Newsletter 2 - February 2008

Introduction

Welcome to this Howat Associates second newsletter. There is an important article on the Changes to Agricultural and Rural Support which has been contributed by the Royal Banks Agricultural Policy Manager. If you know of a colleague or contact who you think might find the newsletter to be of value please email us their details and we will make sure they receive it.  Your comments are welcome and appreciated. andrew.smith@howats.co.uk

Legislative changes for business 2008

The Corporate Manslaughter and Corporate Homicide Act

From 6 April, organisations will face prosecution if the way in which its activities are managed or organised causes a person's death, and amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased. The legislation leaves companies facing unlimited fines following fatal accidents if there has been gross failure by senior managers.

A standard Directors' and Officers (D&O) insurance policy will only provide cover for a senior individual within a company being prosecuted for management failure leading to a death of an employee or a third party. A standard D&O policy will not cover the costs of the company's defence of such an allegation and the wider stigma of being associated with a negligent individual.

The legislation could lead to companies facing prosecution for breach of their duty in areas not previously considered. An example could be a company's failure to ensure its employees cars are kept in a roadworthy condition when being used in the course of their employment, even in cases where employees are using their own vehicles.

Lawyers are advising organisations to take immediate steps to put their health & safety practices and procedures in order.

The Employment Bill 2007-2008
The overall effect of the Employment Bill is to strengthen and clarify key aspects of employment law.

Dispute resolution
In particular, it will repeal the statutory dispute resolution procedures. It proposes to replace them with a code of practice covering workplace disputes, and giving power to increase or reduce compensatory awards if the code is not complied with.

Flexible working
This will be extended to parents of older children. Currently the right applies only to parents with children under 6 years (under 18 if the child is disabled), although many employers already offer flexible working to parents of older children, recognising its importance in attracting and retaining employees.

Immigration law
This will be simplified and consolidated over the next five years and the changes will affect all employers. The routes for working in the UK – there are currently 80 of them – will be replaced with only five entry routes and there will be a single application process for work and entry visas. The route for highly-skilled migrant workers will be implemented this spring. These applicants will not need a sponsoring employer, unlike those using other routes, but, like them, they will be assessed on the basis of whether they have sufficient points to stay here. A new system of penalties will be introduced in February. Employers who are found to have negligently employed illegal workers will get a maximum fine of £10,000 per illegal worker.

Working with vulnerable groups
A new, centralised vetting system will be introduced for people working with children or vulnerable adults.

Discrimination
There may be further developments afoot regarding equal pay, following the current surge on public sector claims. These cases are likely to have a knock-on effect on private businesses.

Changes to Agricultural and Rural Support

The Scottish Rural Development Programme (SRDP) for 2007-13 has been approved by the Rural Development Committee of the EU. Formal approval should follow shortly from the EU Commission. This will allow the Scottish Government to launch the programme in the spring. The agreement has allowed payment of the Less Favoured Area Support Scheme (LFASS) worth £61 million. LFASS compensates farmers and crofters farming in disadvantaged upland and remote areas.  The current scheme is an interim arrangement. A new scheme will be introduced in 2010, following the 2008 CAP “Health Check”.

This article provides an overview of the measures proposed within the SRDP.  Funding for some of the measures under the SRDP which has a budget of some £1.6 billion for the period 2007-13 comes from the national modulation deducted from the Single Farm Payment. Farmers can “reclaim” some of this money by using the schemes available. However the SRDP is open to all rural businesses and communities provided they meet the qualifying criteria.

The SRDP brings a wide range of measures into a single programme of support, across the four axes required by the EU Rural Development Regulations. The SRDP is charged with – improving business viability, enhancing biodiversity and landscape, improving water quality, tackling climate change and ensuring thriving rural communities, using local solutions to deliver the national plan.
 

Rural Development Contracts (RDC)

This is the chosen method of delivering an integrated approach across the three axes, RDCs comprise of three tiers of support:

Tier 1
The Single Farm Payment and cross compliance, this secures a basic level of income, environmental protection, food safety and animal welfare.  It is part of Pillar 1 EU support and is therefore not part of the SRDP.

Tier 2
This started in 2005 as Land Management Contract Menu Scheme (with 17 options to choose from) and provides economic, social and environmental improvements across rural Scotland.  The scheme is uncompetitive and under the SRDP will be known as Land Managers Options – with 21 options available, covering  agri-environment, animal welfare, woodland creation and management, farm visits, improving access to the countryside, skills development, use of advisory services and the use of electronic data management.

Tier 3
Is a new component introduced into the SRDP to deliver a higher level of benefits on a targeted competitive basis. These will be tailored to meet local circumstances, with regional priorities being set.  This tier will bring together a number of the schemes that were previously available to farmers and will build on them:

• Farm/Agricultural Business Development Scheme

• Rural Stewardship Scheme

• Natural Care

• Organic Aid Scheme

• Scottish Forestry Grants Scheme

• On farm project under the Process and Marketing Grant Scheme

The new Tier 3 has some 67 options available across a wide range of initiatives ranging from skills development, co-operation, support of renewables, diversification, tourism and many agri-environmental measures.

