Commercial Client Reference Articles

Construction Industry VAT Changes Ahead

Businesses in the construction industry are reminded that on 1 October 2020 the new VAT domestic reverse charge will come into force. This is being introduced as an anti-fraud measure and will see a major change in accounting for VAT on some construction services. When it applies, the customer will become the party responsible for accounting for the VAT on the supply made to them. It is a change in 'B2B' sales: it does not apply to supplies made to end-users such as domestic purchasers.

As is usual with VAT, there are many complexities. However, in basic terms the VAT-registered supplier will issue a VAT invoice in the normal way, with a confirmation that the reverse charge applies to the supply, and the VAT-registered customer will pay the net amount of the invoice to the supplier: the VAT will be declared as output tax on the purchaser's VAT return and also reclaimed as input tax on the purchaser's return.

Compliance with the new regime will undoubtedly cause issues, especially as it is rather non-intuitive in operation.

If you are in any doubt about how to comply with any of your legal obligations, take professional advice.

Who Pays the Rates?

When a company that is the tenant of a property goes into liquidation, it is normal for the liquidator to disclaim the lease on the premises.

Business rates must be paid by the 'person entitled to possession of the property' (Local Government Finance Act 1988). If the landlord reoccupies the property, then it is clear that the landlord will bear the liability for the rates. However, if the landlord leaves the property vacant, is it still liable?

In a recent case, the liquidator of the tenant disclaimed the lease. The lease was subject to a guarantee and the landlord left the premises unoccupied, making a claim against the guarantor of the lease for the rent shortfall. This gave the guarantor the right to occupy the premises if it so chose.

Once the lease had been disclaimed, the local authority demanded the rates from then on directly from the landlord. The landlord refused to pay, claiming that since the guarantor had the right to call for a lease, the landlord was not the person entitled to possession of the property and had not, in fact, occupied it.

The High Court rejected the landlord's argument. The landlord had the right to immediate possession of the property once the lease had been disclaimed. The disclaimer of the lease meant that there was no longer any lease.

In addition, although the guarantor had the statutory right to demand a lease on the premises, it had not done so.

A 2019 decision confirmed that an office whchc had been stripped out in preparation for a new tenants to come in had a nil rateable value whilst empty.

If you are a landlord, a carefully worded guarantee clause could avoid the problem by making the guarantor responsible for the rates as well as the rent in the event of the insolvency of the tenant.

 

Tenancy Deposit Protection Schemes - Rules

If you are a landlord it is vital that you are aware of the requirement that all deposits taken by landlords and letting agents for Assured Shorthold Tenancies (AST) in England and Wales must be protected by a tenancy deposit protection scheme.

There are two types of tenancy deposit protection scheme available for landlords and letting agents. These are insurance-based schemes and custodial schemes. All schemes provide a free dispute resolution service.

Landlords must be a member of one of the schemes currently in existence. Within 30 days of receiving the deposit, the landlord must provide the tenant with details of how the deposit is being protected including:

• the contact details of the tenancy deposit scheme;
• the landlord’s or agent’s contact details;
• how to apply for the release of the deposit;
• information explaining the purpose of the deposit; and
• what to do if there is a dispute about the deposit.

If a landlord or letting agent does not protect a tenant’s deposit then they will have to pay them a minum of the amount of the deposit and a maximum of three times the deposit sum in compensation.

The requirement to belong to a tenancy deposit scheme operates to the benefit of both landlords and tenants. From the landlord’s perspective, where damage is done to their property, the scheme allows the appropriate amount to be deducted from the tenant’s deposit as compensation. It is important, however, to make sure that an inventory is carried out at the beginning of the tenancy and once the tenancy is concluded, otherwise there is no proof of the damage claimed and the adjudicator is likely to find in favour of the tenant.

From the tenant’s perspective, the scheme protects them against the actions of unscrupulous landlords by making sure that part or all of their deposit is returned to them, depending on the circumstances.

It is important for landlords to understand that a tenancy which commenced before April 2007 and expires after that date will, if allowed simply to continue, create a new AST and any deposit held by the landlord will have to be treated in the same way as a deposit under a new tenancy.

In 2012, following a series of cases which significantly diluted the impact of the previous system, tenancy deposit law was significantly changed by way of the Localism Act 2011, making it more important for landlords to ensure they comply or risk significant penalties.

