Clarke and Son News

“An employment relationship, rather like a marriage, can breakdown and when it does it can be difficult for the employer and employee to ‘patch things up’ and move on.”

Says Nicholas Bowers, Partner and Employment law specialist at Clarke & Son LLP.

“If that is the case then it is often better for both parties to reach an amicable settlement rather than go through the stress and expense of Employment Tribunal proceedings.”

The Government recognised this situation some years ago and introduced the concept of what are known as Compromise Agreements, which are now regulated by fairly extensive legislation designed to protect the employee’s interests.

In basic terms a Compromise Agreement provides for the termination of the employment contract on agreed terms. Often the employee will receive a generous compensation payment for loss of his or her job. The amount of that compensation will depend on a number of factors, one of which is the likelihood of the employee bringing successful proceedings in the Employment Tribunal for compensation for unfair dismissal. In return the Compromise Agreement will provide that the compensation payment is in full and final settlement of all the employee’s claims against the employer, including not only unfair dismissal but all other potential claims available to the employee.

Given the extensive potential claims being ‘given away’ by the employee an important part of the Compromise Agreement procedure is that the employee has to be given advice on the Agreement by an independent legal advisor, not connected in any way to the employer. Invariably the employer will make a substantial contribution to the employee’s legal costs incurred in taking independent advice.

So, the first time that many employees encounter a Compromise Agreement is when they are faced with redundancy or dismissal and are often in a distressed state of mind. This can be made worse by having to go and see a solicitor or legal advisor for the first time to go through the agreement with them and explain its legal effect if they agree to sign.

However, most solicitors that they see will be experienced in employment law and will appreciate the clients concerns and anxieties and will be familiar with the potential problems. They will also be able to advise clearly whether the Compromise Agreement offered is in the client’s best interests or whether a better deal can be negotiated.

With the majority of new property instructions now requiring a Home Information Pack, the saga that is the introduction of HIPs appears to have finally reached the end of the first chapter. Almost a year late from the original introduction date with some of the earlier requirements diluted, critics argue the scheme has been seriously undermined. Indeed, with matters such as obtaining EPCs for newly built properties and the ongoing confusion of the “drop dead date” this project has someway to run, although it was always clear there would be changes along the way. That said, HIPs have achieved the goals of improving awareness of the issues in house buying and selling and consumers are starting to reap the benefits of reduced search costs, faster turnaround times and increased commitment levels from sellers. With HIPs increasingly used in the conveyancing process, the ongoing debate about the use of personal local authority searches will no doubt continue to drive down prices and improve service levels.

1st January 2008 Clarification

With the recent changes concerning the reduced amount of leasehold information required and continuation of first day marketing, there is still some confusion about the current position. From 1st January 2008 there will be NO change from the current position; i.e. properties can be marketed once a HIP has been commissioned and only the lease is required for leasehold properties. Properties already on the market before the introduction of HIPs and newbuilds complying to the latest building regulations standards will still NOT need a HIP.

Market Consolidation

There are early signs that the highly fragmented HIP service provision market is starting to consolidate, with a number of firms facing up to the realities of reduced margins and the increased support overheads required to deliver HIPs and Energy Performance Certificates. One company that had been very prominent was Habitus, who have recently announced that they have put their energy assessment business into administration.

As from today, all one- and two-bedroom properties put up for sale in England and Wales now need a Home Information Pack (Hip) meaning that this is now a requirement for all properties put up for sale.

The rule, which came into force at midnight, extends the new selling process, which was applied first to larger properties during the summer. Hips are supposed to improve the sale of homes by cutting purchasers’ costs and by giving buyers an energy rating for the property.

Any property that was already on the market on the relevant commencement date (ie 1 August 2007 for sales of homes with four or more bedrooms, 10 September 2007 for those with three or more bedrooms and 14 December for all properties) does not need to have a Home Information Pack. At this stage no ‘drop dead’ date has been set – ie a date on which all homes on the market would need a HIP regardless of when they were first put on the market.

The government is proposing new laws that will prevent some husband-and-wife businesses slashing their tax bills by sharing their income as dividends, according to a report from the BBC.

Earlier this year, HMRC (HM Revenue & Customs) lost a test case at lords when it tried to challenge the tax arrangements of husband and wife team Geoff and Diana Jones, who run an IT consultancy trading under the name “Arctic Systems”.

