Commercial Client Reference Articles

Dealing With Subject Access Requests

Many businesses regard the Data Protection Act 2018 as something that merely requires a lot of form filling and the payment of fees, but there is a lot more to it than that.

The purpose of the Act is to protect a person's right to privacy with regard to the processing of their personal information. Individuals (‘data subjects’ in the terminology) have the right of access to information held about them. For example, a customer of your business has the right to contact you to request a copy of any data you hold on them so that they can check it. This is called a 'subject access request' (SAR). You are required by law to supply the information requested (once you have checked that they are who they say they are, of course). The individual making the request has the right to see data held in any form, not just that held on computer, so storing information in paper form does not avoid the responsibility.

Guidance on dealing with SARs is available from the Information Commissioner's website.

If you receive a SAR, you are required to supply not only all the information you hold on the data subject but also a description of why the information is processed, details of anyone it may be passed to or seen by, and the logic involved in any automated decisions. If you unjustifiably fail to comply with a SAR, the courts may impose a fine of up to £5,000. Any person who believes they have suffered damage and/or distress as a result of a contravention of the Act may seek compensation by applying to the High Court.

In the case of a failure to comply with a subject access request the Court may award compensation for distress alone.

The interpretation of the Court of Appeal is that ‘personal data’ has been defined in such a way that employees are only entitled to see information which is biographical ‘in a significant sense’ and which has the data subject as its focus. The mere mention of a person’s name does not entitle them to see the documents concerned.

 

SARs are goverened by the General Data Protection Regulation. There is guidance on this from the ICO.

Drug Policy - Recognising the Signs and What to Do

Substance abuse amongst staff can affect all areas of employment, whether it be a decrease in productivity, increased absenteeism or the increased likelihood of accidents and injuries. The failure to identify and deal with a problem is an unnecessary risk for businesses and can prove costly.

The Law

The Misuse of Drugs Act 1971 makes it an offence for any person to permit the production, supply or use of controlled drugs or substances on their premises, unless they have been prescribed by a doctor.

Employers also have a general duty under health and safety legislation to ensure, as far as is reasonably practicable, the health and safety and welfare at work of their employees and to make sure that no one else is put at risk as a result of the work activities of an employee.

Under the Management of Health and Safety at Work Regulations 1999 employers have a duty to assess the risks to the health and safety of their employees. If you knowingly allow an employee to carry on working whilst under the influence of drugs and this puts others at risk, you could be prosecuted.

Health and safety law applies to driving activities as it does to other work activities and the risks must be managed accordingly. Drivers must not be under the influence of drugs while driving, attempting to drive or when they are in charge of a vehicle. In addition, the Crime and Courts Act 2013 (Commencement No 1) (England and Wales) Order 2014, which came into force on 2 March 2015, makes it a criminal offence for a person to drive with a concentration of any specified controlled drug above the maximum specified limit for that particular drug.

What to Look Out For

Possible signs of drug misuse include:

  • impaired performance such as lack of concentration, a tendency to become confused and poor judgement;
  • sudden mood changes and unpredictable behaviour;
  • poor time-keeping;
  • unusual irritability and deteriorating relationships with others;
  • lower personal standards – self-neglect;
  • increased time off work;
  • dishonesty and theft.

There may, of course, be other reasons for such behaviour patterns but it is sensible to consider the possibility that misuse of drugs could be the cause.

What to Do

Even if you are confident that your business does not currently have a problem, drug misuse that affects the workplace is a growing threat. It is advisable to have an agreed, written policy setting out the company’s position.

Employees should be well informed as to the policy and know that it applies to everyone in the company. It should form part of your overall health and safety policy. Make sure you consult with employees and with safety representatives.

The policy should include a definition of drug misuse, have clearly stated aims, name the persons responsible for carrying out the policy and give clear guidelines as to what employees must do to comply with the rules.

If an employee suffers from drug addiction, you should support them, not punish them. Offer them counselling and encourage them to seek voluntary help. Addiction could be viewed as an illness in an unfair dismissal case so disciplinary procedures may not be appropriate. The policy should contain a statement assuring employees that problems will be dealt with in confidence, subject to the provisions of the law. It should, however, be made clear that a breach of the law (for example the possession of or dealing in substances that are controlled under the Misuse of Drugs Act in the workplace) will be reported to the police immediately. Make clear the circumstances in which disciplinary action will be taken.