In 2015, important changes were introduced in the Deregulation Act 2015 which apply in all instances where a statutory periodic tenancy has been entered into on or after 6 April 2007 and a deposit paid.

The Tenant Fees Act 2019,came into effect on 1 June 2019,  and controls what payments a landlord or letting agent may require 'in connection with a tenancy of housing in England'. There are substantial penalties for landlords who fail to comply with the new legislation.

The most important change is that landlords will no longer be able to demand a security deposit of more than five weeks' rent if the annual rent is less than £50,000.

In addition, the Act introduced a ban on excessive charges for lost keys or security devices, late rental payments and early lease termination (unless loss to the landlord can be proven), and on premiums for the supply of services such as Internet connections.

Landlords who charge unlawful fees can have their right to repossess their properties suspended until the fees are repaid.

For further details on the types of scheme and those available, click here.

For guidance on renting generally, click here.

Tips for Business Borrowers

With the economy improving, businesses will be thinking about financing the expected expansion of trade. Borrowing cost often dominates the thinking, but it isn’t all about the cost of the loan. In order to negotiate the right deal, here are some tips on other things to think about:

Borrowing Generally


•Make sure your lending proposition stands up on a cash flow as well as a profitability basis, and be able to defend your sales forecasts;
•Overdraft or loan? With an overdraft, you pay interest only on the amount you borrow plus an annual renewal fee – if the bank agrees to renew your overdraft. With a loan, you pay interest on the whole sum from day one, but normally at a lower rate, and the loan cannot normally be recalled. Many loans have, in effect, penalties built in for early repayment. It is common advice for ‘hard core’ borrowing and borrowing to finance assets to be by way of a loan and for overdrafts to be used for short-term borrowing;
•Don’t forget to read the small print. It may one day be important to understand fully the legalities. Don’t just sign the loan agreement and hope for the best – take advice first;
•If you are borrowing to finance increased sales, factoring or invoice discounting may be for you. These agreements are complicated and often impose significant extra accounting costs, but can be a good way of reducing risk;
•If you are self-employed, the lender’s ‘long stop’ is you and your assets. Take advice on how to minimise your risk before you borrow;
•If you are worried about being able to stay within your overdraft limits, it is often worth borrowing on loan to make sure you do: penalty charges and interest rates on unagreed overdrafts can make them a very expensive way to borrow;
•You may be tempted to use your credit cards for finance. This can be very risky as if you incur interest charges on a credit card, these will be much higher than for normal commercial lending – and you won’t get tax relief on the borrowing;
•Never borrow from an individual (particularly friends or family) unless you have a proper legal agreement in place (or want to risk a falling-out); and
•Remember that the greater your exposure in respect of any loan, the less ‘spare credit’ you will be regarded as having for other borrowing.

Company Borrowing


If you are borrowing for a company, the following should also be considered:

•Whether you are prepared to give a debenture for the loan. A debenture will give the bank security over all the company’s assets. This improves the bank’s security but makes missing loan repayments dangerous, as the bank will have the right to appoint an administrator. Giving a debenture may reduce the cost of the borrowing, however;
•You may be asked to give a personal guarantee. Take advice before agreeing. Again, your assets are on the line; and
•If you borrow money personally and put it in your company, tax relief on the interest might not be available. This can make a cheap loan quite expensive after tax.

Borrowing sensibly isn’t just a matter of signing an agreement, taking the cash and making repayments. Negotiating loan finance successfully is easier if you are advised by experienced professionals who fully understand the legal implications of the documents you will be asked to sign.

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. A HMRC offers guidance on subsistence payment in the UK here and abroad here. The rates were revised in February 2019.

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.

 

GDPR Guidance

If you have not yet taken steps to ensure your business complies with the General Data Protection Regulation (GDPR), the time to start is now: it came into force, on 25 May 2018, from which date the Information Commissioner's Office (ICO) will start to enforce the new data protection regime. Failing to adhere can bring swingeing fines.

The GDPR applies detailed provisions to ensure that personal data – i.e. any data relating to an identifiable person – is properly processed and kept secure, and imposes a significant compliance regime on those who hold such data.

