tAX ENQUIRIES

We have received reports that HMRC is making informal enquiries which may amount to no more than thinly disguised fishing trips.

HMRC has staff working in Compliance Centres whose job is to make less formal enquiries, such as to query the amount of interest declared on a return where it does not agree with information in their possession. Robert Maas wrote about this in TAXline in May 2011.

Generally, we welcome this initiative as it can save a lot of time and expense in resolving simple enquiries. However, is HMRC over-stepping the mark and using this process as a convenient way to obtain information to which it would not normally be entitled? One example quoted to us is that of an enquiry being made into the return of a divorced woman to find out more about her divorce settlement and therefore her ex-husband.

IHT

The United Kingdom legislation provides that transfers between domiciled spouses or civil partners are exempt from inheritance tax. However, transfers between domiciled and non-domiciled spouses or civil partners are not exempt from inheritance tax. Furthermore, in the latter case, the rules on the nil rate band applicable to subsequent transfers differ and may result globally in higher taxation. The Commission believes that the difference in tax treatment of transfers between domiciled and non-domiciled spouses is of a discriminatory nature and contrary to EU rules.

The Commission's has sent a reasoned opinion to the UK Government which is the second step of the infringement procedure. If the UK Government does not provide a satisfactory rationale for the current regime within two months, the Commission may decide to refer the matter to the Court of Justice of the European Union.

Child benefit changes

HMRC has now published its guidance on the High Income Child Benefit Charge(HICBC).

Later this week, HMRC will also start writing to people who it believes will have income in excess of £50,000 in the current tax year and who may therefore be liable to pay the HICBC. It will probably have identified this population by cross matching data with that on people who claim child benefit (CB) at the same address. This means that some people may receive the letters and not actually need to pay the HICBC; conversely, some people who have to pay it, might not get a letter. It all depends on the quality of the data used and whether the make-up of the household has changed recently.

What is clear is that it is not primarily those who receive CB who will be written to, and yet it is these, usually mothers, who may need to take action before 7 January 2013 if they want to opt out of receiving the payments.

Section 8 and schedule 1, Finance Act 2012 set out the rules for clawing back CB paid to households where one or more of the spouses or partners earns more than £50,000. HMRC has been given the unenviable task of implementing a system to claw back CB based on rules we consider to be overly complex, unfair and which for some families will be unworkable.

CB is a non-means tested state benefit. We have said from the outset that we believe it is wrong in principle to use the tax system to apply what is in effect a means test to claw back the benefit at a later date, often from someone who did not receive personally the original CB. This problem is compounded further by the fact that since 1990/91 the UK has operated a system of independent taxation for individuals, whereas state benefits look at the position of a household. Many of the problems with this charge stem directly from the violation of this principle.

Calculation of the charge

The HICBC introduces escalating marginal rates of tax on income between £50,000 and £60,000. For every £100 of extra income over £50,000, the liable taxpayer must pay 1% of the benefit recipient’s CB for the year. This is on top of the 40% income tax and 2% NIC already due from someone earning £50,000 pa. For a typical family with two children, £100 of extra income equates to extra tax of £17.52. This is £33.70 CB x 52 weeks at 1%. This means that the effective marginal tax rate on that £100 of income is 59.5%. This is income tax of 40% plus NIC of 2% plus HICBC of 17.52%.

Another taxpayer with four children and exactly the same level of income will pay an extra charge of £31.46, a marginal rate of 73.5%. Once a family unit reaches eight children, (this situation might be rare but it could include, for example, two previously divorced or widowed parents, each with four children) the charge is £59.33 per extra £100, and the marginal rate of tax is 101.3%.

This will make it very worthwhile for taxpayers to try to reduce their income for the year, for example by making payments into a pension fund.

How will the charge be levied?

Where there is more than one person in a household with income over £50,000, the charge applies to the person whose income is higher. This person may in fact not be a natural parent of the children, and the couple may not be married, but this is irrelevant.

The letter to be sent to taxpayers (which we will publish on our website later this week) talks about a person having an ‘individual income’ in excess of this amount. Not everyone will understand that this has to be calculated and includes all sources of taxable income, not just earnings. There is a calculator on the HMRC website to help people work out what their individual income is.

