Changes to the Taxation of Termination Payments
Many businesses may be aware that the first £30,000 paid to an employee as a non-contractual termination payment (say under a Compromise Agreement) can normally be paid free of tax. However the tax treatment on any amount in excess of £30,000 has recently changed.
Previously the employer only deducted tax at the rate of 20% on any excess over £30,000, using the tax code BR. In the event that the employee had an additional tax liability over the basic rate, say because the employee was a higher rate tax payer, then the employee was personally responsible for accounting for this through the self-assessment process. Now the employer is required to deduct the full tax liability on a termination payment in excess of £30,000 through the PAYE system using the tax code OT. This tax code assumes that the employee has no personal allowances available and requires the employer to tax the termination payment in excess of £30,000 on the employee’s appropriate rate of tax (e.g. basic 20%, higher 40% etc).
For more advice on this subject please contact Daven Naghen on 01775 722261, firstname.lastname@example.org or 23 New Road, Spalding, Lincolnshire PE11 1DH.
Tribunal Claim Insurance From £159 Annually
Although latest statistics show that tribunal claims have declined by 15%, there are still a very significant number of claims being made each year. Did you know that a successful unfair dismissal claim against your business could cost you up to a maximum of £72,300.00 currently? Could your business cope with facing such an award against it?
At Maples we can safeguard your business against employment tribunal claims for as little as £159.00 per annum with our Employment Guard Insurance. The insurance covers not only the tribunal award against you but also your own legal costs.
The premium depends on a number of factors but mainly your annual wage roll.
To assist with cashflow the premiums can be paid in monthly instalments.
Daven Naghen head of our Employment Team commented as follows:-
“This is fantastic product for our clients and we already have a number of clients who enjoy the benefit of it. I can offer you a free no obligation quotation so you can decide if it is right for your business.”
Our clients also think the product is excellent, and many have renewed their insurance policies again this year.
For example Susan Kennedy, managing director of SK Cleaning Limited has enjoyed the benefits of Employment Guard for around two years and says “My only regret is that I did not take up the Employment Guard Scheme earlier as this would have saved me years of worry, but at least now I have total piece of mind knowing that I have the scheme in place.”
If you want to discuss the possibility of your business getting insurance cover against employment tribunal claims, then please contact Daven Naghen on 01775 722261 or email email@example.com or write to Dav at 23 New Road Spalding Lincolnshire PE11 1DH.
Company Law – New Audit Rules
Life will soon be easier for smaller businesses struggling to comply with audit requirements under the Companies Act. The Companies Act will, in 2012, be amended to ensure that certain small companies who currently have to have independently audited accounts will no longer need to do so. It is estimated that this will assist around 42,000 businesses.
Limited Companies with less than 10 employees will also enjoy further relaxed rules enabling them to produce just one set of simple accounts instead of specific accounts for Companies house in addition to accounts which have to be prepared for tax purposes.
The government hopes that by bringing in these new changes it will leave small companies more time to run and grow their businesses rather than struggling with paperwork requirements.
For further information on any aspect of Company Law please contact Daven Naghen, Gemma Mayer or James Turner on 01775 722261 or firstname.lastname@example.org or email@example.com or firstname.lastname@example.org
Court Rules Admissibility/Settlement Negotiations
The Employment Appeal Tribunal (“the EAT”) has given its first judgment dealing with the admissibility of pre-termination negotiations/protected conversations in employment law.
Obviously from time to time an employer may wish to commence negotiations with an employee (or vice versa) to settle a dispute or to agree the terms of the employee’s exit. The starting point is that evidence of any such negotiations is admissible in any subsequent litigation/tribunal proceedings.
There are however two possible ways in which the confidentiality of the negotiations can be protected.
The first possible way is under the common law without prejudice rule. Provided the parties are already in dispute under the without prejudice rule communications are inadmissible as evidence and cannot be made the subject of a disclosure order. However there does need to be an existing dispute in order for this rule to apply and therefore it often does not apply in employment situations when perhaps an employer is seeking to terminate the employment of an employee before any dispute has arisen.
The second way is under section 111A of the Employment Rights Act 1996. With section 111A there does not need to be an existing dispute in order for the rule protecting the confidentiality of pre-termination negotiations to apply. It applies to any offer made or discussions held before termination of employment, with a view to the employment being terminated on terms agreed between the employer and the employee. However the rule in section 111A only applies to ordinary unfair dismissal claims, whilst the without prejudice rule applies to all types of litigation. For example the rule under section 111A does not apply to discrimination claims.
