Blowing the whistle on a key employment judgement

Jonathan Wilson at accountancy firm Barnett & Turner, has a warning for employers about the consequences of a recent test case. Back in 1998, the Public Information Disclosure Act was introduced to provide comprehensive protection for whistleblowers. If someone believed their employer to be guilty of wrongdoing – theft, for instance, or a failure to comply with legislation – the idea was that they should be able to come forward without fear of victimisation.

Although the statute was good in principle, it was widely felt to be ambiguous and there was a distinct lack of detailed guidance. This left a lot of room for interpretation.

Following the case of Parkins v Sodexho Ltd (2002), employees were able to bring ‘backdoor’ unfair dismissal claims, founded simply on the basis that a breach of their own employment contract could be subject to ‘protected disclosure’ under the 1998 whistleblowing act. In other words, if they had an individual dispute with their employer over the terms of their contract, they could claim it was an issue which was covered by the whistleblowing legislation.

The Enterprise and Regulatory Reform Act of 2013 helped to tighten the law as it stated that workers would be protected only if they had a ‘reasonable belief that the disclosure was in the public interest’. The first major test of this clause came in a case involving estate agency Chesterton Global Ltd and its employee Mr Nurmohamed, who claimed the company was relying on misleading accounts to reduce the bonus or commission that managers received. The practice not only affected Nurmohamed himself, but also around 100 other managers within the business.

Nurmohamed argued that with 100 people involved, the public interest test applied and that he had been unfairly dismissed for raising his concerns. An employment tribunal agreed, but Chesterton appealed.

In the appeal judgement, Nurmohamed prevailed again – a decision which sends a strong signal to employers that issues affecting only a relatively small group of individuals may satisfy the notion of ‘public interest’. Critically, the Employment Appeal Tribunal also stressed that it was the employee’s ‘reasonable belief’ that was important. Even if the person concerned had interpreted the situation incorrectly, the fact that their belief was objectively reasonable gave them protection in law.

So it would appear to be that the hurdle for establishing ‘reasonable belief’ does not appear to be very high. In the case of Chesterton, the fact that it was a private company and a relatively small number of people were impacted by the behaviour of the firm, did not form an adequate legal defence.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Opening up in the UK: a guide for overseas businesses

With the right professional advice, you can feel much more confident about setting up a business in the UK, argues David Wilson of Barnett & Turner: Imagine you are setting up a business in an overseas territory. You may be establishing the venture to undertake a specific contract, or you may just be dipping your toes into new territorial waters. Either way, would you want to go to all the expense and hassle of trying to recruit a finance team overseas, when you don’t know anything about the local labour market or culture? Similarly, without the knowledge of the local legal, accounting and tax regulatory framework, setting up a business in an overseas location can be a daunting task.

The challenges are, of course, also true in reverse. An overseas business setting up in the UK will find itself confronted by the same issues. Professional advisers need to work closely together to provide the guidance needed at the beginning of the venture, including the selection of the most appropriate structure for the business, from both a legal and tax perspective.

Lawyers can assist with, among other things, company formation, appointment of directors and the issuing of shares, as well as commercial contracts for client and subcontractor agreements, company secretarial issues, annual returns and banking agreements. You can then turn to your accountants for advice and support on other matters.

If your business has employees, you will require assistance with UK employment legislation, contracts of employment for UK staff and taxation of inbound or outbound employees. There’s also the question of corporate benefits, which might be anything from medical and dental care through to maternity/paternity leave, death in service, salary exchange and pension auto-enrolment.

The lack of a local finance function can often be a challenge. An outsourced accounting and payroll provider takes away the hassle of bookkeeping, calculating and paying suppliers, employees and payroll taxes. They can also help with the submission of VAT Returns and the paying of any VAT due, the preparation of management accounts and the filing the year-end financial statements in accordance with UK standards.

With the advent of cloud-based bookkeeping and payroll software, your overseas head office can have access to live data that is maintained by the outsourced provider.

