Christmas 2005

In this issue

Happy Christmas

Top tips when forming a limited company

Why make a will?

Pension update

Tenant's repair obligations

10 New Year resolutions for employers

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Happy Christmas

Welcome to our Christmas edition of The Orchard.

With best seasonal wishes from all of us here to all of you and your families.

Peter Watkin

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Top tips when forming a limited company

Yes, it is easy to buy a ready made or "off the shelf" company but we all know that one size does not necessarily fit all. Before you go ahead, there are some serious issues you need to dwell on.

If you have decided (or been advised) that a company is the best vehicle for your new venture, then here are some important matters which your lawyers can help to resolve for you:

• Set up your capital structure in the right way. Who will own the shares and in what proportions? Making changes later on can hurt financially because of the potential adverse tax implications
• Create workable arrangements between artners/directors/ shareholders especially if there are two or more equal stake-holders in the venture
• Create advantageous arrangements between your business and its customers & suppliers
• Ensure that your business will comply with regulatory issues (both for administration and trading)
• Negotiate coherent funding arrange-ments and structures involving many different funding sources (including banks/equity investors/ invoice discounting); Normally, you will not be able to open a corporate bank account until your bank has seen the company's certificate of incorporation. If you need borrowing, consider what security can be offered and who will give guarantees if necessary
• Issue employment contracts and take human resources advice. Today's employment legislation can be a minefield for the unwary. The Department of Trade & Industry's "Tiger" site has some useful information at: www.tiger.gov.uk
• Obtain clear written terms for property ownership or leasing by the business. If the company is to use a stakeholder's property, there are also tax implications
• Will you or your company own any patents/trade marks or other intellectual property needed for the business? You will need to consider transfers, licences and methods of protection
• Decide what to include in the Articles of Association and Memorandum of Incorporation. These constitutional documents say how the company is to be structured and what its operating procedures will be
• Consider your corporate image. If you use a trade name, do a search to make sure the company name AND trade name can be used without problems. Companies House produce a free guidance booklet on company names which is available at www.companieshouse.gov.uk/about/guidance.shtml
• Cars can be a major source of angst in small businesses. Take advice on whether cars should be owned by the company or kept out, how they are financed, insured and how you are going to meet travelling expenses
• Your stationery must show your registered number and other details. Adding your VAT number is advisable (particularly if stationery will be used for invoices) so you will need to sort out these details before you can get your stationery printed. There is helpful information in the guidance issued by Companies House at www.companieshouse.gov.uk/about/guidance.shtml
• If your turnover is over the VAT limit you must register for VAT. You must also tell HM Revenue and Customs (HMRC) that the company is trading. Even if you do not need an audit, you will probably have to appoint accountants to make sure your accounts comply with the Companies Act
• By law employers must have employers' liability insurance. However, since 28 February 2005 very small companies that employ only their majority share-holder are exempt from the requirement to carry employers' liability compulsory insurance. This has brought them into line with sole traders who do not employ anyone else
• Contact your local HMRC office for the employer's PAYE pack. The HMRC website has helpful leaflets at www.hmrc.gov.uk/startingup/index.htm

A shorter version of this article appeared in the Business Section of Bristol Evening Post on Thursday 24 November.

For further information on this please contact Laurence James at or on 0117 926 4121

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Why make a will?

74% of the UK population does not have a current will that reflects their personal and financial circumstances at the time of their death. So, what are the principal benefits of making a will?

A: To leave your assets to those you want to benefit.

Many people assume that if they die intestate, their spouse will receive their entire estate. This is not the case. In the absence of a valid will, the estate will be distributed in accordance with the intestacy rules.

• Under the intestacy rules, if a person dies:
  1. leaving a spouse and children, the spouse will receive:
     
     • all the personal chattels (such as household items and jewellery)
     • a lump sum of £125,000, and
     • a life interest (a right to the income but not the capital) in half of the residuary estate.
  2. leaving a spouse but no children, then the spouse will receive:
     
     • all of the personal chattels
     • a lump sum of £200,000 and
     • half of the residuary estate absolutely. The remaining half of the residuary estate will be given to close relatives such as parents, siblings, aunts and uncles etc

Many people have seen the size of their estates increase as a result of the significant rise in property prices in recent years. As a consequence, if the intestacy rules are applied, the surviving spouse could be left financially vulnerable. It is estimated that every year 9,000 widows and widowers are left in a position where they do not receive all of their spouse's estate, forcing many to sell their homes.

