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Tag Archives: richard monkcom
Employment: Enterprise and Regulatory Reform Act 2013 (ERRA)
The new Act will introduce wide-ranging changes, including the following: mandatory pre-claim ACAS conciliation; new powers for the Tribunal to make a deposit order in respect of part only of a claim or response, new powers for the Tribunal to order that a losing respondent pay a financial penalty; new rules providing that pre-termination negotiations are inadmissible in unfair dismissal claims; a new cap on the unfair dismissal compensatory award; removal of the unfair dismissal qualifying period, where the reason or principal reason for dismissal relates to the Employee’s political opinions or affiliation; new rules outlawing caste discrimination under the Equality Act and the abolition of discrimination questionnaires, as well as a number of other significant changes.
ACAS early conciliation and non-disclosure obligations (prospective date April 2014)
Section 7 of the ERRA 2013 introduces new sections 18A (Requirement to contact ACAS before instituting proceedings) and 18B (Conciliation before institution of proceedings: other ACAS duties) into the Employment Tribunals Act 1996 (ETA 1996). Claimants will be required to contact ACAS, who will attempt to promote a settlement, before a claim can be submitted to the Tribunal.
The new mandatory four-step procedure before submitting a claim to an Employment Tribunal
Section 7 (1) of the ERRA 2013 introduces a new section 18A into the ETA 1996. This sets out four steps to the new early conciliation procedure:
Step 1: Before lodging a claim to institute “relevant proceedings” (claims listed in Section 18(1)of the ETA 1996), a prospective claimant must send ACAS “prescribed information” in the “prescribed manner”. “Prescribed” in both of these instances means prescribed by regulations; Step 2: ACAS must then send a copy of the information to a conciliation officer; Step 3: The officer must try to promote a settlement within a “prescribed period”; Step 4: If a settlement is not reached, either because settlement is not possible in the conciliation officer’s view or the prescribed period expires, the officer must issue a certificate to that effect. A claimant may not submit a claim without this certificate. (The officer may continue to promote settlement after the period has elapsed.)
New deposit orders and costs to be introduced from 25 June 2013
Section 21 of ERRA 2013 enables the Secretary of State to make regulations giving Tribunals the power to make a deposit order in respect of a specific part of a claim or response (rather than the whole claim or response); and to make an order for payment of witness expenses where it has also made a preparation time order.
Financial penalties for losing respondents (prospective date April 2014)
Section 16 of the ERRA 2013 inserts a new section 12A into the ETA 1996, giving Tribunals the power to order an employer who has lost at Tribunal to pay a financial penalty of up to £5,000 to the Secretary of State, where the case has “aggravating features”.
Settlement agreements and pre-termination negotiations (prospective date Summer 2013)
Section 14 of the ERRA 2013 prevents pre-termination negotiations from being referred to in evidence in an unfair dismissal case. Section 23 of the ERRA 2013 renames compromise agreements and compromise contracts as “settlement agreements” in all relevant pieces of employment legislation.
Unfair dismissal compensatory award- New Cap on compensation to be introduced from 25 June 2013
Section 15 of the ERRA 2013 will allow the Secretary of State to vary the statutory upper limit on the compensatory award (currently £74,200) in unfair dismissal claims, by way of a statutory instrument. The new limit is intended to be the lower of the current cap or one year’s gross pay.
Dismissal for political opinions or affiliations to be introduced from 25 June 2013
Section 13 of the ERRA 2013 will amend section 108 of the ERA 1996 to remove the unfair dismissal qualifying period where the reason or principal reason for the dismissal “is, or relates to, the employee’s political opinions or affiliation”. Section 13 will come into force on 25 June 2013 (section 103(2) ERRA 2013). It will not apply where the effective date of termination is before that date (section 24(3)).
Caste discrimination (prospective date 2014 / 2015)
Section 97 of the ERRA 2013 will amend the Equality Act 2010 so that the government must make an order to outlaw discrimination on grounds of caste.
Abolition of discrimination questionnaires (prospective date either October 2013 or April 2014)
Section 66 of the ERRA 2013 will repeal section 138 of the Equality Act 2010, which deals with discrimination questionnaires.
Druces LLP sponsors Charity Staff & Volunteer Award
Druces LLP is pleased to be sponsoring the Trustee or Chair of the year award at the Charity Staff & Volunteers Awards at Central Hall Westminster on Thursday 7th March. The awards are run by the Charity Staff Foundation which represents and supports all staff and volunteers working in the charity sector. Richard Monkcom, head of the Charities Group at Druces, says that we are pleased to be participating in the awards ceremony on 7th March and especially to be sponsoring the Trustee or Chair of the year award. Trustees are usually the driving force behind any charity often working very long hours for no financial reward. The candidates in the shortlist for this award are all of an exceptionally high calibre and any one of them will be a very worthy winner.