Outsourcing allows the directors and owners to concentrate on their ‘core’ function, while growing the business and customer relationships in the UK. It can also mean that less investment is required in IT and software to support the finance function and allow limited resources such as office space to be used for core activities. Outsourcing also gives you peace of mind on staffing issues such as training, sickness and holidays.

Taxation advice will also be important. As an overseas owner, you’ll need to understand your reporting obligations in the UK. Any employees you bring over to the UK, or subcontractors you engage to carry out work over here, will have UK tax reporting obligations. Your parent company will need advice on how to repatriate any profits made in the UK, while specialist input may be required when dealing in VAT, as well as Import/export.

One final thought to bear in mind is that although the UK company on its own may be considered ‘small’ for audit purposes, an audit may be required of a UK subsidiary of a medium or large-scale overseas group.

With the right support and advice in place at the outset, the challenges of establishing a UK business shouldn’t be insurmountable. So make sure you speak to your professional advisers at the earliest possible stage.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Think you’ve sorted auto-enrolment? Think again...

Many businesses and their employees are aware of the legislation surrounding auto-enrolment for pensions. Indeed, the ‘staging’ dates for bigger companies have already come and gone, so quite a few lessons have been picked up along the way. Perhaps your own date still lies ahead, but you’ve talked to your IFA and identified a provider? It would be easy to think you’d done the hard work. But actually, the real issues may still lie ahead. Data compliance, processing and communication are all potential headaches for businesses. After assessing your existing pension and selecting a new scheme, you need to identify your eligible employees, conduct an impact assessment and then communicate about the staging date. And when the staging comes, you’re into the business of doing the payroll deductions, physically paying the pension provider and again communicating with your staff.

Some accountancy firms provide a ‘bureau’ solution for payroll – overseeing the process on behalf of numerous businesses. If you make use of this kind of service, it certainly reduces your stress, but you need to make sure that your professional partner is geared up to the communication aspects of the new pension regime. Telling employees they are enrolled and when the money’s being deducted for instance, or compiling a remittance file and sending it to the pension provider.

Of course, you can choose to manage the process yourself, but penalties for non-compliance can be up to £10,000 a day, so even the most professional of businesses might want to look at an outsourced option. It soon becomes obvious that the pension commitment itself is only part of the cost of the new legislation. It can potentially eat up time and internal resources. And that’s before you consider the cost of purchasing specific pieces of software or signing a formal outsourcing contract.

Some of the third-party software solutions on the market can integrate seamlessly with your payroll platform, but it’s possible to create even more technologically advanced solutions. Imagine, for instance, communicating with your employees via Android, IoS or other mobile platforms. It’s relatively easy today to send P60s, payslips and pension communications, for instance, directly to employees’ phones.

The advice from experts, as you might expect, is to think ahead. If you give yourself a year to plan before your staging date, you will not only ensure that you select the right pension provider, but you’ll also have in place everything you need for practical implementation.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Why EMI options could be exactly the right incentive for your key staff members

There are plenty of ways of measuring the success of a growing economy, but one very specific signal that things are on the up is the increased interest in Enterprise Management Incentive (EMI) options. Although they’ve been around for a few years now as a way of retaining and rewarding key staff, more and more businesses are starting to take notice. The bottom line is that EMI options are a tax-efficient way of granting shares to key employees. Critically, they qualify for Entrepreneur’s Relief under most circumstances, which means the capital value of any shares would only be taxed at 10% on the sale of a business.

Perhaps you’re an owner-manager of a business and thinking about the best way to incentivise a key member of staff? Although it’s always important to take professional advice from your accountant, here are some key facts that are worth bearing in mind.

First, the granting of options allows a level of protection for existing shareholders. The options will lapse if the beneficiary chooses to leave, which gives reassurance and reduces the burden on the business of costly shareholder disputes.

Another point to note is that trigger points or ‘conditions’ can be built into the arrangements. Usually the options can only be realised when the business has moved beyond certain profit thresholds. As a result, your employee is strongly motivated to help the company grow. And although current owners might lose some shareholding, they are compensated by the overall increase in value.

