Developments affecting your business in 2017

Insights - 16/01/2017

Our business law specialists give you the inside track on some of the key upcoming legal developments for the year ahead.

Please click on our timeline below to enlarge.

Corporate

by Greg Vincent

2016 saw further implementation of the key provisions of the Small Business, Enterprise and Employment Act 2015 (‘SBEE’). The most significant development was the introduction of the requirement of a company to keep a register of persons with significant control (‘PSC Register’) and a new annual confirmation statement replacing the annual return.

Further provisions in the SBEE are due to bite this year, specifically, section 15 of the SBEE which imposes a requirement that by May 2017 the current justice minister, Liz Truss, delivers and implements a streamlined process for businesses to incorporate and complete their tax registration for Corporation Tax, PAYE and VAT. The aim of this measure is to make the UK an easier place to set up a company and reduce unnecessary burdens on businesses. We expect a single digital form containing all the information required by Companies House and HMRC to incorporate a company and register it for tax purposes so that it can begin trading. A final report is due in March 2017 with the solution implemented by 31 May 2017.

Delay on the implementation of the prohibition of corporate directors continues. This ban was due on 1 October 2016 (having already been pushed back from October 2015). However, implementation has been delayed further. No specific date has been set as to when we are likely to see the start of this ban, but we understand it is the Government’s intention is to follow through with the prohibition. Once the new rules do eventually come into force, there will be a one year grace period for companies to comply before any remaining corporate directors will cease to be directors. The delay is due to continued consultation on and development of proposed exceptions to the prohibition. Draft regulations detailing these exceptions are awaited and we expect to see these at some point in 2017.

In 2017, obligations on companies in respect of corporate transparency are due to be extended when the Fourth Money Laundering Directive (‘MLD4’) is transposed into national law. The existing regime requires companies to keep an up to date internal register of persons with significant control with the public register required to be updated annually through the Confirmation Statement (which recently replaced the Annual Return). Once implemented, MLD4 will require that disclosure of beneficial ownership information apply to a broader scope of corporate and other legal entities as well as trusts and MLD4 will also require the information to be held centrally and be up to date.

It is also important to note that the European Commission has published proposals to extend MLD4 even further to include widening the scope of the trust register and reducing the threshold indicating ownership and control to 10% in certain circumstances. We will be publishing a blog on MLD4 and a potential Fifth Money Laundering Directive in due course.

If you would like advice or assistance on any of the issues raised in this article please contact Greg Vincent by email [email protected] or telephone 0208 971 1033 or visit https://www.morrlaw.com/team/greg-vincent/

Dispute Resolution and Tax

by Catherine Fisher

In January 2017, we should receive judgment from the Supreme Court in the Government’s appeal over the triggering of Article 50. As the story unfolds we will continue to assess the implications of Brexit for our clients but what have the judges so far decided and why and what does the decision actually mean?

The appeal was heard by all 11 Justices of the Supreme Court in December 2016 and challenged the decision of the High Court that the Government did not have power under the Royal prerogative to give notice pursuant to Article 50 to withdraw from the EU. That means that Parliament must vote on (and pass) a Bill to give notice under Article 50. The Supreme Court is widely tipped to uphold the High Court’s decision.

To add to the confusion, another legal challenge was issued at the end of December 2016 by Adrian Yalland and Peter Wilding, asserting that the Government cannot exercise Royal Prerogative to leave the European Economic Area (EEA). The Government’s view is that membership of the EEA requires membership of the EU or EFTA and, when Britain leaves the EU, it will also leave the EEA. But Yalland and Wilding believe that Britain is member of the EEA independently of EU membership. Part of the reason they believe this is because the EEA has its own exit arrangements (Article 127). If correct, Britain cannot be forced out of the EEA when we leave the EU, which would immeasurably strengthen our negotiating position and making a soft Brexit more likely. It also means that we may need to trigger Article 127 of the EEA (which has a one-year notice period) in addition to triggering Article 50, requiring another act of Parliament.
Assuming that Article 50 is triggered as planned there will be implications for a range of legal areas. Very broadly, those areas most heavily subject to EU regulation include financial services, capital markets, employment, data protection, energy regulation, construction and environmental law. Less affected will be private client and family law, property, tax (with the obvious exception of VAT), pensions (other than cross-border schemes) and civil litigation and criminal law.

In April 2017 we will also see changes to the VAT flat rate scheme. In the Autumn Statement, the Chancellor of the Exchequer announced changes which affect businesses which have a very low cost base. These businesses are now called “limited cost traders” and are defined as traders that spend less than 2% of its sales on goods in any accounting period. The changes are being brought in to tackle the aggressive abuse of the VAT Flat Rate Scheme. From 1 April 2017, limited cost traders can still use the Flat Rate Scheme, but their percentage will be 16.5%. So if they sell £120 of work, including £20 of VAT, the flat rate amount is £19.80 (£120 x 16.5%).

In April 2017 the new Insolvency Rules will also come into force. These rules will apply to both new and existing insolvencies although the transitional provisions provide carve-outs for some parts of the new Rules, which will not apply where the insolvency commenced before 6 April 2017. Businesses planning on entering an insolvency procedure, or hoping to recover a debt from an insolvent debtor, will need to seek early advice on the new Rules.