The person with the higher income must ask for a self assessment tax return unless they already receive one. The first tax return affected will be for the current year, 2012/13, and will only have to show a HICBC for CB received after 7 January 2013. It will be payable by 31 January 2014. Of course in future years when it will be based on a full year’s CB receipts, the charge will be much greater.

Avoiding the charge

If the larger individual income is over £60,000, it may be advisable to ask the person currently receiving CB to opt not to continue to do so, since the CB will all be clawed back anyway, albeit from someone else. This could avoid the person with the higher income engaging with the self assessment system unnecessarily. Note however, that this claim to opt out can only be made by the person who is paid CB. The current online form does not make this very clear.

The claim can be made online or by post and should be made before 7 January 2013 if it is to take effect from the outset of the new regime. HMRC has said that all claims will be acknowledged, although as the process is not automated, end to end, we recommend checking that the payments do actually stop in January.

Tax investigations

The taxman has collected 64% more in revenue from self assessment returns in 2011/2012 than in the previous year.

Figures from accountants UHY Hacker Young show that HMRC received £440.6m in the 2011/2012 tax year, compared with £269.8m in the previous year.

The spike in revenue from self assessments follow HMRC’s announcement in 2010 that it would be working towards a target of obtaining £7bn in additional revenue a year by 2014-2015, as part of efforts to reduce the government’s budget deficit.

UHY Hacker Young says that the pressure to meet this target is behind HMRC’s more detailed scrutiny of self-assessment returns.

In addition, HMRC has been particularly focused on increasing revenues from Capital Gains Tax on the sale of buy-to-let property and on the sale of stakes in businesses, the firm says, adding that HMRC is paying to more attention paid to the possible under-reporting of income from rental property and bank accounts.

HMRC has also increased revenues thanks to its new specialist HMRC taskforces which focus on particular types of tax evasion or particular trades and professions.

Roy Maugham, tax Partner at UHY Hacker Young says that HMRC is trying to raise revenue across the board by undertaking increasingly painstaking investigations and pursuing smaller infractions.

‘Previously, HMRC resources and manpower were only really used to chase larger amounts of money, but now a forensic approach is being used even for when it is just a modest amount of tax that is missing.

‘HMRC is putting a lot of effort into double checking the amount of capital gains tax that business owners should pay on selling their businesses, as they know it is an area where they can pick up big slugs of extra money.

‘Calculating capital gains tax can be confusing, and people often make mistakes when they file their returns. Because the lump sums involved are higher than for many other forms of taxations, HMRC can ratchet up its returns quickly if it uncovers a mistake,’ warns Maugham.

The taxman is also becoming more aggressive in the treatment of employee benefits such as company cars, the firm said.

‘As it stands, HMRC isn’t missing any tricks when it comes to collecting this extra revenue. The targets it has been set are extremely high, and HMRC is really focusing all its energy into ensuring it meets them,’ said Maugham.

UHY Hacker Young says HMRC’s yield may also have been boosted in this area by adding in revenue that they have protected by rejecting invalid claims for tax reliefs.

Unsure about RTI?

A quarter of small firms have no idea that the biggest shake-up to PAYE in 60 years will kick in just six months time.

That’s the shock finding from a Federation of Small Businesses' (FSB) survey, which blames the staggering knowledge gap on poor government communication.

A snap poll of 1,700 small firms found that just 16% of respondents were fully aware of the ‘Real Time Information' (RTI) programme - a new way of reporting payroll – and shockingly, a quarter (25%) had never heard of it, despite it being critical to the success of Universal Credit.

HMRC’s new RTI programme will gather regular information about employees and aims to dramatically simplify reporting new starters and leavers and make the payroll process easier. It will also support the payment of Universal Credits. However, some two thirds (66%) of respondents to the survey say they are not confident RTI will meet its goals.

And with less than six months to go until businesses have to comply with the new rules in April 2013, more than 60% of firms say they have not had any communication from HMRC about the changes.

Businesses think that learning new processes (33%) to deal with the changes as well as dealing with potential enquiries and inspections from HMRC (24%) will pose a challenge to their business.

