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Christmas 2003
In this issue Office Parties - Employers Beware The office party season is here - to be enjoyed by employer and employee alike. Employers should be aware however that if the behaviour of their employees gets out of hand that there could be problems ahead. Generally what employees get up to outside of work is their own business and nothing to do with their employer. If though this misconduct can be linked to the business interests of the employer then employment legislation can apply. Most post Christmas claims to the Tribunal revolve around misconduct following excessive drinking. Employers are liable to claims for sex, race and disability discrimination over all events ‘in the course of employment’. This legislation can apply to work-related functions as the employer has control over the circumstances in which the behaviour occurs; even if it happens away from the office and out of work hours. In Chief Constable of the Lincolnshire Police v Stubbs [1999] Ms Stubbs was subjected to sexual harassment by a police colleague in a pub where her employer had organised a leaving party for another employee. The Tribunal held that this was harassment which occurred ‘in the course of employment’. The employer was liable. It is up to employers to take reasonable steps to make sure that the behaviour of its employees is controlled and that procedures have been implemented to avoid such situations. This may include
If complaints are made by members of staff about amorous advances or inappropriate jokes from other employees, the employer is under a duty to investigate the complaints and deal with them effectively. The employer can, of course, take into consideration the fact that the alleged misconduct happened in an environment which is completely separate from the office but they should not assume that both parties are at fault. An example from the US clearly demonstrates the problem as a partner in a US law firm who gave an employee an inappropriately shaped chocolate gift provoked a claim for sexual harassment and an award of $7.2m. In addition to employees behaving badly, employees who injure themselves or others as a result of drinking too much free alcohol may also claim against the employer. So the employer has a legal responsibility to ensure that employees get home safely from the party - which could mean providing transport or, alternatively, banning alcohol. All of the above may suggest that it is safer to be a Scrooge and not have a Christmas party at all - Bah Humbug! New Discrimination Legislation New Regulations come into force this month to protect people from discrimination on the grounds of religion/belief or sexual orientation. ACAS has published two new guides on ‘Sexual Orientation and the Workplace’ and ‘Religion or Belief and the Workplace’. Both booklets provide a thorough summary of the regulations including worked case examples and give guidance on associated good employment practice. The guides can be found at:
www.acas.co.uk/publications/pdf/guide Increase in Minimum Wage The National Minimum Wage has increased to £4.50 for those aged 22 and above and £3.80 for those aged 18-21. Dress Up The ‘dress down’ culture may be on its way out. Research shows that employers are increasingly finding that employees who are allowed to dress down are not as productive as when they were required to wear formal clothing. In addition to this there appears to be more bad language and less respect for the employer. Age and Unfair Dismissal The Employment Appeal Tribunal has rejected the suggestion that males over 65 should be able to claim unfair dismissal. Mr Rutherford and Mr Bentley were both dismissed following their 65th birthday. Both were precluded from making unfair dismissal claims because of the legislation contained in the Employment Rights Act 1996. However, they argued that because there were larger numbers of males in employment looking for work or who would like to work over this age than females in the same position, the Act should not apply because it was indirectly discriminatory. The Employment Tribunal agreed with them and it was thought that this might pave the way for a raft of claims from senior employees. The case went to the EAT and many claims were stayed until the outcome of the appeal was known. The EAT decided that the Tribunal had considered the wrong pool when establishing whether or not there was a disparate effect on male employees. The EAT considered the whole male/female workforce and not just those over 65 and concluded there was no indirect discrimination. Subject to further appeal or changes in the law with the introduction of the age related legislation due to be implemented by 2006, the Tribunal will not therefore be able to hear claims by employees over the age of 65. A new deal for unsecured creditors in insolvency? Two of the main changes brought about by the Enterprise Act 2002 ("the Act") are:
The ring fenced fund is calculated by reference to the net assets of the company after payment of:
Previously, any remaining realisations would next have been applied to any floating chargeholders. Under the Act, a proportion of these funds (referred to in the legislation as ‘the prescribed part’) is generally to be retained to pay unsecured creditors. The level of that retained fund is 50% of the first £10,000 of net assets available and then 20% of the balance of any further realisations up to a maximum total fund value of £600,000. One important exception is that the setting aside of the prescribed part does not apply to the holder of a floating charge created prior to 15 September 2003. Holders of floating charges pre-dating 15 September 2003 are entitled to be paid in full and without deduction on account of the prescribed part. This has created an additional windfall situation for banks and other lenders holding old style debentures. Not only will they benefit directly from the abolition of Crown preferential status but they will also not be required to ring fence any realisations for the benefit of the unsecured creditors. The benefit to floating charge holders can be demonstrated fairly easily. Assume net realisations of £30,000 are available after fixed charge holders, costs and preferential creditors have been paid in full. Also assume that Crown debts (which would have been preferential but for the operation of the Act) are also £30,000. Prior to 15 September 2003 the holder of a pre-15 September 2003 floating charge would be entitled to nothing as the Crown debt would have extinguished any remaining realisations. Post September 2003, the holder of "old" floating charge security will now be entitled to payment of the whole £30,000 in settlement of any monies due to it. Even the holder of "new" floating charge security would be substantially better off as it will be entitled to £21,000 (with £9,000 ring fenced for the benefit of the unsecureds). There is also no detail in the Act or any subordinate legislation as to how the claims of competing floating charges (particularly if there is a mixture of pre and post 15 September 2003 floating charges) will affect the calculation of the prescribed part and this may well be a contentious area in the future. For further information on this or any other insolvency issues arising out of the Enterprise Act, please contact Jon Law on 926 4121 or e-mail him at jl@meadeking.co.uk. Jon is a member of the firm’s insolvency team, recommended in both Chambers and Legal 500 for its strengths in the South West Liquor licence holders are well aware that they are vulnerable to prosecution for illegal sales regardless of whether they personally handle the sale. Historically the only other person who could be prosecuted in respect of a sale to a juvenile was the landlord’s "servant" i.e. the sales assistant or bar person actually involved in the sale. The amendment to the Licensing Act 1964 which changed this situation was prompted by a tragic incident involving a family in the constituency of Paul Truswell MP. In subsequent parliamentary debate Mr Truswell recounted how 14 year old David Knowles had been making his way home from school with friends in March 1997. David bought some alco pops and lager from Threshers. He was served by an assistant. The boys continued home drinking as they went. Under the influence David ran down the embankment overlooking the Stanningley bypass, a busy dual carriage-way with a 70 mph speed limit. He was struck by a car and died shortly afterwards. David’s parents were amazed to find that the assistant who had sold him the alcohol could not be prosecuted, due to a previous decision in the case of DPP v Russell. In Russell, it had been determined that in the case of a large multiple retailer the cashiers are not the "servants" of the licensee, but like him are simply employees of the proprietor company. There was no significant opposition to Mr Truswell’s attempt to correct the legislative loophole which Russell had created. Reference to the licensee and his servant disappeared in favour of a comprehensive wording by which "any person" may be prosecuted for "supplying" alcohol to a minor. The interesting question which is currently before the courts is whether the amendment to the law, which was clearly intended to catch the point of sale assistant, also leaves the non licensed proprietor of the business open to prosecution, since obviously it is the owner of the business who "supplies" and profits from the sale of alcohol to the individual customer. The point has recently been tested by Haringey London Borough Council, which prosecuted Marks & Spencer for supplying alcohol to a minor. In Magistrates Court proceedings M & S successfully argued that the Act relates only to the licensee and any other person who may be physically directly involved in allowing the sale. Haringey has reported disappointment at the outcome, and indicated that it is considering an appeal to the High Court. With virtually all on and off-licence sales conducted through businesses where the proprietor will not be the individual licensee, this point is an interesting and significant one for the food and drink trade. If it is established that proprietors as well as licensees may be prosecuted, it is likely that when deciding whom to prosecute Trading Standards and Police enforcers will be closely scrutinising proprietors for the adequacy of their due diligence systems. For further information please contact Judith Kelly at jhk@meadeking.co.uk Judith is lead partner in the firm’s regulatory team, specialising in food law, licensing and environmental issues. Victoria Cook
Chambers and Legal 500 recommendations published
If you have any queries on the Auld Report or the White Paper please contact Darren Burleigh on telephone number 0117 9264121 or by e-mail on djb@meadeking.co.uk. What is a trust? A trust is created by an individual (the settlor) transferring assets to a trust company or individuals (the trustees) to hold upon trust for the benefit of an individual or class of individuals (the beneficiaries). The terms are set out in a trust deed, which will typically either give the trustees discretion over which beneficiaries or class of beneficiaries should benefit or provide that a certain beneficiary will have a specific entitlement. Trusts are often used as a tax planning vehicle. They are a tried and tested method of removing assets from an individual’s estate to reduce the Inheritance Tax burden for their heirs on death. As long as the settlor (or his wife) is not also a beneficiary of the trust, the assets will not form part of his estate on death. Trusts can be an effective method of passing assets down through the generations while minimising the charge to tax but UK trusts are still liable to income tax and capital gains tax charges. Offshore trusts However, for some individuals, there is a possibility of creating an offshore trust instead, which has very favourable tax status in the UK. Whether an offshore trust is suitable depends on whether the settlor is resident and/or domiciled in the UK. Offshore trusts are not effective for an individual who is both UK resident and UK domiciled; they are effective for those who are non UK domiciled and/or non UK resident. Residence in the UK, for tax purposes, is based on time spent in the UK. If an individual is present in the UK for