For Entrepreneur’s Relief to apply in normal circumstances, a director or employee must hold more than 5% of the voting share capital in a business for more than the 12 months preceding the sale of the shares. With EMI options, you can still qualify for relief with a lower percentage shareholding and the 12-month clock starts when the option is granted and not when it is exercised. It is therefore possible to exercise the option immediately prior to a sale and still benefit from Entrepreneur’s Relief. It’s a flexible system that gives you a lot of control, provided you are a business with fewer than 250 people and the options aren’t worth more than £250k at the date of grant.

A typical scenario might be an owner of a business who hopes for a trade sale in a few years and who has one or more employees that will be critical in growing the value of the company. The business owner can grant options which trigger when specific targets have been met. The staff member involved would then exercise the options prior to the sale. This either provides a share in the overall value on exit or provides an amount which the employee could use to support a management buy-out.

The agreement itself doesn’t necessarily need the involvement of lawyers and can often be handled by your accountants. So if you’re looking for a way to incentivise key staff members and grow your business, why not talk through the possibilities?

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

The automatic solution: talking to your accountant about pensions

Back at the beginning of the 20^th century, when the first old-age pension was introduced in the UK, there were 10 people of working age for every person drawing their retirement income. Today, that ratio is 3:1 and it’s set to drop still further to 2:1 by 2050. Given that our pensions are covered by the current working population, it’s hardly surprising that government has – for many years – been worrying about the long-term sustainability of state provision and urging us all to supplement our pension with private plans.

In 2012, we moved from gentle cajoling to a more formal system, with the implementation of the terms of the Pension Act 2008. Auto-enrolment requires every organisation to set up and contribute to a pension for their employees and has been trailed heavily through TV commercials. The three millionth worker was signed up in March 2014 at West Ham United football club.

The system is being phased in up until 2018, giving smaller employers greater time to adapt. But the message from accountants is that even micro businesses now need to focus on the challenges that the legislation poses.

Owners and managers can’t afford to stick their heads in the sand and pretend that the transition to auto-enrolment will be plain sailing. It’s certainly considerably more complex than, say, HMRC’s Real Time Information scheme for reporting PAYE. The recommendation from experts is usually to allow a year of planning before your own ‘go-live’ date, known as the staging date. Registrations are expected to peak in the fourth quarter of tax year 2016/7, but you can check your own particular staging date very quickly by visiting The Pension Regulator’s website at www.thepensionsregulator.gov.uk

What are the complications for employers? Well, first of all, you’ll need to assess your employees to see who counts as an ‘eligible worker’ under the terms of the legislation. (This will probably be an ongoing process, as members of staff leave and others join.)

The next thing is to identify a qualifying pension scheme. The People’s Pension is one of the key players in the market, along with Danish firm NOW: Pensions. Some group deals might be available through other parties too. But the government – recognising that many providers may not be interested in a scheme with fixed criteria including a charge cap of 0.75% – has also created the National Employment Savings Trust (NEST) as a backstop. Even if you choose this option though, the onus is on you, as an employer, to sign up.

After that, there’s a process of communicating with your workforce, enrolling those who should be part of the scheme and registering with The Pensions Regulator. Naturally, there are records to keep as you manage auto enrolment and you’ll need to ensure that your contributions are made in a timely fashion. Penalties for non-compliance with the regulations range from £50 a day to £10,000, so there’s a strong incentive for businesses of all sizes to ensure they’re on board.

There’s a hidden twist to the new arrangements too. Some people may be eligible to be part of the new pension, but elect to opt out.

Software solutions may well play an important part in helping you to manage the auto-enrolment process, but they’re not the complete solution. It’s important you fully understand the implications, both in terms of the administration and also the employer contribution that you will be required to make. So talk to your professional accountancy advisers about exactly how the new system impacts on your business and the level of support they’re able to offer you. An early discussion may pay real dividends in the long term.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk