Insights -

Read February’s key insights from our business law experts

Gender pay gap reporting – an update

by Joanne Kavanagh

The Government has published what is likely to be the final version of the Equality Act 2010 (Gender Pay Gap Information) Regulations 2016. Acas has also now published helpful accompanying draft guidance to assist employers.

In summary, companies of 250 employees or more (including casual workers and some contractors) will be required to publish prescribed data showing the differences between male and female employees’ pay.  The number of employees must be calculated as at 5 April in each relevant year and the reports must be published by 4 April in the following year.  Acas recommends that an additional contextual statement should be published explaining pay gaps and what actions will be taken to narrow the gaps.

Because the reports are based on the employees’ pay period which includes 5 April, many companies are already calculating their pay data for this year. The reports must be published on the company website and kept online and publically available for three years. They must also be uploaded onto a government website, details of which are yet to be announced.

Many companies are planning to publish their data prior to the first end date of 4 April 2018 so they are seen as leaders in their sector and gain from reputation enhancement.

We are advising our clients to carry out a ‘dummy run’ to identify any pay gaps that need to be tackled and to decide what information to give employees and others such as shareholders, in advance of publication on their websites.  This is also a good time to review and update your equal opportunities policy.

Will the regulations narrow the gender pay gap?

Realistically, most employers have a gender pay gap.  The requirement to publicise this data may result in some employers giving genuine consideration to ways of reducing pay differences. However there is no legal sanction for failing to comply with the regulations.  Therefore there is a risk that only those whose pay gap is wider than the average in their particular sector or size or geographic area may, for reputational reasons, decide to take steps to reduce it.  After all, the Equal Pay Act has been in force since 1970 and there is still an overall gender pay gap of 18.1%.

Please do contact us if you need advice on gender pay gap reporting, including guidance on calculating the pay gap and what to do if your ‘dummy run’ highlights pay gap issues. You can contact your usual adviser or Joanne Kavanagh by phone 01737 854573 or email [email protected]


VAT on temporary workers

by Sally Hutchings

If your business hires temporary agency workers or you operate an employment bureau (temp agency) business, you could be affected by an upcoming appeal decision regarding who is responsible for accounting for VAT on the “wages” paid to temps.

The appeal in question has been made by Adecco, an international recruitment organisation, which operates a temp agency business in UK.  Adecco pays its temps directly for the work they carry out for its clients and, in turn, the clients pay Adecco a fee equal to the cost incurred by Adecco for paying the temp plus a commission.

Until 2011, Adecco had been accounting to HMRC for VAT on the full amount paid by the client (both the “wages” element and the commission element).

So what changed in 2011? The First Tier Tribunal (“FTT”), in a case called Reed Employment Ltd, decided that Reed was only liable to pay VAT on the commission element and not on the “wages” element.

Following the Reed decision, Adecco submitted repayment claims for the VAT on the “wages” element it had paid for the non-employed temps.  HMRC rejected these claims and, in light of the Reed decision, Adecco appealed to the FTT.  However, Adecco lost in the FTT and, in stark contrast to the Reed decision, the judge decided that it had to pay VAT on both elements.

Adecco has now appealed to the Upper Tier Tribunal (“UTT”) and a decision is expected imminently.

What does this mean for businesses?

If the UTT allows Adecco’s appeal and does not overturn Reed, end-user clients who rely on temporary agency workers may, in future, have to account for the VAT on the “wages” element of payments made to temp agencies. Recruitment businesses who have accounted for VAT on all payments received should urgently consider making repayment claims (as these claims can only go back for 4 years).

If Adecco fails and Reed is overturned, recruitment businesses who are treated as the employer of their temps (for PAYE purposes) should continue accounting for VAT on the full charge that they levy on their clients. Any recruiters not accounting for VAT on the full fee may find themselves facing large VAT assessments if HMRC are successful in the Upper Tier Tribunal (and should urgently review their VAT treatment).

Please do contact us if you need advice on VAT or any other related issues. You can contact Sally Hutchings by phone 020 8971 1048 or email [email protected]


Managing Directors

by Greg Vincent

This month we take a look at 5 key legal points for Managing Directors, including dispelling certain myths relating to the “MD” title.

1. Is it a requirement for a company to have a Managing Director?

No, there is no statutory office of “Managing Director” and there is no requirement under legislation (including the model articles) to appoint an “MD”.

A company’s articles of association will ordinarily refer to a Board “chairperson” but this appointment is for the purposes of performing administrative functions at Board meetings (and, occasionally, to cast a deciding vote when the Board is deadlocked).

Broadly speaking, the appointment of an MD is titular and a matter of practicality.  If a company chooses to have one, it will usually be underpinned by enhanced “contractual” responsibilities.

2. Do Managing Director’s have enhanced powers and duties?

An MD has no additional statutory (or fiduciary) duties under the Companies Act 2006 than are imposed on any other director.  Statutory duties apply similarly to Managing Directors as they do to finance directors and non-executive directors.  They also apply to “shadow directors” (i.e. individuals who, broadly, hold themselves out in the capacity of directors).

The only place an MD’s responsibilities may be enhanced is in an agreement between the MD and the company.

3. With that in mind, does a Managing Director need a written contract with the company?

The law does not require this.  However, it is typical (particularly where a director carries out an executive function) for him to also be an employee.  It is important to remember that (legally) the office of director and the status of employee are different and create different responsibilities both to and from the company.

The distinction can create confusion but, for the purposes of this note, the important thing to remember is that setting expectations of directors early can be useful.  The best way of doing this is via a properly drafted service agreement.  When it comes to a Managing Director, agreeing the detail of his management function will not only assist with monitoring results but, if necessary, can make it easier to remove him later down the line.

4. Is the Managing Director’s authority needed to enter into important contracts?

No. Whilst it is not uncommon for there to be internal agreement as to powers and limitations, it is important to remember that third parties are entitled to assume that all directors (and those who hold out as such) have the authority to enter into binding arrangements.

These assumptions can be made notwithstanding the value of the contract or the materiality of it to the business of either party.

5. How does a Managing Director and his Board effectively manage relationships with shareholders?

Whether the Managing Director is a founder and majority shareholder or a minority shareholder in a large organization, it is important to remember that the director / shareholder relationship can materially benefit from a well-drafted shareholders’ agreement. This is important even if all of the shareholders are directors.

A shareholders agreement will typically deal with matters such as: what happens to the director’s shares if s/he leaves office; what can be done to prevent or manage the dilution of equity; and will enhanced voting thresholds be needed to remove the MD or to appoint new directors.  It can also deal with special veto rights, requiring the Board to revert to the shareholders when making certain key decisions, despite the powers given to directors and the MD under law or in their service agreements.

Please do contact us if you need advice on directors or any other related issues. You can contact Greg Vincent by phone 020 8971 1033 or email [email protected]



Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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