FSB chairman, John Walker, said:

‘With only six months until RTI is due to be implemented, the FSB has real concerns that not enough businesses are aware that is just around the corner. This system is linked to the Government's flagship Universal Credit scheme and we're concerned that it could flop if Government does not step up its game in communicating the changes.’

‘Of the very small number of firms that are aware of the change, 30% have had to buy new software for their business. HMRC needs to act now so that all small firms can prepare their business as they only have six months in which to do it.’

‘Without adequate communication and education from Government, small firms won't be able to prepare. It just isn't fair if they're then penalised for not complying.’

Tax information

The number of requests for information about UK-based foreign nationals by foreign countries investigating tax evasion is on the up as governments around the world attempt to recover more tax.

International law firm Pinsent Masons says the number of requests for information about taxpayers received by the UK government from overseas tax authorities surged by 18% in the last year.

In 2011-12 (year ending 31 March), HMRC received 1,852 requests for information about individuals from overseas authorities under ‘Double Taxation Agreements’, compared to 1,564 in 2010-11.

Pinsent Masons director, Phil Berwick, said:

‘The jump in requests shows there are very few places to hide for wealthy individuals who may be trying to avoid tax by moving their assets around the globe. International borders are increasingly meaningless for tax authorities’ pursuit of outstanding taxes.’

‘London attracts ultra-high net worth individuals from a huge range of countries, and the expertise of London in wealth management makes it a stable ‘haven’ for individuals looking to protect their assets from political or economic instability overseas.’

‘As individuals move their assets to the UK, their home tax authority will take a keen interest in how those assets have been taxed.’

From the data available, Norway led the most requests for information league table in 2011 with 577 requests, followed by France with 225, Spain at 92, and India with 37.

Norway has recently been pursuing a diverse series of international tax investigations, from carbon tax fraud to tax evasion by budget airline pilots, and has recently been locked in a dispute with Jersey over the disclosure of tax arrangements.

Berwick added:

‘The presence of France and Spain in the top five countries requesting data isn’t surprising. Faced with the prospect of tax increases, it looks like some of France and Spain’s wealthiest individuals have gratefully accepted David Cameron’s offer to ‘roll out the red carpet’ for them.’

According to French consulate estimates, London is home to around 400,000 French citizens, making London the 6th largest ‘French’ city.

Currently, over 100 countries have signed a Double Taxation Agreement with the UK.

Tax informers

The taxman is increasingly relying on informers as part of the department’s drive to increase tax revenue, a Freedom of Information Act request has revealed.

The request, made by City law firm Reynolds Porter Chamberlain LLP (RPC) showed that HMRC paid out £373,780 to informers last year (to April 5th 2012), an increase of 21% on the previous year when it only paid out £309,620.

HMRC are under intense pressure from the Treasury to increase the tax yield for the Exchequer and they are increasingly resorting to unorthodox methods to get the job done, such as paying informers for tips that may lead to the opening of enquiries into the tax affairs of the individuals concerned,’ said RPC tax partner Adam Craggs.

RPC says that HMRC’s High Net Worth unit, which targets individuals with wealth exceeding £20m, and its Affluence unit, which targets individuals with a net worth of at least £1m, may pay informers for information on those individuals who they suspect of having not complied fully with their tax obligations.

‘HMRC’s focus on high net worth and wealthy individuals means that they are turning to paid informants for evidence of undeclared income,’ said Craggs.

‘Typically, an HMRC informant will be an angry spouse during divorce proceedings. For the spouse, threatening to supply information to HMRC provides them with some leverage during divorce settlement negotiations. If the divorce is particularly acrimonious, it is not uncommon for a spouse to turn HMRC informant,’ he said.

He added that while the sums of money HMRC are paying to informants may not be huge, the payments are increasing and the whole process is shrouded in mystery.

‘HMRC doesn’t make it clear why it might make a payment, when it might make a payment, or to whom it might make a payment.

‘This lack of transparency is very worrying. Are uniform criteria being applied consistently when HMRC make these payments to informers? It’s impossible to tell at the moment. If HMRC are going to make payments to informants there needs to be a robust system in place with appropriate checks and balances. HMRC should be properly accountable when using taxpayers’ money for payments of this nature,’ he said.