The intestacy rules are designed to meet different types of circumstances. They will not meet everyone's wishes. The rules not only fail to reflect the increase in the value of estates but also fail to recognise that in today's society many people cohabit with a partner. Unmarried partners (unless one of a same-sex couple which has formed a civil partnership) have no right to benefit under the intestacy rules.

B: To make potential inheritance tax savings

A common tax planning mechanism for married couples whose individual estates exceed the tax free amount that can be left on death (known as the 'nil rate band' or 'NRB') is a nil rate band discretionary Will Trust.

The purpose of such trusts is to leave assets to the value of the NRB (currently £275,000) to beneficiaries other than the spouse in order to minimise the inheritance tax (IHT) payable on the death of the surviving spouse. Anything left to the spouse is tax free but on the death of the survivor anything over their NRB is taxable at 40% if left to a non-exempt beneficiary such as a child.

In addition, making a will allows you to:

• leave directions as to your funeral wishes (although this is not binding)
• make guardianship appointments if you have minor children (not binding)
• appoint whoever you wish as your executors

In the light of the above, it is therefore crucial that people make a will to ensure that when they die their wishes are carried out and any moral obligations they consider necessary can be fulfilled.

For further information on this please contact Samantha Piper at or on (0117) 926 4121

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Pension update

Are you aware of the changes to personal pensions from 6 April 2006? The various existing regimes, including retirement Annuity Plans, will be swept away and replaced by a new single pension regime. The rules relating to contributions will change, and a new tax will apply to those with funds over the new 'lifetime limit'. If you need to take action regarding your own pension, you should start to plan now, leaving it too late could prove to be an expensive mistake!

A-Day

Are you close to retirement with a pension fund value of £1.5 million?

The proposals do not only affect those with fund values of £1.5m. You may be affected by the new rules and regulations effective from April 2006.

If your pension is likely to exceed £75,000 per annum from one or more Final Salary Schemes you will almost certainly be affected.

Self invested

The rules and regulations on Self Investment plans will change in April 2006 to include for the first time wider investment powers including residential property. You should also review min/max borrowings pre and post 'A day'.

Tax free cash

If you are in a director's scheme or occup-ational scheme the maximum tax free cash that you can amass is currently up to 1.5 x your salary. Post 'A day' this will reduce to 25% of your fund. If you are affected we can provide you with solutions.

Retirement options

Will the new pension scheme rules allow you to pass on your pension fund to your children

Do you need to draw pension in the near future. Are you aware of the range of options available to you?

Did you know that under Alternately Secured Income (ASI) there is no longer a requirement for you to draw a pension at 75?

Stakeholder

Consider setting up or contributing to a stakeholder pension for a non-earning spouse and/or children (or grandchildren). Remember that broadly if you are a higher rate taxpayer, every £100 that goes into your pension costs you just £60.

Why you should review your pension plans

Pension planning is generally the greatest long term financial commitment most people make in their life. An investor starting a pension at 20 and retiring at 60 is committed for 40 years and could potentially remain invested for another 15 years in income drawdown. Think about how life has changed over the last 40 years - man had not landed on the moon, there were no computers, microwaves or satellite television and, perhaps of more relevance, no private pensions! Pension planning needs to take account of such changes, not least those following the radical reforms which will take affect in April 2006. Pensions should be reviewed regularly to ensure that advice given in the past is still relevant today.

For further information on this please contact Laurence James at or on 0117 926 4121

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Tenant's repair obligations

Dilapidations and building works claims are notorious for being highly complex and detailed. Judgments make heavy reading as they seek to address and balance the long and intricate examinations of witnesses and experts for each party. The crux of the matter is determining whether or not the works required to be done or paid for by the tenant are within the scope of the repair/ reinstatement obligations in the lease.

The following are broad guidelines designed to provide appropriate guidance:

An obligation requiring the tenant to repair 'well and substantially' does not oblige the tenant to put the premises in a perfect or pristine condition.

The standard of repair required to satisfy a repairing obligation is that which would be expected by an intending occupier acting reasonably if it were to accept a lease on the same terms as the actual lease. Unless provided for specifically, the judge will reject a landlord's repair claim if his standards are too high.