The Jones’ successfully avoided paying £50,000 in income tax. But the government argued that the “income splitting” involved was artificial.

“The government believes that the fairness of the income tax system is undermined if some individuals are able to dissociate themselves from income that they would have received in order that the income is taxed in the hands of another individual at a lower rate,” said the Treasury.

“The [new] legislation would apply only where a tax advantage is gained through non-commercial arrangements and where the shifted income is in the form of a company distribution or share of partnership profits,” it added.

Geoff and Diana Jones had, for several years, shared the income from the business they jointly owned - by paying themselves dividends from the company.

Over the course of the four-year campaign against Mr and Mrs Jones, HMRC argued that in such cases the partner taking the highest salary should not be able to reduce their tax bill by shifting some of the income to their spouse, who might otherwise earn little or nothing.

The authorities claimed that Mr Jones had cut his own salary to an artificially low level, just so he was able to give his wife some of his money as dividends.

The couple argued, successfully, that the arrangement was perfectly legal and, until 2003, had also been regarded as such by HM Revenue & Customs and the accountancy profession.

The government responded  by announcing, at the time of its recent pre-Budget report, its intention to plug what it sees as a “tax loophole”.

In its consultation document it states that it wants to stop “income splitting” where, in reality, the husband, wife or civil partner “plays either no role or only a minimal role in the business”.

Francesca Lagerberg from accountancy firm Grant Thornton, said: “The government has pursued this issue with great force and the result must come as a bit of a shock to the taxpayer following the Arctic Systems win at the House of Lords in July.”

However, the government has said that it will not try to stop arrangements that have been made on a genuinely commercial or “arms-length” basis and that its plans will not affect the majority of small businesses.

Andrew Hubbard, of the Chartered Institute of Taxation said: “In theory this might seem fair, but the reality is that family businesses do not and cannot possibly operate on a fully arms length basis.

“One spouse might be the main income generator but he/she may well be totally unable to run the business without the full support of their spouse.

“The support of the spouse may well be the difference between the business succeeding and failing,” he added.

The new laws should come into effect next April.

[Reference, BBC.co.uk]

On 15 December 2007, The Money Laundering Regulations 2007 come into effect, replacing the existing money laundering legislation. The aim of the new regime is to further restrict criminal access to the financial system, thereby deterring crime and terrorism.

Businesses that must be supervised for money laundering purposes will be required to apply appropriate risk-based systems and controls when entering into transactions covered by the legislation. These include customer due diligence measures, to identify and verify not just the customer but the beneficial owner of the customer (such as a company or trust), and ongoing monitoring where necessary, throughout the client/customer relationship, to ensure that any transactions are consistent with the knowledge of the customer, his or her business and identified risk profile. Documents and information obtained in the course of applying these measures must be kept up-to-date and staff must be trained on the requirements of the new legislation.

Failure to comply with the legislation can lead to severe penalties.

The Regulations apply (with certain exceptions) to the following types of business:

• credit institutions;
• financial institutions;
• auditors, insolvency practitioners, external accountants and tax advisers;
• independent legal professionals;
• trust or company service providers;
• estate agents;
• high value dealers; and
• casinos.

Says Charles Marchant-White of Clarke & Son LLP

“The message to owners of businesses affected by the new legislation is ‘be prepared’! You may be required to register or re-register by a specified date and pay a registration fee. Those who fail to comply with the law will be liable to civil and criminal penalties.”

Overseeing the new regime are various regulatory and supervisory authorities, depending on the business sector. If you think your business might be affected by the new Money Laundering Regulations, you should contact the relevant supervisory body or your trade association or professional body for further information without delay.

It is the ‘high value dealer’ who is probably least likely to be aware of the impact of the new law. The legislation defines a high value dealer as ‘a firm or sole trader who by way of business trades in goods (including an auctioneer dealing in goods), when he receives, in respect of any transaction, a payment or payments in cash of at least 15,000 euros in total, whether the transaction is executed in a single operation or in several operations which appear to be linked’. Clearly, this definition will cover many businesses supplying high value goods where the customer wishes to pay in cash. At the time of writing 15,000 euros is approximately £10,500.

HM Treasury will be working with many other organisations, including supervisory authorities and trade bodies, to build on the existing money laundering guidance available. The courts and supervisory bodies will take into account compliance with any Treasury approved guidance.