Key to the GDPR is the concept of 'data protection by design', so that data protection risks are considered at all steps of data handling and storage.

The GDPR builds on the existing data protection principles, as set out in the Data Protection Act 1998, but also makes significant changes, imposing stricter rules concerning the holding and management of data and also the use of personal data for commercial purposes. There are substantial rights given to individuals as to how information about them is collected and held.

The key principles are that the processing of personal data must be lawful, fair and transparent. This means that only the minimum necessary amount of personal data must be collected and only for specified, explicit and legitimate purposes. The data must be accurate and kept up to date, with access to it and use of it restricted to only those personnel who are necessary for the purpose, and it must be retained for no longer than is necessary and kept secure.

The most significant addition is the 'accountability principle', whereby data controllers must keep records to demonstrate how they comply with the data protection principles – for example by documenting the decisions taken about a processing activity.

The ICO's office has published a guide and checklist for complying with the GDPand a guide on the impact of a 'No Deal' Brexit.

For advice on how the GDPR affects you, contact us.

ICO 'Must Do' Data Protection Guide

 
The Information Commissioner's Office (ICO) has published a guide to protecting personal data,' hich it describes as outlining the procedures organisations must follow to ensure data security.


In the wake of a fine of £200,000 being handed to a charity which suffered data protection breaches due to lax Internet security, clients are reminded that data protection breaches can prove to be very expensive indeed.

Although the guide deals with the technical aspects of data security, data protection breaches can also have a financial impact under other areas of the law – contract and employment law, to name but two.

The guide includes information on the use of several types of data including CCTV, 'Big Data' and data sharing.

We can advise you on the legal issues relating to data security and how to ensure that your risk of financial loss in the event of a breach is minimised.

The ICO has published a guide to data protection in the event of a 'No Deal' Brexit.

 

Enforcing Copyright - The Basics

Copyright is a right that exists as soon as you create the copyright material. You do not have to apply for it. There are some exceptions to copyright, but unless one of these applies, anyone else using your material without your permission is infringing your copyright. The damages receivable for breach of copyright depend on the commercial loss to the copyright owner resulting from the infringement.

Normally, an informal settlement is to be preferred. If you do have to go to court, however, being seen to have tried to achieve a mediated settlement will do you no harm at all.

If you cannot resolve the matter informally, you may need to issue court proceedings. You will need legal advice for this and, in particular, putting together the evidence necessary to prove ownership of the copyright and the commercial impact of the infringement can be an onerous task.

There is a range of legal remedies for breach of copyright:

  • You can ask for an injunction which requires the infringer to stop making further infringing use of your material;
  • The court can award you damages for infringement of your copyright, based on your commercial loss; and/or
  • The infringer can be ordered to deliver up infringing items to you.


Where the infringement is deliberate, intentional or wilful, the court may provide additional remedies, such as increased damages.


Any material you come across will usually be someone’s copyright, so do not be tempted to ‘borrow’ material for your own purposes. It is important to find the copyright owner and obtain their permission to use it.


Material published on the Internet is NOT 'free to use'. Being given 'permission' to publish copyright material by anyone who can not validly give you permission is not a defence, although you may have a right of action against the person who gave you permission.  In a recent case, a firm which copied more than 100 articles belonging to another company (and which had appeared on various websites which were authorised to have it) was sued by the owner of the copyright. It agreed to an out of court settlement of  £5,000 plus legal cost which were several times the damages.

 

In 2014 the Government announced changes to copyright law, which will permit copying of copyright material for data analytics, certain private purposes, archiving and preservation, educational use and other reasons. Specific rules apply to each instance. There is guidance on the IPO website.


A recent decision of the European Court confirmed that proceedings for breach of copyright involving the Internet can be brought in any EU country from which the offending website material can be accessed . However,  the claims for damages must be brought in the country in which a loss is claimed to have occurred as a result of the breach.

There is a great deal of speculation about how this law may change and how it may be enforced in the event of a 'No Deal' Brexit.

 

 

Data Loss - What to Do

The Information Commissioner's Office (ICO) has issued guidance for organisations that lose personal data, having reported that it has been notified of nearly 100 such incidents to date.