Any dispute between repair and rein-statement would generally be resolved in favour of repair unless repair would not be reasonably or sensibly possible. For instance, in Dame Margaret Hungerford Charity Trustees v Beazely [1993] the court accepted that, given the age and character of the building, running repairs to the roof made throughout the course of the tenancy would satisfy the repair/reinstatement obligation even though it was generally considered that a new roof would be necessary.

The tenant may choose which way to fulfil an obligation if two or more options are available. In practice, the tenant will opt for the least expensive method; this is not of itself to be criticised.

As with other contentious areas of law, the outcome of dilapidations cases are influenced by the credibility of the witnesses and experts for each side. Credibility may be bolstered by reasonable attitudes and an element of moderation in the evidence.

Prevention is inevitably better than cure and a landlord should seek to protect his position by a carefully worded lease to try and impose 'renew' 'replace' and 'rebuild' clauses. The tenant should seek specialist advice on how to limit such clauses.

For further information on this please contact Edward Langford on or on (0117) 926 4121

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10 New Year resolutions for employers

In 2004/05 86,181 employees made applications to the Employment Tribunal. Here are ten tips for employers to avoid the hassle.

1. Advertisements
   
   • Ensure job adverts are drafted to avoid discrimination claims
   • Do not use descriptions such as aged between, energetic, height, single (unless the requirement can be justified as a genuine occupational qualification)
   • For internal jobs listings ensure all employees have access

2. Interviews
   
   • Ask job related and competency based questions
   • Do not ask discrimination sensitive questions without justification. If you do have to do so inform the applicant why the information is needed and provide an assurance of confidentiality

3. Offer letters
   
   • Issue a letter of offer subject to references, drivers licence, evidence of the right to work in the UK etc
   • Do the follow up work necessary to check you have the documents and the information you require

4. Contracts of employment
   
   • Issue contracts to
     
     • provide security
     • define benefits, standards of conduct (relevant to dismissals) and grounds for termination
     • reserve rights in respect of working time, wage deductions and to protect the legitimate interests of the business
   • Issue written particulars of employment or a contract within 2 months of the start date. Failure to do so may attract a complaint and award of 2-4 weeks pay
   • Ensure that the statutory Grievance Procedure (GP) and Dismissal and Disciplinary Procedures (DPP) have contractual status

5. Staff handbooks
   
   • Issue a staff handbook. Clear pro-cedures can have contractual status
   • Consider which policies are most relevant to your business and necessary to protect yourself against unlawful or automatically unfair dismissals
   • Decide whether you need certain zero tolerance policies (e.g. on use of alcohol)

6. Email internet policy
   
   • Ensure that the staff handbook contains an email and internet policy in force and, where relevant, cross reference to the disciplinary process. This helps to avoid inadvertent liability e.g. defamation, downloading of pornography, copyright and data protection violation
   • Inform employees that their activities may be monitored, the reason why the data may be collected and who has access to it
   • Use appropriate disclaimers on email

7. Sickness procedure
   
   • Ensure the handbook provides procedures for notifying sickness
   • Have a written attendance policy and define the procedure for reporting absences, link this to the disciplinary process
   • Include a right to request consent for medical records and tie in with Data Protection policies

8. Data protection - record keeping
   
   • Familiarise yourself with the Data Protection Act 1998 when processing employee data. Breaches of the Act can result in criminal and civil proceedings. Sickness records must comply with the 'sensitive' personal data conditions
   • Keep sickness records separate
   • Restrict disclosures to situations where the employee provides express written consent or there is a legal obligation to do so
   • Maintain confidentiality and limit managers access to sickness records to a strict need to know basis
   • Secure physical and electronic storage of sensitive personnel data e.g. through security codes and passwords

9. Dismissals
   
   • Follow the three step process (statement of grounds for the investigation, disciplinary hearing and appeal)
   • Investigate the issues thoroughly and determine whether the issues are conduct or performance related and monitor improvements
   • Keep written records of the investigation, hearings, decisions and reasons

10. Compromise Agreements
    
    • If under threat or danger of a complaint being issued consider offering a compromise agreement
    • Ensure that the drafting of the agreement is relevant to the particular circumstances
    • Identify the claims and rights which the employee is waiving and provide for the agreement to cover all other possible current or future claims
    • Do not simply rely on catch all provisions

And above all ... take legal advice

For further information on this please contact Nicola Hughes at or on (0117) 926 4121

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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.