The judgment in the EAT case of Faithorn Farrell Timms LLP v Bailey
The judgment in this case is important since it is the first appellate judgment on the scope of section
111A. The EAT held as follows:-
- The existence of another claim, e.g. a discrimination claim, does not render admissible for all purposes evidence otherwise inadmissible in an unfair dismissal claim under section 111A. In such circumstances the tribunal would allow the evidence to be admitted for one claim, i.e. the discrimination claim, but still treat the evidence as inadmissible for the unfair dismissal claim.
- Section 111A not only applies to the content of any offers made or discussions held, it also renders inadmissible the fact that there has been discussions (and not just the content of the same).
- Section 111A renders inadmissible not simply the discussions between the employer and the employee but also discussions within the employer, such as between different managers or between a manager and a HR adviser. The EAT had noted that it is common for discussions to be reported back to higher management or HR and it would run counter to the purpose of section 111A if evidence of those reports was admissible.
- Since section 111A renders evidence inadmissible, it is then not possible for the parties to agree (either expressly or implicitly) to admit it. In essence the privilege attached by section 111A cannot be waived by the parties either intentionally or unintentionally.
Our head of employment law, Mr Daven Naghen, has commented don the case as follows:-
“I think the most useful point to note from this judgment is that not only are the discussions between the employer and employee in unfair dismissal cases protected by the provisions of section 111A, but also the relevant conversations between different managers or say between a manager and a HR adviser. This is good for common sense, since I would usually expect such pre-termination negotiations to be the subject of discussions between managers of a business as well as obviously between the business and the employee. This will give employers some comfort to know that such internal discussions are likely to be protected by the rule under section 111A.”
If you want any advice or guidance on pre-termination negotiations, either as an employer or an employee, then please contact Dav on 01775 722261 or email email@example.com or visit our offices or make an appointment at our offices at 23 New Road, Spalding, Lincolnshire, PE11 1DH.
Warning To All Sports/Social Clubs
The recent plight of the members of the former Pinchbeck Social Club has highlighted the risks that are faced by members of many of our local Sports and Social Clubs.
Many non-profit making organisations like Sports and Social Clubs are ruled by a committee of elected members who manage the Club in accordance with a written constitution. These are known as ‘unincorporated associations’. Although they are relatively easy to set up and operate, the main weakness of such associations is that each club member may be personally liable for all of the club’s debts and liabilities.
Members often believe that their liability is limited to the amount of their subscription. Although this is the starting point, if a club incurs debts and liabilities in accordance with its constitutional rules, then each member can be personally liable for the total sum of those debts and liabilities. In such circumstances the creditor can sue one, some or all of the members, and it has not been unknown for the creditor to have members individually means tested by a Court in order to establish which members are the ‘best target’ for their claim.
In the event of a Winding Up/closure of a club, then all the members are potentially liable for all of the club’s outstanding debts and liabilities.
It may be that only on rare occasions that this issue arises, but Sports and Social Clubs should give thought to reducing or limiting their members’ liabilities by say becoming an ‘incorporated association’, e.g. a company limited by shares or a company limited by guarantee.
In my experience it can often be appropriate for Sports and Social Clubs to become a company limited by guarantee, especially when the club is a non-profit making organisation. Usually in such circumstances each member guarantees that in the event of a Winding Up (e.g. liquidation) to contribute a fixed agreed sum, e.g. £1. Hence the liability of each member is limited to £1 only. The main downside to a club becoming a company limited by guarantee is that the administration can be more onerous with legal penalties for failing to comply (e.g. the filing of accounts and annual returns with Companies House). Furthermore whether the company is limited by guarantee or shares, it is usually managed by appointed directors rather than the members themselves.
A club can be a company limited by shares, but this more usually applies to an organisation that is looking to make a profit.
Clubs can also register as ‘Industrial and Provident Societies’. Many working mens’ clubs do this, as they can show that they are intended to be conducted for the good of the community and are non-profit making. Here the liabilities incurred by the club remain liabilities of the club and not of the individual members. This form of organisation will usually be more suitable for larger membership clubs.
Each club is different, and it may not always be right for the club to become an ‘incorporated association’ since there can be additional administration and costs, plus taxation implications. However I would advise that every club that is currently ‘unincorporated’ should seek advice on the best solution for itself.