The Regional Project Assessment Committee (RPAC) will set the local priorities and assess applicants against these priorities.  In considering an application the RPAC will have to consider how the proposal contributes to:

• Policy outcome

• Delivery of value for money

• Any potential risk to other outcomes

Guidance is likely to be given to applicants at an early stage to indicate the likelihood of the full application’s chance of success.  This process will take away the uncertainty that was experienced under the Rural Stewardship Scheme’s points system, which was a source of frustration to applicants.

For further information contact David McCarthy, Senior Agricultural Manager for The Royal Bank of Scotland, Ayr   Contact details: Ph 01292 265183, mob 07836 622730, email david.mccarthy@rbs.co.uk
 

Chancellor Alistair Darling announced in his Pre-Budget speech a change to the way in which the inheritance tax (IHT) nil rate band of £300,000 can be used for married couples and civil partners.

In order to understand the implications of the change it is important to have an understanding of the principles of IHT. Transfers of property between spouses or civil partners are generally exempt from IHT. This means that if an individual dies and leaves some or all of their property to their spouse or civil partner, then this is not chargeable to IHT. If they do not have sufficient assets which they are willing or able to leave elsewhere then they may not fully use their nil rate band.

This problem with ‘wasting’ the nil rate band, combined with large increases in the value of many family homes, has meant than many families had been inadvertently drawn into the IHT net.

The Pre-Budget change means that any nil rate band unused on the first death may be used when the surviving spouse or civil partner dies.

This change is effectively backdated for widows or widowers whose spouse died before the announcement of the change, as long as the ‘surviving’ spouse or civil partner dies on or after 9 October 2007. The amount of the nil rate band available for transfer will be based on the proportion of the nil rate band which was unused when the first spouse or civil partner died.

The following gives an example of how the rules will work:

Mr Smith’s Will states that on his death he will leave his estate including his share of the family home to his wife. At the date of his death the nil rate band is £300,000.

On Mrs Smith’s death she will be able to make use of her own nil rate band of say £350,000 (which is the band proposed for 20010/11) together with the unused percentage of her late husband’s nil rate band being a further £350,000. Her total nil rate band will be £700,000.

This is a significant change that will affect many families. Please do contact us if you would like more information on this issue and how it will affect your circumstances.

See HMRC Notice

In the Pre-Budget Report in October 2007 the Chancellor, Alistair Darling, announced a series of changes to the capital gains tax (CGT) regime for individuals and trustees. These changes included the abolition of taper relief and indexation relief and the introduction of a single rate of CGT of 18%. The changes take effect from 6 April 2008.

On 24 January 2008, in response to pressure from the business community, the Chancellor announced a new ‘Entrepreneurs’ Relief’. The first £1m of gains qualifying for relief will be charged at an effective rate of 10%.

Gains in excess of £1m will be charged at 18%. An individual will be able to make more than one claim for relief, up to a lifetime total of £1m of gains.

Business leaders had been calling for the re-introduction of a form of Retirement Relief, which some of you may remember. The rules for retirement relief required you to have been in business for a number of years but the new rules are designed to be simpler:

there will be no minimum age limit, and

relief will be available where the relevant conditions are met for a period of one year.

The relief will apply to gains arising on the disposal of:

• the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership, and

• shares in a trading company, or holding company of a trading group, provided that the individual owns broadly a 5% shareholding and has been an officer or employee of the company.

Commenting on the announcement Richard Lambert, Director General of the CBI, said:

"This is superficially quite clever and on the surface might seem like a relief after three months of uncertainty, but even the smallest business owner will lose taper relief and indexation and be worse off.

The reality is that these revised measures will do nothing to help the real business powerhouses of this country. Although £1 million might sound a lot, it could have been built up over twenty or thirty years. It is clear that the real wealth and job creators of the UK's economy, selling assets for a lot more, will be seriously clobbered.

Today's changes still discriminate against the long-term holding of assets, in favour of short-termism, and will do nothing to restore stability to the life insurance market, which faces a period of turmoil."

Please do get in touch if you have any immediate concerns.  We will let you have further detail once this is available.

See HMRC Guidance and CBI Press Release
 

The government had previously announced their intention to extend Statutory Maternity Pay (SMP), Maternity Allowance and Statutory Adoption Pay from the current 39 weeks entitlement to 52 weeks.

They had also announced that to coincide with the increases mentioned above they would introduce Additional Paternity Leave and Pay (APL and APP). They had stated their intention to make all of these changes by the end of this Parliament.

The government has announced that it is still their intention to introduce these changes by the end of this Parliament. However the proposed implementation date of April 2009 has been deferred until at least April 2010.  This means that the rules may be implemented at the earliest for babies due from April 2010.

What is the current entitlement?