It is important to train key staff to be aware of the signs of drug misuse and how to handle the situation sensitively.

Review your policy regularly and check that it is widely understood. If you have a staff handbook, it should contain details of the policy. Make awareness of the policy a part of the induction programme for new employees.

Where it is justified, some employers screen employees for illegal substances as part of their drug policy, particularly in safety critical industries. With the widespread advance in non-intrusive methods of testing, this is likely to become more common. However, this is a very sensitive area because of the legal issues involved and we would recommend you take advice to ensure there is no breach of your employees’ rights. Also, the results of any drug tests must be handled in accordance with the General Data Protection Regulation and the Data Protection Act 2018

Psychoactive Substances and Your Workplace Drug Policy

The Psychoactive Substances Act 2016 makes it an offence to produce, supply, offer to supply, import or export any psychoactive substance if it is likely to be consumed for its mind-altering properties. There is a list of exemptions, which includes legal substances that are in everyday use, such as nicotine, caffeine and alcohol, and medicines, which are regulated elsewhere.

The substances targeted by the Act usually contain one or more chemical substances which, when consumed, imitate the effects of illegal drugs controlled by the Misuse of Drugs Act. Prior to the ban, these substances were frequently referred to as 'legal highs'. They often contain ingredients that have not been tested on humans and so their effects are hard to predict. As such substances are not generally intended for human consumption, they have frequently been marketed as bath salts, incense or plant food. The drugs have three main effects – as stimulants, sedatives or hallucinogens.

Possession of a psychoactive substance is not in itself an offence, except where it occurs within a 'custodial institution' – i.e. a prison, young offender institution, remand or removal centre etc.

The Advisory, Conciliation and Arbitration Service (Acas) advises employers who do not already do so to include the use of psychoactive substances in their workplace drug and alcohol policies. As screening for their use can be difficult, Acas suggests focusing on the effects of such mind-altering substances on employees' behaviour and ability to work, rather than on the drugs themselves.

Dealing with Employee Absence

Employee absences can be both costly and disruptive for businesses. It is therefore advisable to identify the reason why people are off work and to manage their absence in a sensitive way. If their working conditions have contributed to their illness, remedial action should be taken where possible.

The Chartered, Institute of Personnel Development (CIPD) has published its eighteenth annual survey, 'The Health and Well-Being at Work Report', which was carried out in in November 2017 in partnership with Simplyhealth. Whilst the survey continues to monitor absence management trends, policy and practice, as in past years, this year the focus has shifted from absence management to health and well-being at work.

The 2017 survey found that organisations that have in place a standalone well-being strategy, with senior managers and line managers who recognise the importance of and promote the well-being of workers, are more likely to report positive outcomes with regard to employee sickness absence.

The average level of employee absence has increased slightly to 6.6 days per employee, compared with 6.3 days in the 2016 survey. Once again, the survey found that average levels of absence remain higher in the public sector (8.5 days per employee) and in larger organisations.

The most common cause of short-term absence for the vast majority of organisations is minor illness, while mental ill health, musculoskeletal injuries (including back pain), stress and acute medical conditions are the most common causes of long-term absence, as in previous years. However, more organisations include mental ill health among their most common causes of short- and long-term absence and more respondents this year report an increase in common mental health conditions, such as anxiety and depression. One in five of those who responded report that mental ill health is the number one cause of long-term absence in their organisation, while nearly three-fifths report that it is among their top three causes of long-term absence.

Another finding is that the vast majority of respondents (86 per cent) report that they have observed 'presenteeism' (i.e. people continuing to work when they are unwell) over the past 12 months, with over a quarter of these reporting that presenteeism has increased over this period.

Nearly two-fifths (37 per cent) of respondents report that stress-related absence has increased over the past year and just 8 per cent report that it has decreased. Workload remains by far the most common cause of stress at work, with just over two-thirds of organisations claiming to be taking steps to identify and reduce workplace stress – a small increase on previous years.