VAT Fraud

Three company directors, who fraudulently claimed almost £220,000 in VAT repayments by pretending to sell a Bloomsbury hotel they didn’t own, have been sentenced.

Robin Reichelt, Stephen Nathan and John Gibbs claimed to have sold the hotel from one of their companies to another, but HMRC investigators uncovered false invoices and a fictitious credit note used to fake the VAT repayment claim.

John Cooper, HMRC’s assistant director of criminal investigation at HMRC, said:

‘This was a sophisticated and blatant fraud committed by three criminals who tried to beat the system but were caught. Frauds of this nature mean that our investigations are increasingly complex, but we are committed to pursuing those responsible so that they can be prosecuted and the money stolen from the British taxpayer recovered.’

In 2005 Stephen Nathan raised an invoice from his company Pure Energy & Power PLC for the sale of a lease on a hotel in Bloomsbury, London that it did not own. This fraudulent invoice included VAT. Reichelt and Gibbs, his two fellow defendants, falsely claimed to have bought the hotel through their company A2Z Properties Ltd, and then proceeded to claim back the £218,750 VAT from the fictitious transaction. Shortly after, Pure Energy & Power PLC went into liquidation and A2Z Properties Ltd ceased trading.

All three were charged on 11 January 2010 with conspiracy to cheat the Public Revenue. Nathan and Reichelt were found guilty on 7 July 2011 at Southampton Crown Court. Nathan was sentenced to four years and five months in prison and disqualified from acting as a director for 15 years.

Reichelt was sentenced to three years and nine months in jail and disqualified from being a director for 10 years.

The jury failed to agree a verdict on Gibbs at the original trial but before his re-trial he admitted his guilt and was sentenced today (26 October 2012) to a one year suspended jail sentence. He was also given a six month supervision order, 200 hours community service and disqualified from becoming a director for 10 years.

Reporting restrictions were in place until sentencing.

PAYE Penalties

An upper tier tax tribunal has overturned a lower tribunal decision in which the original judge criticised HMRC for using the PAYE penalty system as “cash generating scheme”.

The tax department’s successful appeal [2012] UKUT 363 (TCC) against last year’s HOK v HMRC decision represents an important counterweight for the views of tribunal judge Geraint Jones QC, who appeared to have redrawn the rules around the fairness of tax penalties in the last year or so.

Jones found it “inexplicable why HMRC deliberately delays sending out a penalty notice for four months” so that penalties amounting to £400 built up for companies that were not aware of their filing lapses until notified in September, four months after the 19 May deadline. Because of the timing of the letter, another £100 would accrue before the taxpayer could comply.

Several other appeals documented in AccountingWEB’s 2011 reasonable excuse scorecard turned on similar rulings to HOK, including HMD Response v HMRC.

In their decision, Mr Justice Warren Judge Colin Bishopp noted that more cases are pending before the first tier tribunal.

HMRC argued that the tax tribunals have no jurisdiction to discharge such penalties and that the their jurisdiction is limited to determining whether or not the return was late as a matter of fact and, if so, whether there is a reasonable excuse for the lateness.

In their decision the upper tier judges determined that the lower court had no evidence from which it could conclude that HMRC was delaying penalty notices to increase revenue: “It was based entirely upon the judge’s perception.”

The judges looked at the more recent Royal Institute of Navigation v HMRCcase [2012] UKFTT 472 (TC), which documented HMRC’s changes to its penalty notice system. They noted Jones's suggestion that this was as close to an admission of unfairness as the department is likely to come. In neither case, however, did the first tier judge give HMRC an opportunity to make representations before condemning its conduct as unfair.

“Against that background, in our judgment, the Tribunal’s comments to that effect were not appropriate,” the upper tier judges concluded.

They allowed HMRC’s appeal and the penalties purportedly discharged by the lower court were restored.

Because it was a test case, HMRC said from the outset it would not seek costs. While the department deployed counsel Richard Vallat on it behalf, HOK did not appear before the tribunal, but made some written submissions instead.

Following the verdict, HMRC released a statement that said: “We are pleased with the decision, which confirms HMRC’s interpretation of the law."

The department had no plans to revisit cases that had been finalised, but added: “We expect that cases stood behind Hok will be resolved in line with the decision, following normal procedures."