The current entitlement to SMP generally gives mothers the right to 90% of their average weekly pay for the first six weeks reducing to £112.75 for the remaining 33 weeks. There is no intention to increase the amount of weeks paid at the earnings related rate. 

What would be the entitlement to APL and APP?

The introduction of APL and APP would give employed fathers a right to take up to an additional 26 weeks off work with pay to care for their child in its first year. The 26 week period would in effect be transferred from the mother’s entitlement to SMP so would be conditional on her returning to work.

SMP and leave is a complex area. If you would like any help in this area please get in touch.

See: HMRC guidance and HMRC guidance on SMP SPP and S

See HMRC notice and CBI statement
 

HMRC have issued a warning to employers about their programme of targeted enforcement of national minimum wage (NMW) procedures. The programme, which is now in its third year, was introduced to work with employers and workers to address issues and concerns around the NMW.

They are proposing to target the hotel sector which employs a large number of migrant workers. The programme is expected to run for 12 months from November 2007. They propose to target the hospitality sector more generally throughout 2008/09.

HMRC have reminded employers that failure to meet obligations under the National Minimum Wage Act constitutes a criminal offence and could result in a heavy fine.

It is a criminal offence to:

• refuse or wilfully neglect to pay the NMW

• fail to keep or preserve records

• cause or allow false entries in records

• produce or furnish false records or information

• delay or obstruct an HMRC compliance officer

• refuse or neglect to answer any questions or produce documents for an HMRC compliance officer.

HMRC are willing to use their powers under the NMW legislation as the following case illustrates.

Landmark NMW case

At the end of August, a children's nursery owner was fined £2,500 and ordered to pay £500 costs in the first NMW criminal prosecution case.

The owner of the day nursery, which was based in Walthamstow, pleaded guilty to a charge of obstruction at the Magistrates' Court. She had apparently prevented compliance officers from seeing employee records. The compliance officers were trying to find out whether nursery workers were being paid the correct amount under the NMW legislation.

Judge Gott commented that the owner had

"demonstrated a clear and deliberate intent to obstruct officers and this was a scandalous breach of the National Minimum Wage legislation."

Andy Millican, the Criminal Investigations team leader said:

"This prosecution sends a clear message to employers that we will actively pursue those we suspect of flouting National Minimum Wage law … We have a duty to ensure workers receive their salary entitlement. If employers obstruct us and refuse to comply with the law they could receive a fine and a criminal record."

National Minimum Wage (NMW) rates rose with effect from 1 October 2007.  The current rates are:

• Adult rate (workers aged 22 and over) £5.52

• Development rate for 18-21 year olds £4.60

• Development rate for 16-17 year olds £3.40

Internet Links: Employers Bulletin and NMW rates
 

OSCR has begun to consider applications for charity reorganisations under the provisions of sections 39 to 43 of the Charities and Trustee Investment (Scotland) Act 2005.

These sections of the Act enable charities that are unable to reorganise or make changes to their constitution to seek approval from OSCR do so.

This process has been keenly awaited in the charity sector as, previously, such charities had to seek the approval of the Lord Advocate or apply to the Court of Session in order to make changes to constitutions, a potentially lengthy and costly process. The Regulations could potentially release millions of pounds for charitable purposes.

Read further details and OSCR's Guidance here

OSCR Consults on Charity Test

14 January 2008

Scotland’s charity regulator has invited comment on its guidance for meeting the charity test.

The consultation will last until 7th April 2008 and will see the Regulator’s current guidance updated in light of its experience over the past two years since taking up its powers under the Charities and Trustee Investment Scotland Act 2005. 

Please click to read more about OSCR's Consultation focus group events, and how you can have your say.

A summary and analysis of responses will be published on OSCR's website by 30th April with final guidance being produced in the summer. 
 

From 15 December 2007, the Money Laundering Regulations 2007 require certain businesses to have systems in place to prevent money laundering and report suspicious transactions. These regulations replace the previous ones which have been in force since 2004.

Not all businesses have to operate the regulations but most UK financial businesses (banks, building societies, money transmitters, bureaux de change, cheque cashers, savings and investment firms) are covered. In addition, the regulations cover legal professionals, accountants, tax advisers, auditors, insolvency practitioners, estate agents, casinos, high value dealers and trust or company service providers.

If you operate in any of these areas you need to ensure that you are complying with the new regulations. If you have dealings with businesses in these sectors, such as ourselves, you may find you have to provide more information, for example confirming your identity. We will let you know if we require any further information.

HMRC have updated their guidance which can be found by visiting the link below.

See: HMRC Money Laundering guidance

Detailed information on Changes to Agricultural and Rural Support has been contributed by The Royal Bank of Scotland

Detailed information on Taxation Matters has been provided by Sinclair Scott, Accountants 3 Wellington Square Ayr KA7 1EN 01292 288999

Newsletter 1 - October 2007
 

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email andrew.smith@howats.co.uk

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