While only a minority of organisations (6 per cent) have a standalone mental health policy, there have been small increases this year in the proportion reporting that mental health is part of another policy or that they are developing a policy, and most organisations are taking some action to manage employee mental health at work.

What Can Employers Do to Promote Employees' Health and Wellbeing?

Clearly, awareness of mental health issues and supporting workers who are experiencing problems is vital to promoting employees' health and wellbeing. Having policies in place that acknowledge these issues that are well understood can help in this regard. Creating a friendly working environment, where staff feel valued as part of a team and where flexible, ‘family friendly’ policies are in force is likely to pay dividends, keeping absenteeism to a minimum.

If you do not have a well-being strategy, we can assist you in designing one that focuses on the demands of your workplace. Employers have a duty to protect workers from stress by carrying out appropriate risk assessments and acting on them. These should focus on the areas of work that have the greatest impact on stress levels – i.e. demands, control, support, relationships, role and change.

Managing Sickness Absence

When staff are off sick, their absence should be managed effectively. Make sure they are well informed as to your sickness policy and procedures and that these are seen to be followed and accurate records are kept. These must be retained for at least three years after the appropriate financial year-end.

Where line managers are primarily responsible for overseeing employee absence, make sure they are trained in all aspects of absence-handling and have ongoing support, such as online support or a care conference with the Human Resources department, so that they are able to handle what can be difficult conversations with staff in a sensitive manner.

When hiring new staff, make sure you check their attendance record with the previous employer. If new staff are absent it is good practice to make sure you know if there are problems preventing them from settling in. How staff are treated in the first weeks of a new job is vital. Inadequate training can leave them feeling disillusioned.

It is sensible for employers to ensure that contracts of employment allow them the right to get an independent medical assessment in the event of an employee taking more than a few days off work. You may consider requiring all potential employees to undergo a medical examination with an occupational health adviser.

As a matter of company policy always carry out a ‘return to work’ interview. This may range from ‘hope you’re better, we missed your contribution’, to an identification of underlying problems that will affect your management strategy. It may also deter malingerers.

Long-term sickness must be handled sensitively. You must have an employee’s permission to apply for a medical report. It is vital to keep in touch so that the employee doesn’t feel isolated. Consider referring them to an occupational health specialist. This can identify ways of helping them return to work and give you information as to how long the absence is likely to last.

Disciplinary action for unacceptable absence must be distinguished from dismissal on health grounds. Employers need to be aware of the full range of conditions that count as a disability for the purposes of the Equality Act 2010, which include mental health problems that have a substantial, adverse and long term effect on a person's ability to carry out normal day-to-day activities, the effect is long-term and the condition is likely to recur. Where an employee is suffering from a condition covered by the Act, reasonable adjustments must be made to help them return to work.

Care must also be taken to avoid a claim for unfavourable treatment 'because of something arising in consequence' of an employee's disability.

As regards the accrual of holiday pay when a worker is on long-term sick leave, workers have the right to carry forward four weeks of their statutory holiday entitlement to the next leave year if they are unable to take it or choose not to do so in the current year owing to long-term illness. However, the leave, or the right to payment in lieu of that leave, will be lost if it is not taken within 18 months of the end of the relevant year in which the entitlement to that leave accrued.

Dealing with long-term absences, in particular, is a difficult area of the law. Each case must be decided on its own merits and proper procedures must be followed. Employers who have not done so for a while are advised to review stress management and long-term absence policies and procedures so that potential problems are identified early on and remedial action is taken as soon as possible.

Guide to IHT and Small Business

Inheritance Tax (IHT) is payable on a deceased person’s estate (exclusing their principal private residence for whaih an extra allowance is available) at 40 per cent above £325,000 (2017/18) – the current nil rate band. However, business property is treated differently from personal property and may qualify for  Business Relief, formerly called, and generally known as Business Property Relief (BPR). Businesses benefit from a more generous taxation system because of their role in providing economic growth.