Anne Fairpo highlighted the decision in this week's AccountingWEB tax podcast. “They didn’t actually say HMRC was fine and dandy and behaving correctly. They actually criticised the judgment for not following the rules properly in this context... It is a setback for taxpayers," she said.

The HOK decision was not a definitive ruling in HMRC's favour she noted, but anyone wishing to challenge the fairness of HMRC's penalty regime will need to seek a judicial review, which is more difficult than going to a tax tribunal.

As noted by the judges in their reference to the Royal Institue of Navigation case, HMRC has responded to representations from the profession to improve its communications around accumulating penalty notices, but the upper tier ruling in the HOK will reduce pressure on the department to do anything further about penalties, Fairpo noted. HMRC still has a tendency to be less prompt on sending out notices for PAYE and VAT penalties where any delay increases the amount due from taxpayers. "HMRC should be consistent," Fairpo said.

Benefits

http://www.bbc.co.uk/news/uk-20119514

You'll be getting one of these soon

Strong USA growth

The US economy grew more than expected in the three months to September, official figures showed.

The world's largest economy expanded at an annualised rate of 2% in the third quarter, the Commerce Department said.

The jump was partly due to a large increase in government spending.

The figures are the one of the last pieces of important economic data before the US presidential election between Barack Obama and his challenger Mitt Romney on 6 November.

Federal government expenditures and gross investment increased 9.6% compared with the previous quarter, while national defence spending rose by 13%. The Commerce Department said there was a jump in personal consumption as well.

A drought in the US, which was the worst for 50 years, cut farm output and took 0.4 percentage points off the GDP figures, the Commerce Department said.

With more than 20 million Americans unemployed and a huge public deficit, the economy has become one of the central issues of the campaign.

The US has now been growing for more than three years, since June 2009.

"Growth came in a little higher than we had feared, largely because of the big jump in federal spending," said Paul Ashworth, chief US economist at Capital Economics.

"But the economy is still not growing rapidly enough to create sufficient jobs to reduce the unemployment rate."
Economic fight
Mr Romney has repeatedly challenged President Obama's record, saying ''we have not made the progress we need to make''.

"If the president were re-elected, we'd go to almost $20 trillion of national debt. This puts us on a road to Greece," Mr Romney said during the second presidential debate.

Mr Obama replied that his opponent did not have a five-point plan to fix the economy, but ''a one-point plan''.

Last month, the US unemployment rate fell to 7.8%, down from 8.1%, its lowest since January 2009 when Mr Obama's term in office began.

To help get the US economy back on track, the US Federal Reserve in September restarted its policy of pumping money into the economy via quantitative easing. The Fed pledged to buy $40bn (£25bn) of mortgage debt a month, with the aim of reducing long-term borrowing costs for firms and households.

"Growth was fairly resilient," said Christopher Vecchio, a currency analyst at DailyFX, but "nevertheless, this is still not the stable recovery the Federal Reserve is looking for".

Recent housing data has also shown some encouraging signs of recovery, analysts say.

Sales of existing homes and housing construction have picked up and the main home price index has risen consecutively for three months.

House prices have rebounded in some areas, while mortgage rates are expected to stay at record lows because of low interest rates.

The Fed has vowed to keep rates at the current levels of close to zero until 2015.

The economy grew by 1.3% in the previous quarter. The US states its growth in annualised terms, meaning that its quarterly growth rate is extrapolated as if it was growing at that pace for the whole year.

Tax advisor jailed

Roy Faichney, a former adviser at Vantis Tax, has been jailed for four years and disqualified from acting as a director for 10 years for his part in a £70m tax fraud.

As managing director of Vantis, Faichney had a “gentleman’s agreement” with his deputy, David Perrin – who was found guilty for his part in the charity scam in January – to share the £4.5m profit from a fraudulent tax scheme sold to wealthy customers.

The pair acted together to extract the cash they made through a Jersey bank, where Faichney withdrew his share to spend on luxury properties and paintings, while also using the scheme to evade tax on his £200,000 company salary.

They used a network of finance professionals to advise more than 600 clients to buy shares, worth a few pence each, in four new companies they had set up.