One of the less intuitively obvious suggestions is to think carefully about whether all the potentially affected people need to be notified. For example, notifying all your customers about a security glitch which in reality affects only a small proportion of them may produce a flood of enquiries and requests for further information from unaffected people, as well as possibly undermining their confidence in your organisation.

What is advisable is to obtain an accurate understanding as soon as possible of the scale of the loss and the potential impact on the people whose personal information has been lost. For example, if the information is such as to make identity fraud a possibility, it is likely to be more important to notify the people concerned than if the lost information is simply a list of names and addresses (which could be obtained easily from other sources).

The ICO advises that there are four important elements to consider when creating a breach management plan. These are:

1. Containment and recovery;
2. Assessment of ongoing risk;
3. Notification of breach; and
4. Evaluation and response.


View the eight data protection principles.

E-Commerce Law on Disclosure - Compliance Guide

The Electronic Commerce (EC Directive) Regulations introduced specific legislation to underpin e-commerce. If your business has an Internet presence then you need to make sure that you are not falling foul of theserules.

The Regulations do not just apply to businesses that allow for online transactions, such as interactive shopping. They also apply to businesses which supply a service that is provided free of charge. The definition of service, within the context of this legislation, is wide.

Basically, the rules apply to most commercial enterprises that have a web site, even if it is just a basic brochure site.


All Websites

Detailed information must now be published on all websites. The information required is:

  • Your name
  • Your address
  • Your e-mail address
  • Your telephone number
  • Your VAT registration number
  • Any registered trade number or similar

Details of:

  • any authorisation scheme and the relevant supervisory body which granted the authorisation;
  • any professional body or institution with which you are registered;
  • any professional titles you hold;
  • the Member State where the professional title has been granted;
  • reference to the professional rules applicable in the Member State and how your customers can access them.

All references to prices must be clear and must indicate whether or not any tax and delivery costs are included.


Electronic Contracting

In addition, if your business is one where contracts are entered into by electronic means (excluding those carried out exclusively by exchange of e-mails) the following information must also be provided, in a way that it is read and clearly understood by the customer before they place an order for your goods and services:

  • The technical steps required to conclude the contract and at what point the person using your service is legally committed;
  • whether the contract will be filed by you and whether it will be accessible to the user;
  • The technical means for identifying and correcting input errors prior to placing the order;
  • The languages offered for conclusion of the contract;
  • Any relevant codes of conduct to which you subscribe and information on how these can be consulted electronically.

Your customers must be able to view, print and store the terms and conditions applicable to the online contract. Once an order has been received electronically, you must acknowledge its receipt.


Commercial Communications

The following regulations apply to ‘commercial communications’, which covers a wide range of electronic communications including websites, e-mails and text messages sent for advertising purposes:

  • They must be clearly identifiable as a commercial communication and state clearly who is the sender;
  • Any unsolicited commercial communications must be clearly identifiable as such, as soon as they are received;
  • Any promotional offers must be identified, e.g. any discounts, gifts, competitions, games;
  • Any conditions that must be met to qualify for a promotional offer must be clear and easy to understand.


Company E-mails

Don’t forget that legislation such as the Companies Act 2006 and the Business Names Act 1985 applies to electronic letters as well as to the hard copy variety.

For example, registered companies must include the same information in e-mail correspondence as they are obliged to give on business documents. This means that your emails should show the full name of the company, the registered number and the registered address.

Under UK case law, an e-mail delivered to a no longer used e-mail account which was previously used by a business was deemed to have been validly delivered, even though the management of the recipient business had not seen it. Be careful when changing e-mail addresses.


Websites and E-mail disclosure rules

In addition, new regulations were introduced in January 2007 which apply to all limited companies and limited liability partnerships (LLPs) and are designed to ensure compliance with EU regulations relating to company law. Failure to display the required information can result in a fine.

The information required includes:

  • The registered name of the company or LLP and any trading name;
  • The registered number of the company or LLP and it’s place of registration; and
  • The address of the registered office.


For further information see the Companies (Registrar, Languages and Trading Disclosures) Regulations 2006. More recently, the law regarding the collection, use and retention of web cookies has been amended and has started being enforced in the UK from May 2012 and further enhanced by the implekentation of the General Data Protection Regulation, effective from May 2018.

It is not considered that there rules will change significantly  in the event of a 'Hard Brexit'.

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