BPR can provide 100 per cent relief from IHT on a sole trader’s business or partnership interests and can apply to shares in trading companies that are not quoted on a recognised stock exchange. Shares quoted on the Alternative Investment Market can also be eligible for 100 per cent BPR. There is no limit to the value of BPR which can be claimed. Business assets must have been owned by the donor for two years to qualify for BPR and the business in respect of which a claim is made must also be wholly or mainly a trading company. Investment companies and businesses dealing in shares, stocks, securities, lands or buildings do not qualify for BPR.

BPR at 50 per cent is available on land, machinery, plant and buildings used for business purposes, although they will need to have been owned and used mainly for business purposes within the past two years. It is also available for shares in quoted companies where the shareholder has a controlling interest of more than 50 per cent, although this is rare.

In the context of a family business, it may be preferable for a donor to leave IHT-exempt assets to a beneficiary other than their spouse or civil partner. There is no saving if business assets are passed to a beneficiary who would not be liable for IHT anyway. For example, a transfer of business assets qualifying for BPR to a spouse would achieve no IHT saving on that transfer, because transfers between spouses are normally exempt from IHT in any event. There are several issues to consider and expert advice is essential when undertaking IHT planning with regard to business assets.

No BPR is available where there is a binding contract for the sale of a business. This might occur where there are a small number of shareholders who have a shareholders’ agreement which requires that should one of them die, their executors will sell his or her holding to the remaining shareholders, who are required to buy it.

Even where shares would not qualify for BPR, the £3,000 annual tax-free allowance for IHT is available. A shareholder can use this to pass shares to anyone of their choosing. This can be used to give the beneficiary a gradually increasing interest in the company, reducing the IHT payable on the donor’s death. However, care should be taken because the values of ‘slices’ of the shareholdings can vary massively depending on what the voting rights involved are: never transfer shares without taking professional advice on the likely tax implications.

As an alternative approach, a person may choose to sell or wind up their business rather than leave it to beneficiaries in their will. They would then be able to leave liquid capital to their beneficiaries instead. This has the advantage that the value of the business would be precisely fixed and available in cash. However, cash does not qualify for BPR, so this approach has significant drawbacks.

The current law particularly benefits small businesses that are family owned trading companies. They will be likely to qualify for BPR and make the most of the possible IHT saving.

In 2018, the Government announced its intention to review and simplify capital taxation, so changes are to be expected,

Dealing With Breach of Patent

When you discover that a business has breached your patent, what should you do?

The answer to this question has two elements. The first is based on what you can do in law and the second is based on business strategy.

Firstly, before picking a fight with anyone over such a matter, it is important to make sure that you are on firm ground, so do your research carefully. Make sure there is a real infringement and that the infringement is in a market in which your patent applies.

In law, if a business infringes a patent, it is liable to pay damages to the patent owner, which will be based on the loss suffered by the owner. In theory, losses suffered will be compensated for but, in practice, allowing an infringement to continue while you negotiate with (or sue) the infringing business is a high-risk strategy. In most cases, especially where the effect of the patent infringement is severe (for example, where its use directly affects your sales), it is likely that you should send a legal notice to the offending business requiring it to cease the infringement immediately.

This will normally produce one of the following responses:

1. The infringer will agree, cease the infringement and (hopefully) enter into discussions with you about the appropriate payment to make to you by way of compensation. Regrettably, this is not the most common response.

2. The notice will be ignored. In this case, the infringer either hopes that your letter is a bluff and you will not take legal proceedings or believes that it has not infringed your patent and would win that argument were the matter to come to court. Under these circumstances, it is doubly important to do your homework and make sure of your position as legal proceedings are likely to be necessary.

3. Your notice will be met with a denial from the infringer (and occasionally a counter-claim that one of your products infringes its patent). In this case, there is a fight there if you want it (or sometimes even if you don’t).

No matter what the response, in the majority of cases the most satisfactory outcome will usually result from negotiation with the benefit of expert advice, rather than court proceedings. Commercial considerations must be kept at the forefront and it is normally advisable to leave the door open to a negotiated settlement. This is especially so as one of the common outcomes of such disputes is the creation of a licensing agreement, which will require specialist legal advice.

See guidance from the UKIPO.

