRC's website:  http://www.hmrc.gov.uk/pbr2008/business-payment.htm      

Interest on tax that is paid late is currently charged at 4.5% and is tax deductible for limited companies but is not tax deductible for sole traders or partnerships                    

The National Minimum Wage (NMW) was introduced on 1 April 1999.  HM Revenue & Customs is the agency that ensures enforcement of the NMW.

We highlight below the main principles of the minimum wage regulations.

Please contact us for further specific advice.

WHAT IS THE NATIONAL MINIMUM WAGE FROM 1 OCTOBER 2008?

The current standard rate of the NMW for workers aged 22 and over is £5.73 per hour. 

The current rate for employees between 18 and 21 years old is £4.77 per hour.  

The current rate for employees aged 16 and 17 years is £3.53 per hour. 

the rate changes on 1 October each year.

There are no exemptions from paying the NMW on the grounds of the size of the business.

KEY QUESTIONS

Who does not have to be paid the National Minimum Wage?

• Apprentices under age 19
• Apprentices over age 19 and in the first 12 months of their apprenticeship
• Volunteers.
• The genuinely self-employed.
• People such as au pairs who live and work as part of a family.
• Family members who live at home and participate in a family business.

Please note in relation to the last point that the Revenue have the power to serve an enforcement notice requiring the payment of at least the NMW, including arrears, to all family members working for a limited company.

What is taken into account in deciding whether the NMW has been paid?

The amounts to be compared with the NMW include basic pay, incentives, bonuses and performance related pay and also the value of any accommodation provided with the job.

Overtime, shift premiums and regional allowances are not to be taken into account and benefits other than accommodation are also excluded.

What records are needed to demonstrate compliance?

There is no precise requirement but the records must be able to show that the rules have been complied with if either the Revenue or an Employment Tribunal requests this to be demonstrated. Where levels of pay are significantly above the level of the NMW, special records are not likely to be necessary.

It is recommended that the relevant records be kept for at least six years.

Normally there is not likely to be any serious difficulty in demonstrating compliance where employees are paid at hourly, weekly, monthly or annual rates but there may be difficulties where workers are paid on piece-rates and where, for example, they work as home-workers.

In such cases it will be necessary for employers to have written agreements stating fair (meaning realistic) estimates of the number of hours that will need to be worked to achieve certain output and this agreement should demonstrate compliance with the rate.

What rights do workers have?

Workers are allowed to see their own pay records and can complain to an Employment Tribunal if not able to do so.

They can also complain to the Revenue or to a tribunal if they have not been paid the NMW.

What are the penalties for non-compliance?

Enforcement notices can be issued if underpayments are discovered and there can be a fine of £7.40 per worker per day if enforcement notices are not complied with.  The penalties regime is changing from 6 April 2009.

There could also be a maximum fine of £5,000 for having committed a criminal offence.

HOW WE CAN HELP

We will be more than happy to provide you with assistance or any additional information required.

For financial years starting on or after 6 April 2008, to qualify for total audit exemption, a company must:

• qualify as small
• have a turnover of not more than £6.5m
• have a balance sheet total of not more than £3.26m

If the company is a member of a group and the turnover of the whole group exceeds £6.5m and the group's combined balance sheet total is more than £3.26m an audit will be required.  This also applies to small UK companies that have an overseas parent.

1 May 2007 sees the introduction of a change to a CO2 basis for calculating the scale charge for VAT on fuel used for private motoring.

This measure applies most generally to the self employed, as in larger businesses it would go hand in hand with a fuel scale charge for benefit in kind, and there are only around 40,000 drivers who are presently taxed on the benefit of free fuel.

The scale charges related to engine size are to be replaced from 1 May 2007 with a scale charge based on CO2 emissions, using the benefit in kind Table to set the emissions bands. This makes the published Table of scale charges quite long, but the distinction between petrol and diesel cars has been abolished and the scale charge is determined solely by reference to emissions. Overall, sample calculations indicate that there is a slight reduction in fuel scale charges for most drivers.

As with the benefit in kind rates, the emissions of the car are rounded down to the next 5g/km interval, and special rates will apply to cars without an official emissions figure.

Examples

A Ford Fiesta 1400cc petrol car with emissions of 147g/km will see the VAT scale charge change from £40.66 per quarter now to £29.04 per quarter.

A Peugeot 407 saloon 2000 petrol car will change from £51.53 per quarter to £45.28 based on emissions of 192g/km.

A Jaguar XK series, 4.2 litre petrol with emissions of 265g/km will change from £75.66 per quarter to £63.45 per quarter.

A Peugeot 2.7 litre diesel V6 Sport with emissions of 223g/km will increase from £49.30 to £56.30, as the diesel figures increase slightly to meet the petrol charges.