Finally, in the summer of 2017, Lord Justice Jackson’s consultation on the introduction of fixed costs for cases valued under £250,000 will be published. The consultation documents published so far suggest that the level of those fixed costs would be significantly below the “average” costs incurred by lawyers. So what will happen if fixed costs are introduced? Will litigation still be cost effective? What will the alternatives be? Our view is that fixed costs are not likely to make litigation less costly and that clients will increasingly turn to quicker and more flexible alternatives such as arbitration.

Should you have any questions or require help or assistance in relation to these issues please feel free to contact Catherine Fisher, Partner & Head of Dispute Resolution, by email [email protected] or telephone 01483 215357, or visit https://www.morrlaw.com/team/catherine-fisher/

Employment

by Joanne Kavanagh

The current childcare voucher scheme (“CVS”) requires employer co-operation. In early 2017, the Government plans to launch the ‘tax-free childcare’ (“TFC”) scheme. This will apply to employees earning from £115 per week to £100,000 per year and does not require the involvement of their employers.  Employees can open an online account and make payments to it from their net income. In turn, childcare services providers will be paid directly from this account. Parents, grandparents and employers can also pay into the fund. The Government will add 20% to every pound paid in up to £2,000 per child or £4,000 per disabled child. Both schemes have their pros and cons; for example, the CVS is a salary sacrifice scheme which results in a lower NIC bill and reduces income for the purposes of the means tested child benefit.

Following the introduction of issue and trial fees in July 2013, single employment tribunal claims have dropped by more than 70%. On 27 and 28 March 2017 the Supreme Court is due to hear UNISON’s application to have the tribunal fees regime judicially reviewed. If it is successful, and the fees abolished, the logical expectation would be an increase in claims. It is our view that despite the statistics showing a consistent and continuing fall in tribunal claims, this review is unlikely to succeed.  However, this will not be the end of the story, as the Government’s own much anticipated fees review is overdue.

The latest Government attempt to eliminate the gender pay gap is due to come into force on 6 April 2017. These will compel employers with at least 250 employees to publish 4 categories of pay data on their websites by 4 April 2018 (and annually thereafter). These include the difference between average hourly pay and bonus pay for male and female employees. This will be calculated using a 12 month period ending with the ‘snapshot’ date of 5 April.

Publically available pay information may incentivise employers to make necessary adjustments rather than suffer reputational damage.  Employers will also be mindful of the fact that the data will provide a source of evidence for employees considering equal pay claims.  One reason for informing companies of this change now is because the data required to build the reports is to be taken on the first ‘snapshot’ date of 5 April 2017.

From 6 April 2017 employers with annual wage bills exceeding £3m must pay a levy of 0.5% of their annual wage bill towards apprenticeship training costs. The levy will be paid via PAYE into an online account accessible through a new website called the Digital Apprenticeship Service (‘DAS’).  From 1 May 2017, levy paying employers will be able to use DAS to choose and pay for training from government-approved providers. Funds in DAS will expire 24 months after being paid in if they are not spent on apprenticeship related training. Those employers not caught by the levy can use DAS to find training providers and must in any event contribute 10% towards the total training course fees. This cost can be spread over the lifetime of the apprenticeship.

Throughout 2017 the Courts and Tribunals will also be delivering notable decisions in cases determining the correct calculation of holiday pay and who is not genuinely self employed but a ‘worker’ in the ‘gig economy’. We will keep you abreast of any developments in our regular blogs.

Should you have any questions or require help or assistance in relation to these issues please feel free to contact Joanne Kavanagh, Partner & Head of Employment, by email [email protected] or telephone 01483 215357, or visit https://www.morrlaw.com/team/joanne-kavanagh/

Commercial Property

by Lily Meyer

Under the Energy Act 2011, from 1 April 2018, landlords who own buildings with an EPC rating below E cannot let their property unless they take steps to improve the energy efficiency or they can rely on an exemption and have registered this on the PRS Exemption Register. The PRS Exemptions Register is due to open on 1 April 2017.

From 1 April 2017 the rateable values of business properties will be changing. These values are not just used to calculate business rates. They are also used to calculate the compensation payable to business tenants (with security of tenure) that are entitled to compensation if a landlord successfully opposes a new lease. The 31 March 2017 will be the last day that the old valuation list will be in force.

Additionally, new law is expected later in 2017 to create a new corporate vehicle, the Private Fund Limited Partnerships (PFLP). Currently, if a limited partner participates in management of a UK limited partnership, it may lose the cloak of limited liability. A PFLP, on the other hand, will permit a partner to exercise a broad range of management powers without losing limited liability status. This will be good news to real estate investors who have previously been reluctant to invest in these real estate investment vehicles due to the potential liability risk.

Finally, we are expecting to see some important commercial property judgments in 2017. On 30 January 2017 the trial in the matter of Heron Quays (HQ2) T1 Ltd & another v Jervis & another is listed to determine if a lease can be terminated due to fundamental breach of contract (raising issues of entitlement to and measure of damages). The case should also clarify whether consequential losses can be claimed by the landlord on a dilapidations claim if the landlord never carries out the works. Further, in May 2017, the Court of Appeal is scheduled to hear EMI Group Ltd v O & H Q1 Ltd [2016] EWHC 529 (Ch) appealing the decision that a tenant cannot assign its lease to its guarantor. It was previously held that any such assignment was void, with the lease remaining with the tenant and the tenant’s guarantor remaining bound by its guarantee.

If you would like advice or assistance on any of the issues raised in this article please contact Lily Meyer by email [email protected] or telephone 020 8614 4590.

Disclaimer:

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.