VAT on Business Assets With Private Use

It is very commom for a smaller business to have assets which have been acquired which are used for both business and private use.

Traditionally, this could be dealt with either by claiming only the percentage of the input VAT which corresponded to the percentage of business use or by claiming all the input VAT and then making a VAT charge (i.e. adding to the output VAT payable) for the private use on an ‘as you go’ basis. This latter method is called ‘Lennartz accounting’, after the VAT case that established the principle.

Following a Dutch VAT case, however, the use of Lennartz accounting has been considerably restricted.  HMRC 's current guidance on the correct  VAT treatment in such cases  is updated periodically.

Following Brexit, it is almost certain that VAT legislation will change significantly, although how such changes will manifest themselves is not yet known

 


Tax Free Perks

The Government has continuously sought to limit the tax free perks that businesses can provide for their employees. However, there are some remaining. Here is an update on some of those still available.

Childcare

Childcare provision and childcare vouchers up to a weekly maximum 'appropriate amount'. The system has changed for new entrants to an employer scheme from April 2011. See details here.

 The childcare tax allowance scheme  came into effect in 2015.

Mobile Phones

There is no benefit in kind on the provision of a mobile phone to an employee, although this can prove an expensive perk to provide. If additional mobile phones are provided (e.g. where they are given to family members also), only one is exempt - you can choose which one.

Homeworking Expenses

Employees can be paid up to £3 per week (unchanged since 2008/9) to cover the extra costs of working from home (not including business telephone calls). No receipts need to be kept. Employees can claim amounts in excess of this allowance via their tax return; however, evidence of the amounts spent will be required.

Staff Entertainment

No benefit in kind is chargeable on Christmas Parties and other employee functions, up to a maximum of £150 per head. The function has to be an 'annual event' and open to all employees to qualify for the exemption. The rules where more than one such function is held are complex - see HMRC's guidance for further information.

Subsidised Canteens

Subject to certain conditions, subsidised canteens create no taxable benefit. Luncheon Vouchers up to 15p per day are tax free.

Subsistence Payments

You can pay employees up to £5 per overnight stay in the UK or £10 if the business trip is abroad. Allowable amounts for foreign subsistence are being reviewed in 2010/11. HMRC offers guidance on subsistence payment in the UK here and abroad here. These rates have been unchanged since 2014.

Transport

It is often forgotten that the use of a qualifying pool car is not a taxable benefit, nor is free parking at the workplace.

Payments for travelling expenses in connection with work can be made according to 'scale rates' published by HM Revenue & Customs (HMRC). There are separate rates for cars, motorcycles, and bicycles and even for passengers sharing a car.

Share Incentive Schemes

There are a number of share incentive schemes which can be used to provide tax free benefits. Share Incentive Plans allow companies to give up to £3,000 worth of 'free shares' each year to employees. Recently, the Government has annoucned its intention to restrict the terms of such schemes.

Long Service Awards 

Non-cash awards for long service are tax free for employers, as long as the award marks at least 20 years' service and the employee has not received any previous long service awards in the last 10 years. Benefits of up to £50 per year of service are tax-free: if the benefit is worth more than this, only the excess over £50 is taxable. 

Employers' Pension Contributions

Payments to approved pension schemes, on behalf of employees, are not taxable.

Interest Free Loans

Loans of up to £5,000 can be made to employees without attracting a tax charge on the notional interest.

Professional Subscriptions

These are not normally taxable when paid by the employer, as long as the organisation being subscribed to appears on HMRC's List 3.

Sports Facilities

These are tax free, provided they are available to all employees (and aren't available to the general public).

Removal Expenses

The relocation expenses for employees who move in connection with their work can be paid, subject to limits.

Providing tax free benefits in kind can be an excellent way to increase staff motivation and attract and retain key employees. Employers should look at the range of options open to them to tailor attractive remuneration packages for their staff.

Vouchers

Vouchers not exceeding £50 each in value may be given to employees in a tax year. The vouchers must not be able to be encashed.

 

Employed or Self-Employed?