Domicile is a much more complicated issue. The general rule is that an individual acquires a domicile of origin from his/her father. Therefore, an individual with a father domiciled in the UK, will also have a UK domicile, even if the individual is born abroad. As an adult, an individual has the legal capacity to acquire a new domicile (a domicile of choice) by leaving his or her current country of domicile and settling in another country, with the intention of living in the new country permanently. Non domiciled individuals The best opportunities for effective tax planning using offshore trusts are if an individual is non UK domiciled and non UK resident, but might at a future time become UK domiciled (or be deemed to be UK domiciled, which will be the case if he lives in the UK for more than 17 years out of 20). The general rule is that a person who dies domiciled in the UK will be subject to Inheritance Tax at a rate of 40% on his assets worldwide. The first £255,000 of his estate can pass to his heirs free of tax, but everything else will be taxed at 40%. However, if a non UK domiciled individual transfers all his worldwide assets (other than those in the UK which can still be liable to Inheritance Tax even if they are held in an offshore trust structure) to an offshore trust (with an offshore trustee, usually a professional trust company based in Jersey or Guernsey), these assets will not be subject to Inheritance Tax, even if the individual is also a beneficiary of the trust and even if he later becomes domiciled or deemed domiciled in the UK. The trust will also not be subject to income tax or capital gains tax. An offshore trust is therefore an ideal way for a non UK domiciled individual who comes to live in the UK to avoid inheritance tax on his assets, while still being able to receive benefits from the trust tax free. Non UK resident (but UK domiciled) If an individual is UK domiciled but not UK resident, there are still opportunities to use offshore trusts, although these opportunities are more limited. If an individual owns assets that stand to a large capital gain, and the individual is non UK resident, it is possible to transfer these assets to an offshore trust which has the effect of re-basing their value from the original purchase price to the current value, without triggering a charge to capital gains tax. If they are later sold, the capital gain will be far smaller due to the re-basing, and, if the gains are then remitted to a UK resident and thereby become liable for capital gains tax, the liability to tax will be less due to the re-basing. This is just a brief overview of some of the possibilities of offshore trusts for clients who are not UK resident and domiciled. For further information please contact Victoria Cook at vkc@meadeking.co.uk. A new tax, Stamp Duty Land Tax (‘SDLT’) is payable on property transactions completed on or after 1 December. The old stamp duty will be abolished, except for dealings in shares. SDLT is a tax on transactions, not on documents. Unlike stamp duty, which was often, rightly, regarded as a voluntary tax, SDLT is enforceable in its own right. It is more akin to Income Tax self-assessment. The rates of duty for purchases will not change, but a distinction is being made between residential and commercial property. No tax will be payable if the consideration for the purchase of commercial property is £150k or less. The nil band for residential property remains at £60k. There is a big change in the taxation of leases. Instead of a charge of a percentage of one year’s rent (e.g. 1% for a term of 7 years or less and 2% for a term of between 7 and 35 years) the tax will be 1% of the net present value (‘NPV’). That is a discounted aggregate of the rent payable over the term of the lease. The nil band applies as with purchases but, for commercial properties only the amount in excess of £150k is taxed. For residential properties the whole of the NPV is taxed once the nil band is exceeded. The result will be a huge increase in tax on long leases at high rents. For most purchasers or tenants, the biggest immediate effect will be the requirement to complete a Land Transaction Return. Under stamp duty a Particulars Delivered Form, consisting of one side of A4 was almost invariably completed by the solicitor acting for the purchaser or tenant. The new Return is 7 pages long and requires reference to codes and other matters in 37 pages of Guidance Notes for its completion. The person(s) acquiring the beneficial interest in the property is responsible for completion of the Return and must sign it personally unless a power of attorney has been given to someone else for this purpose. It has been estimated it will take between two and three hours to collect the necessary information and complete the Return. This is a major change in the taxation of property transactions and will have to be regarded seriously by anyone having dealings with them. There are serious penalties for negligence in the completion of Returns, although it is hoped the Inland Revenue will take a lenient view in the early months, as some of the details of the legislation and the requirements are being changed right up to and beyond the start date. For a copy of our briefing note on SDLT please contact Peter Watkin at pjw@meadeking.co.uk. Peter is lead partner in the firm’s commercial property team - recommended again this year in Legal 500 Whilst every effort has been made to ensure accuracy, information contained in the Orchard may not be comprehensive and should not be acted upon without professional advice. |
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We are delighted to welcome Victoria Cook to
the firm. Victoria joined us in October from Burges Salmon and provides new
depth and experience to our busy private client team. Victoria specialises in
tax planning for high net worth individuals, creation and administrations of
trusts, wills and probate and elderly client issues. She will be a regular
contributor to The Orchard and starts off in this edition with an article on
the use of offshore trusts. If you have any queries arising out of this article
or indeed any other private client concerns, please do not hesitate to contact
Victoria or Richard Boulding in the team
Once again, the firm’s
insolvency and private client teams have been recommended by Chambers and Legal
500 as leading teams in the South West. Our commercial property team is also
recommended by Legal 500 whilst Adam Chivers is singled out for praise by
Chambers for his "sensible and well-focused" approach to litigation |
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