Finance Bill 2013 – Annual Residential Property Tax (“ARPT”)
Draft legislation to extend Capital Gains Tax (“CGT”) to non-residents and the Annual Residential Property Tax (“ARPT”) has been published and the consultation period for that is ending today. Further drafts are expected to be published before the legislation is taken forward to be enacted from April this year. Richard Monkcom of Druces LLP’s taxation team considers the draft legislation as it currently stands in this briefing note below:
Charitable incorporated organisations (CIO): implementing legislation now in force
The Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012 (SI 2012/3013); Charitable Incorporated Organisations (Consequential Amendments) Order 2012 (SI 2012/3014) and Charitable Incorporated Organisations (General) Regulations 2012 (SI 2012/3012) came into force on 2 January 2013.
The Charitable Incorporated Organisation (CIO) is a new incorporated legal structure with separate legal personality and limited liability intended specifically and exclusively for use by charities. CIOs will be registered with, and regulated by, the Charity Commission. The law applicable to CIOs is contained in sections 204 to 250 of the Charities Act 2011 (ChA 2011), but these provisions will not come into force until a commencement order is made. ChA 2011 also gives the Minister for Civil Society power to make regulations with more detailed provisions about the formation, operation and dissolution of CIOs.
The Charity Commission has been accepting applications to register new CIOs in the register of charities since 3 January this year. However, it is likely that there will be delay until later this year or 2014 before the coming into force of provisions which will enable existing charitable CLGs, community interest companies and charitable industrial and provident societies to convert into CIOs.
The Government has assumed that the target market for CIOs is charities with annual incomes of between £10,000 and £500,000. There are believed to be around 70,000 registered charities within this income bracket in the UK. It also assumed (based on experience of take-up of the Scottish CIO) that 20% of existing charities will adopt the CIO structure. Government estimates suggest that the average cost of incorporating a CIO will be broadly equivalent to the cost of incorporating a CLG. However, one advantage of the CIO is that it is estimated that the average costs of the annual accounts and reports preparation for a CIO will be significantly lower than for CLGs.
TUPE – consultation on the proposed changes to the Regulations
On 17 January 2013, the Government issued a consultation on a number of proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’). TUPE’s purpose is to protect employee’s employment rights when the business or undertaking for which they work transfers to a new employer or where the work they are doing on behalf of a particular client transfers to a new contractor. The Government has said the proposed changes will “improve and simplify” TUPE for all parties involved. The consultation follows the call for evidence in November 2011 on the effectiveness of TUPE.
Service provision changes
The most significant of the proposed changes is the repeal of the regulations relating to service provision changes. TUPE was amended in 2006 to bring most service provision changes (i.e. outsourcing, insourcing and retendering) within the scope of TUPE. The Government proposes reversing this change. However, it recognises that service providers may have entered into existing contracts on the assumption that TUPE will apply at the end of the contract. The Government also notes that the outsourcing process can be a long period and, for larger and more complex services, could take a year or longer. In light of these factors, the Government has asked for views on the length of any “lead in” period that would be required before the change comes into effect.
Employee liability information
Regulation 11(2) of TUPE sets out information that must be provided by the transferor to the transferee prior to the transfer. The Government is proposing the removal of the transferor’s obligation to provide employee liability information. However, it will make it clear that a transferor should disclose information to the transferee where it is necessary for either party to meet their obligations to inform and consult on a TUPE transfer.
Contractual changes, protection against dismissal and substantial changes to working conditions
The consultation document includes proposals to amend the provisions of TUPE that restrict post-transfer changes to employment contracts, the provisions that give protection against dismissal and the provisions concerning a substantial change in the working conditions to the material detriment of the employee so that they more closely reflect the wording of the underlying Acquired Rights Directive (2001/23/EC) and case law of the European Court of Justice.
Dismissals arising from a change in the workplace
The Government proposes to amend TUPE so that an “economic, technical or organisational reason entailing changes in the workforce” (an ETO reason) includes changes to the workforce’s location.
Currently, there is no statutory definition of “entailing changes in the workforce”, but the UK courts have restricted it to mean changes in the numbers employed or the functions performed by employees. Under the proposed changes, the definition of an ETO reason would be aligned with the definition of redundancy under the Employment Rights Act 1996, so that dismissals arising from a change in the place of work following a transfer will not be automatically unfair.
Collective redundancy consultation
It is common for redundancies to take place after a TUPE transfer. If so, there may be overlapping obligations to inform and consult under TUPE and in respect of collective redundancies. The Government believes that the consultation process should be able to start before the transfer and proposes to amend TUPE to provide that the transferee can consult with the transferring employees prior to the transfer about proposed collective redundancies.