Whether you are employed or self-employed makes a substantial difference to how you are taxed and the income tax liabilities of an employed person can be very different from those of a self-employed person with similar levels of gross income. The National Insurance liabilities of the employed and self-employed are also calculated differently and entitlement to benefits, such as Jobseeker’s Allowance, also varies depending on one’s employment status.

If you are an employee, your employer must normally pay National Insurance Contributions for you, operate PAYE on your income and enrol you into a pensions scheme unless oyu formally opt out.

It is therefore important for any working person to know their exact employment status. Sometimes, however, deciding whether someone is genuinely self-employed or an employee can be difficult and HM Revenue and Customs are unforgiving of those who ‘get it wrong’. However, they do produce fact sheets to help people make the correct decision.

Guidance from HMRC on the related tax issues can be found here

It is quite possible to set up a 'self-employed' relationship which is caught by the rules and will be treated by HMRC as an employer/employee relationship. The cost to the employer of having such a relationship 'redefined' as one of employment can be massive, so it is essential to make sure that any such arrangements are watertight. There is a special regime dealt with under IR35 which will bring some payments made to limited companies into the PAYE regime. 

In 2014 regulations were brought in to bring more contractors into PAYE to prevent the use of 'false self-employment' intermediaries, which typically involved schemes using an 'umbrella company' or an offshire company.

More recently, a number of employment law cases have been heard which deal with the employment status of people in the 'gig economy'. Whilst change in the tax law should be expected as a result, it is important to note that the tax law relating to employment status does not directly flow from the law from employment law purposes. In particular, the fact that someone may declare their own income and pay taxes as a self-employed person does not mean they are self-employed for income tax and national insurance purposes.

VAT - Place of Supply of Services

With different rates of value-added tax (VAT) applying throughout Europe, the place that a supply is made (and hence the VAT rate which is applicable) can be a very important matter.

The basic 'place of supply' rule is that in normal circumstances (and subject to some exceptions), the place of supply for a service is the place where the supplier 'belongs' – in other words, where they normally do business. However, this has caused considerable problems where the supply is one of services, not goods. Accordingly, the rules were changed on 1 January 2010, such that the basic rule for the place of supply of a service is now where the customer belongs if the customer is a business.

The place of supply rules are complex and should be understood fully if they affect you.

The rules relating to the place of supply of electronic products to non-business customers changed on 1 January 2015. See the HMRC website for details.

How to work out your place of supply.

Following Brexit, it is almost certain that VAT legislation will change significantly, although how such changes will manifest themselves is not yet known.

Cookie Law

The Privacy and Electronic Communications (EC Directive) (Amendment) Regulations 2011 require consent to be obtained for the use of cookies and similar technologies for storing information, and accessing information stored, on a user’s equipment, such as their computer or mobile phone. The Regulations came into force on 25 May 2011. However, the Information Commissioner’s Office (ICO) announced that organisations would be allowed a year-long period to work towards compliance with the changes. That grace period has now expired.

Previously, privacy rules only required websites to tell users about cookies they used and provide information on how to ‘opt out’. Most organisations did this by putting information in their privacy policy. The new rules require that in most cases websites wanting to use cookies must gain consent, which must involve some form of communication whereby the individual knowingly indicates their acceptance. The ICO made last-minute changes to its guidance on how to comply with the new cookie law in order to clarify the following points with regard to implied consent:

  • Implied consent is a valid form of consent and can be used in the context of compliance with the revised rules on cookies;
  • If you are relying on implied consent you need to be satisfied that your users understand that their actions will result in cookies being set. Without this understanding you do not have their informed consent;
  • You should not rely on the fact that users might have read a privacy policy that is perhaps hard to find or difficult to understand; and
  • In some circumstances, for example where you are collecting sensitive personal data such as information about an identifiable individual’s health, data protection law might require you to obtain explicit consent.

The regulations have been comprehensively updated by the General Data Protection Regulation (GDPR), which takes full effect on 25 May 2018. In effect, the GDPR will mean that any cookie which allows a user's device to be identified will be treated as being 'personal data' and this subject to regulation by the GDPR and specific consent will need to be given

A 'session cookie' exists only to make website functions work for the duration of a browser's session. These are anonymous and are not therefore wihin the scope of the GDPR.

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