Faichney then listed the companies on the Channel Islands Stock Exchange and paid people money from an offshore account to buy and sell the shares simply to inflate their price. The share owners then donated 329 million shares to various unsuspecting registered charities and tried to claim £70m tax relief on a total of £213m of income and company profits.

This was based on the shares being worth up to £1 each, when in fact they were still worth the pennies they were originally bought for.

As previously reported on AccountingWEB the court heard that the scheme proved so popular that Vantis employees sang a song at their annual conference to the tune of “I will survive”, which included the verse:

“They should have changed that stupid law, they should have buggered charity, but they have left that lovely tax relief, for folks to pay to me.”

His Honour Judge Blacksell QC, at Blackfriars Crown Court, said: “If you ever had a moral compass you lost it or buried it under the property purchases, furnishings, holidays and cruises.

“The general public are sick and tired of men such as you and schemes such as this. This is high net worth fiddling. The general public should applaud the dedication and commitment shown by HMRC in pursuing all aspects of this case. They have been well served.”

Jenny Crutchfield, of HMRC Criminal Investigations, added: “Faichney thought he could attack and defraud the tax system by using his knowledge as a tax adviser. Together with Perrin, not only did he attempt to cheat taxpayers out of millions of pounds, but callously abused a tax relief designed to benefit charities by arranging the gifting of 329 million virtually worthless shares.”

A timetable for confiscation proceedings has been put in place to recover the benefit Faichney obtained from his criminal activities.

After Faichney’s sentencing it was also revealed that Perrin’s 18 months sentence for his part in the fraud was referred to the Court of Appeal for review, which found his sentence had been unduly lenient and should have been seven years. However, due to Perrin’s health, the court did not alter the 18 month sentence he received.

The conclusion of the trial also comes as an uncomfortable reminder for RSM Tenon, who back in June 2010 acquired the advisory arms of Vantis after the group entered administration.

Q3 GDP Figures

http://www.bbc.co.uk/news/business-20086872

Are these numbers really right? First the ONS tell us that Q2 was negative growth of 0.7%, putting us in double dip, then they say it say minus 0.5%, then minus 0.4% - almost 50% wrong compared to their original estimate! At an annualised r...

ate, 0.7% drop would have meant that the economy was contracting at the same rate as in 2008 - a total slump! Now they are saying that the economy grew by 1% in Q3 - which annualised is a complete boom! How on earth did the economy go from a slump in Q2 to a boom in Q3 when nothing changed to stimulate the economy - no cuts in interest rates, no fiscal stimulus etc! Ever thought that maybe your numbers are not right boys?

Reliefs capped

Small businesses - and the modestly-rewarded people who run them - are set to be crippled by the introduction of draconian new limits on currently uncapped income tax reliefs.

That’s the stark warning from the Chartered Institute of Taxation (CIOT) which says the limit – which comes into play next April - will ensnare far more people than just the high earners the government hoped to target when it announced the measure at Budget 2012.

From next year, anyone seeking to claim more than £50,000 in these reliefs in any one year will have a cap set at 25% of their income. The CIOT fears many in the professional services industry will be hit especially hard.

In its response to the Government’s consultation on the proposal, CIOT president Patrick Stevens, said:

‘The chancellor is understandably keen to ensure that those on high incomes pay a fair amount of tax. However, the proposed cap will also affect many business scenarios that we don’t think the Government wanted to catch.’

‘These are where a person’s business interests are fragmented for commercial or regulatory purposes. Currently, these are effectively aggregated and the person is taxed on the net income from all activities. The cap will prevent this happening in many cases, taxing many in business on more than they earn.’

‘While initial media coverage of this proposal focused on the inclusion of tax relief on charitable donations in the cap – a decision that has since been reversed – the effects on individual business owners of the proposed cap have been largely missed.’

He highlighted a number of illustrative scenarios where the cap would have a detrimental tax impact.

These include a farmer who has diversified his business activities to remain self-sufficient and a professional services group partner who is required to take a share of worldwide losses and profits.

Other examples are a sole trader or partner retiring from their business where the final year loss, including ‘overlap profits’ brought forward from previous years of UK double taxation, may be lost, and arts and music industry partnerships, where partners in a new venture are frequently required to invest a minimum level of several hundred thousand pounds, for commercial purposes.