The Government proposes allowing “micro businesses” (those with fewer than ten employees) to inform and consult with their employees directly with regard to TUPE, rather than through representatives, in cases where there is neither a recognised union nor existing representatives.
Terms and conditions derived from collective agreements
The Government is seeking views on whether it should amend TUPE to limit the period for which terms derived from collective agreements apply to one year from the transfer.
The Government has also asked for views on whether or not a transferor should be able to rely on the transferee’s ETO reason in respect of pre-transfer dismissals.
What happens next?
Responses to the consultation are required by 11 April 2013. The Government has said that it will respond within 12 weeks of the consultation closing. If the consultation supports the proposed changes, the Government intends to introduce them (save probably those relating to service provision changes) in October 2013. The consultation paper can be found following the link below:
People interested in Inheritance Tax planning, providing for grandchildren or disabled beneficiaries
Pilot Trusts can often be used for people who wish to undertake Inheritance Tax (IHT) planning. They are lifetime trusts set up with a nominal amount and which are ready to receive further funds and/or property at a later date or upon the death of the donor by way of a legacy in their Will. Until such time that the trust receives further funds, it can lie dormant.
What is a Pilot Trust?
Pilot trusts are normally drafted as discretionary trusts and are created with an initial trust fund of as little as £10. The Trustees could be the client and their spouse or whomever the client believes to be suitable for the role. Settling a nominal sum ensures that the trust has legal presence at the date of the trust deed but it is not until it receives more assets that it becomes an active trust. Transfers of nominal sums into trust often fall within the Settlor’s annual exemption. There will be no IHT charge on the creation of the pilot trust and the £10 transferred into it will not form part of the Settlor’s cumulative total of chargeable transfers. Pilot trusts can have assets added to it immediately or after a period of time and can be used for numerous purposes, for example:
• A property could be transferred into a trust and registered in the Trustees’ names
• A pilot trust could be formed to receive pension death benefits
• Pilot trusts can be used in conjunction with a Will where the trust is set up during the Settlor’s lifetime with nominal funds but further funds may be added only after the Settlor’s death via a specific legacy in the Will
• A series of pilot trusts could be created to take advantage of several nil rate bands which then enhances the IHT planning effect.
Pilot Trusts and Inheritance Tax Planning
Pilot trusts are primarily used for tax planning purposes, and the principal advantage is that each pilot trust is entitled to its own nil rate band. For this to take effect, the Settlor must have his full nil rate band available to him, in other words there must not have been any chargeable transfers made over the seven year period before setting up the trust. Currently each individual has a maximum nil rate band amount of £325,000 available to them (increasing to £329,000 as from 6th April 2013). Setting up a series of pilot trusts on consecutive days and transferring the funds into the trusts on the same day could enable you to minimise future IHT exposure on the trust assets in particular in relation to the on ten-year anniversaries (“periodic charges”) and when assets leave the trust (“the exit charges”).
For example, you wish to put £300,000 in a discretionary trust for your three grandchildren. In the past seven years you have not made any chargeable transfers and therefore you have the full nil rate band available. A single trust of this amount would not exceed the £325,000 nil rate band, and the excess (once over the nil rate band level within the trust) would be liable to IHT on ten year anniversaries (at the rate of 6%) and on “exit charges” (i.e. distribution of capital).
However to be more tax efficient, you could consider creating three separate trusts of £100,000. Each will still be within the nil rate band. The best solution therefore is to create three pilot trusts; these are usually made on separate days (due to the fact that we do not wish them to be “related” settlements) with nominal sums (£10). Subsequently, at a later date you can add £100,000 to each pilot trust. For IHT purposes each trust would have its charges calculated by reference to its own nil rate band, thereby allowing the assets to grow and in effect having 3 nil rate bands to utilise with the trusts themselves.
Pilot Trusts and Will Planning
Just as you can add to a pilot trust in your lifetime, you can also do so on death through your Will. A word of caution, however. Each transfer to a discretionary trust is a lifetime chargeable transfer for IHT purposes. So, it is best to make the transfers to the pilot trusts on the same day and then none for another 7 years.
Pilot Trusts in Practice
Pilot trusts are useful as they enable you to benefit different members of the family, future generations and/or children from previous marriage. The trusts may also offer security to your assets from creditors, divorce claims, future care costs etc. They can also be use as efficient tax planning vehicles for lump sums which are payable either under a pension scheme or under a company’s death in service shceme.
Pilot trusts can be set up easily and quickly, and can be formed at the same time as having your Will prepared. Until the trust starts receiving income or making chargeable gains there is no need to register with HMRC and there is no need for trust accounts. As a result, there are unlikely to be on-going administrative costs until property is transferred to the trust. The pilot trust documents can be stored together with your Will until such a time that it is required.
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in December 2012.