UITF40 (May 2006)

In the main businesses currently providing services account for revenue on completion of a contract, unless they bill on account as the work progresses.  Any costs associated with  incomplete work are carried forward as work in progress.  Sole trader and equity partner time is ignored when valuing the costs of work in progress.

So what has changed?

Under UITF 40 it will be necessary to account for revenue as a contract progresses, irrespective of completion date and billing date.  Put simply, if the work on a contract is 50% complete then, at the year end, the business must recognise 50% of the expected recoverable amount.  Work in progress, valued at cost, is effectively being replaced by accrued income valued at selling price.

Will the new rules apply to all contracts?

Most contracts for specific services, but there are some exceptions.

It will not be necessary to adopt the change if the right to a fee is conditional upon any external event outside the control of the provider.  An example of such an excluded service would be that of an estate agency where any fee is normally contingent upon the sale completing.  There are also some other exceptions where the contract does not provide for a single service, or a number of services comprising a single project. (UITF40 quotes examples of repetitive services such as general professional advice, accounting support and help-desk support but it is not expected that this exception will provide an escape for most professional businesses).

They also sent a useful booklet that explains the checks that an employer must make on new employees to ensure that they are legally entitled to work in the UK before giving them a job. 

Employers will be committing a criminal offence if they fail to carry out the required checks.

Detailed guidance is available at www.ind.homeoffice.gov.uk click on the Employers Information tab.

There is also an Employers' Helpline on 0845 010 6677

What are they?

From 6 April 2001, there is a business vehicle in addition to companies, traditional partnerships and sole traders. It is now possible to run your business using what is known as a Limited Liability Partnership (LLP).

MOST IMPORTANT FEATURES OF LLPs:

The key advantage of a LLP compared with a traditional partnership is that the members of the LLP (it is very important that they should not be called partners but members) are able to limit their personal liability if something goes wrong with the business, in much the same way as shareholders in a company have always been able to do. Of course anyone lending money to the LLP such as a bank may still require personal guarantees from the members, as they frequently do with shareholders in a company.

Where business owners have wanted to limit their personal liability in the past, they have normally set up companies and any profits made by those companies are subject to corporation tax. Dividends paid by the companies can then be taken as income of the shareholders. LLPs are taxed quite differently in that the profits are treated as the personal income of the members as if they had run their business as a partnership. The taxation of companies and partnerships is very different but taxation should not be the main consideration in choosing a business vehicle. We would be very pleased to discuss the impact in any particular case.

LLPs will produce and publish financial accounts with a similar level of detail to a similar sized limited company and will have to submit accounts and an annual return to the Registrar of Companies each year. This publication requirement is far more demanding than the position for normal partnerships and specific accounting rules may lead to different profits from those of a normal partnership.

SETTING UP LLPs OR CONVERTING AN EXISTING PARTNERSHIP

A LLP is set up by a legal incorporation process which involves sending certain documents to the Registrar of Companies (more details from Companies House at www.companieshouse.gov.uk or on 0870 3333636) and a fee of £95. Although it is not legally necessary, every LLP should have a thorough and comprehensive members agreement (currently known as a partnership agreement) in place and needs to have taken legal or professional advice about the issues that should be covered by this agreement.

Existing partnerships can convert to a LLP by exactly the same process of incorporation and providing there are no changes in membership or in the way in which the partnership operates, there may well be no impact on the partnership’s tax position. Again care and advice needs to be taken before any decisions are made.

It is not possible for a limited company to convert into a LLP and there will be a significant legal and taxation impact where a LLP takes over the business of a company.


WHICH BUSINESSES MIGHT WANT TO USE A LLP?

The types of business that LLPs were originally designed for were professional partnerships such as lawyers, surveyors and accountants. In many of these cases, though not all, they have not been able to operate through limited companies because of restrictions from their professional associations and the option of using a LLP offers some advantages.

However other businesses may also benefit from using LLPs, particularly new start-ups who might otherwise have formed limited companies.

WHAT LIABILITY MIGHT MEMBERS OF A LLP HAVE IF SOMETHING GOES WRONG?

Because LLPs are completely new, there are no decisions yet by the courts where something has gone wrong. This is therefore a hard question to answer but it looks as if the following describes the position as most people understand it at present:

• If, for example, a member of a LLP were to give bad advice to a client and the client suffered a loss as a result, the client may be able to take the LLP to court and be awarded appropriate compensation;
• It is possible that the member who actually gave the advice may also be required by a court to pay compensation to the client;
• It is however probable that any other members who were not directly involved in the advice will not have any personal liability. In a normal partnership it is quite possible that they would have had a personal liability.

It will still be essential for LLPs (and individual members) who might find themselves in this position to have suitable insurance cover.

The other area that needs to be considered is to do with what the law calls unlawful or insolvent trading. In just the same way as company directors can be prosecuted for these offences, members of a LLP can also be prosecuted (and can be disqualified from being a member of a LLP in the future).