Stevens added:

‘In its current form, this measure will be seen by many as anti-business. Restricting the ability to offset genuine business losses and interest relief could suppress UK entrepreneurship. A taxpayer who is prepared to risk his or her life savings in an enterprise, or a series of enterprises in parallel, ought to be able to net off profits and losses and only pay tax on the net amount.’

‘Our key recommendation is that business profits and losses, including relief for interest on a loan to the business, should be able to be offset against each other before considering if the cap applies.’

More information is available from the CIOT.

Mandatory women directors

http://www.bbc.co.uk/news/business-20039540

Personally, I think that companies should hire the best person for the job, irrespective of race or gender. Quoted companies are responsible for my pension, so I really want them run by the best people!

Employee shares

Government consults on removal of employment rights for new "employee owners"

News The Department for Business, Innovation and Skills has published a consultation setting out plans for a new employment status called an "employee owner".  Employee owners will give up basic employment rights in exchange for shares in their employer's company of between £2,000 and £50,000.  The shares will be exempt from capital gains tax.   Implications The new proposals have been added to the Enterprise and Regulatory Reform Bill which is currently making its way through Parliament.  It is likely that the scheme will come into force in April 2013.  Closing in early November, the consultation is only open for a very short period and focuses on the practical implementation of the scheme rather than whether or not the scheme should be introduced. The scheme can be used by companies of all sizes, but is principally intended for fast growing small and medium sized companies that would benefit most from a flexible workforce.  The scheme is entirely voluntary. Commentators have questioned how the scheme will work in practice and what safeguards will need to be put in place to avoid abuse.  It is suggested that the new scheme has the potential to lead to an increase in the number of legal disputes over the valuation of an employee's shares.  Presently, it does not appear that the intention is for these disputes to be resolved within the employment tribunal system, but rather through civil litigation.   Details Under the scheme, the employee owners will agree to waive certain employment rights in exchange for shares.  The intention is that employment rights will be varied as follows: Employee owners will not be able to claim unfair dismissal. There will be no right to statutory redundancy payments. The statutory right to request flexible working will be removed except where employee owners are returning from parental leave in which case, the Government proposes that they must request flexible working within 4 weeks of their return to work.  This will not prevent employers from agreeing to other flexible working arrangements, but it will prevent employee owners from bringing tribunal claims where they think their request has not been properly considered. Employee owners will lose their right to request time to train which is usually given to employees in companies with over 250 people.  Again, this does not prevent employers from offering training but removes the requirement for employers to follow the administrative procedures specified in the legislation and the ability of the employee owner to bring a tribunal claim where the procedure has not been followed. Employee owners will have to give 16 weeks' notice of their intention to return early from maternity or adoption leave instead of the current 8 weeks' notice.  This will give employers additional notice of an employee owner's plans and is intended to help them better plan for maternity periods, particularly in small businesses where there is no dedicated HR function.  Employers can agree to an earlier return to work or request that the employee owner does not return until the 16 weeks' notice has expired. Employee owner status would not affect the employee's ability to claim for an automatically unfair dismissal or where the dismissal is on discriminatory grounds.  It is therefore possible that employers may see an increase in discrimination claims as a result of the limitations placed on the right to claim unfair dismissal. The employer can also add to the package of rights that it offers to its employee owners (for instance, by including a right to flexible working). It is intended that the scheme would be implemented through an employees' share scheme.  Employers are likely to place restrictions on the shares offered including the compulsory surrender of an employee's shares on leaving, dismissal or redundancy. The shares will be valued according to their unrestricted market value at the time they are awarded. There may be difficulties in valuing shares in certain cases, particularly for unquoted companies (which are intended to be the primary users of the scheme).  The Government is keen to ensure that companies are not placed under any more stringent valuation requirements than already exist when valuing companies for other tax purposes and is encouraging comments on this point in its consultation. The Government is also keen to strike the right balance between helping businesses and ensuring that individuals taking up employee owner status understand the full implications of the scheme.  In order to do this, it is seeking views on the appropriate level of information and guidance that individuals might need to ensure they understand the contracts they are signing. If you require further assistance, please contact a member of the team.