Annual tax charge for high value residential property
If you own high value residential property worth over £2m and you own it through a partnership, company or other non-natural person, that non-natural person will be subject to a new annual tax charge this year known as the Annual Residential Property Tax (“ARPT”). Check Richard Monkcom’s and Susan Perry’s briefing note below to see if you are affected and whether you are eligible for relief.
Transfers of a going concern and VAT: an update.
HMRC now accepts that a transaction can be a transfer of a going concern (‘TOGC’) for VAT purposes even if a small reversionary interest is retained by the transferor of a property rental or property development business. This shift in HMRC’s viewpoint has been inspired by the recent decision of the Tax Tribunal in the case of Robinson Family Limited  (‘RFL’).
HMRC’s previous stance (noted in para 6.3 of Notice 700/9 which should now be ignored) was that in order for there to be a TOGC the transferor had to transfer its full interest in the land and that the owner of a freehold granting a lease would not constitute a TOGC even if the lease was for 999 years.
In RFL a property development company had purchased a 125 year interest in a site. There was a restriction against any sub-division of the site other than by sub-lease and so RFL granted an interest of 125 years less three days to a purchaser. HMRC argued that RFL had not transferred all or part of its business as a going concern, because it did not assign the full term of its lease to the purchaser. The Tribunal instead held that although RFL retained the headlease, the minor interest in a three day reversion and the small economic interest which it represented did not alter the substance of the transaction. The transaction actually enabled the transferee business to continue the previous lettings business of RFL and so the transaction was treated as a TOGC.
HMRC has not restricted the impact of this case to purely similar facts and instead has said that if the usual conditions necessary for a TOGC are present and the reversion retained is no more than 1 per cent of the value of the property immediately before the transfer (ignoring any mortgage or charge) then the transaction can be a TOGC for VAT purposes. This means that the supply is outside the scope of VAT and therefore VAT is not chargeable. If more than one property is transferred simultaneously, the test should be applied on a property-by-property basis, rather than to the entire portfolio. If more than 1 per cent of the interest is retained HMRC will regard that as strongly indicative that the transaction is too complex to be a TOGC.
If due to HMRC’s altered position you need to claim TOGC treatment retrospectively and recover overpaid VAT, HMRC have said that the parties will need to show that article 5(2B) of the VAT (Special Provisions) Order 1995 did not apply at the time of the transaction and that the transferee could have given the relevant notification that an option to tax would not be rendered ineffective.
HMRC are currently considering whether an adjustment can be made to any SDLT already paid and will provide further guidance on this matter soon. This is likely to be the real contentious issue as this is where the greatest difference in value lies.
Residential Property Tax Update: Autumn Statement 2012
The Chancellor made his Autumn Statement on Wednesday 5 December 2012, but as is so often the case the real interest lies in what has not yet been made public. The legislation to implement changes announced in the Autumn Statement and in the Budget earlier this year is due to be published next week. In the meantime, as regards the proposed annual charges on high value residential properties owned by non-natural persons (such as companies) and the changes to Capital Gains Tax in relation to non-UK residents owning UK property, we have the following clue from George Osborne:
“We’ve already raised stamp duty on multi-million pound homes and next week publish the legislation to stop the richest avoiding stamp duty. But we won’t introduce a new tax on property.”
Burgess & Anor -v- Hawes & Ors: validity of will
The case of Burgess -v- Hawes was recently heard by the Court of Appeal where a daughter appealed an earlier decision of a County Court to overturn her late mother’s Will in favour of her disinherited brother.
In 1996 Mrs Burgess executed a Will dividing her estate equally in favour of her three children, Julia, Libby and Peter. However in December 2006 Julia Hawes took her mother to a firm of solicitors where instructions were given for a new Will to be drafted, which left everything to her two daughters and excluded Peter as a beneficiary. The new Will was executed in January 2007 by Mrs Burgess. Two years later Mrs Burgess died and Peter and Libby contested her latest Will on the grounds of lack of testamentary capacity and of want of knowledge and approval. Despite the fact that the Will was drafted by an experienced solicitor who described Mrs Burgess as being ‘compos mentis’ Her Honour Judge Karen Walden-Smith, sitting in Central London County Court ruled the Will to be invalid. She also ordered Mrs Hawes to pay back £18,000 plus interest back into Mrs Burgess’ estate.
Mrs Hawes appealed against the ruling and the case was heard by Lord Justice Patten and Lord Justice Mummery in the Court of Appeal. The Court of Appeal has reserved judgement on the appeal but took the opportunity to highlight the importance of respecting the rights and wishes of older people. Lord Justice Patten commented on the fact that the three siblings risk spending the whole of their late mother’s £120,000 estate on the legal costs and may therefore end up with nothing.
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in November 2012. If you would like further information, please contact Richard Monkcom, Head of Druces’ Private Client team.