A DECISION TO USE A LLP?

Relatively few LLPs have been created so far, partly because they are so new and partly because there are doubts as to what the detailed impact may be. There is an expectation that they will eventually become widespread but any decision to convert an existing partnership or to set up a new business using a LLP is a complex one, involving legal, accounting and tax issues.

We would be delighted to discuss these issues with you and demonstrate what the impact would be on your business.

For more information about limited liability partnerships please contact us.

The Inland Revenue has launched a consultation on new tax and NIC incentives to boost the take-up of employer supported childcare schemes. The consultation considers how the tax relief presently in place for workplace nurseries could be extended to cover a variety of other forms of childcare, such as approved home childcare. There are also plans to simplify the existing exemption by removing some of the more onerous conditions.

Many employers will be interested in these developments. The consultation ends on 31 May 2003, and copies of the consultation documents are available from the Inland Revenue website.

There are a number of proposals advanced for comment in the 23 page consultation document:

• Expanding the workplace nurseries tax exemption to include all forms of registered childcare, including approved home childcare;
• Simplifying the requirements for tax exemption, making it easier for employers to qualify by removing the condition for the employer to have management responsibility of the provision;
• Introducing a new tax exemption for childcare vouchers, which are currently only exempt from NIC;
• Introducing a financial limit for the tax and NIC's exemption on all formal childcare provision and childcare vouchers, other than workplace nurseries;
• Ensuring that where schemes are offered, childcare support is available to the whole workforce.

The financial limit proposed is £50 per week. The limit will not apply to the provision of workplace nurseries, just to all of the other forms of extended childcare support provided by the employer.

Links: The consultation document (pdf) is available at
http://www.inlandrevenue.gov.uk/consult_new/esc.pdf

The new congestion charges in Central London have now commenced, and the Inland Revenue has issued brief guidance to those affected on the treatment of congestion charges for tax purposes.

Essentially, employees will be able to claim tax relief on the congestion charges paid only if the journey itself is tax deductible, that is it is a journey made while carrying out their duties or to a temporary workplace, but does not involve ordinary commuting. Congestion charges borne on the journey to an employee's permanent workplace will not be tax deductible, and if reimbursed by the employer will produce a tax charge on the employee.

Generally speaking, businesses including companies will be able to obtain a tax deduction for congestion charges they bear in the course of business.

The briefing sheet issued sets out the tax treatment of congestion charges on the following types of person separately:

The note also indicates that once the charge is up and running the Revenue will review the impact and issue further guidance if necessary.

Access the briefing via the Inland Revenue website at

http://www.hmrc.gov.uk/cars/concharging_tax.pdf

The Inland Revenue has published guidance notes on salary sacrifice to help employers understand the principles of salary sacrifice and how the arrangements entered into with employees may affect the tax liability on their remuneration package.

The guidance sets out when a sacrifice will be effective for tax purposes and when it will not, and further goes on to explain the interaction of salary sacrifice with entitlement to tax credits and earnings related/contribution related State Benefits such as Maternity Pay. It should provide a useful summary for employers and employees into the basic elements of a salary sacrifice scheme, but the guidance does make clear the need for employers to take professional advice about this subject.

The conditions which must be in place for salary sacrifice to be effective for tax purposes are conditions which would indicate that the contractual right to cash pay has been reduced. The two conditions that must be met are:

• The potential future remuneration must be given up before it is treated as received for tax and NIC purposes; and
• The true construction of the revised contractual arrangement between employer and employee must be that the employee is entitled to lower cash remuneration and a benefit in kind.

Arrangements will not be effective if they amount to the employee asking the employer to apply part of his cash remuneration to the payment for a benefit on the employee's behalf.

The new guidance makes it clear that the Inland Revenue will not give tax clearance to salary sacrifice schemes before they have been implemented; there is also a good summary of the information the employer will need to provide to the Inland Revenue on this topic.Links: The new guidance is available as a PDF is at
http://www.inlandrevenue.gov.uk/specialist/salary_sacrifice.pdf

A recent prosecution by the Health and Safety Executive provides a useful reminder to businesses in the construction industry.

A site operator was fined under Health and Safety law for failing to ensure that tree contractors engaged to carry out tree felling work were competent and likely to carry out their services in a safe manner. In fact the work was done in a dangerous manner, and branches of the tree being felled were allowed to fall into adjoining properties where children playing were at risk of injury. Fortunately there were no injuries as a result of the careless practices employed by the tree surgeons.

However, the case is a sharp reminder to site operators. They remain liable for the Health and Safety issues when engaging subcontractors to carry out works, even when those subcontractors are specialists in their own field. It is the site operator's duty to check the competence of those engaged, and in the case of tree work this would also involve checking that the relevant chainsaw certificates of competence are held.