MITCHELL WILDE LLP

Newsletter October 2007

National Minimum Wage – First Criminal Prosecution

Business owners who flout the National Minimum Wage legislation and attempt to cover it up may face more than a fine.

The owner of a children's nursery has been fined £2,500 plus £500 costs in the first criminal prosecution for breach of the National Minimum Wage legislation.

Mrs Teresa Aguda, the proprietor of Rascals Day Nursery Ltd. in Walthamstow, pleaded guilty to the charge of obstruction, which is an offence under the National Minimum Wage Act. Mrs Aguda prevented HM Revenue and Customs (HMRC) compliance officers from accessing her staff records when they were attempting to establish whether nursery workers received the National Minimum Wage.

The case was brought by the Revenue and Customs Prosecution Office (RCPO).

The judge commented that Mrs Aguda had “demonstrated a clear and deliberate intent to obstruct officers and this was a scandalous breach of the National Minimum Wage legislation.”

Andy Millican, Criminal Investigation Team Leader for HMRC said, “This prosecution sends a clear message to employers that HMRC and RCPO will actively pursue those we suspect of flouting National Minimum Wage law. If employers obstruct us and refuse to comply with the law they could receive a fine and a criminal record.”

The six potential criminal offences under section 31 of the National Minimum Wage Act are:

• refusing or wilfully neglecting to pay the National Minimum Wage;
• failing to keep or preserve records;
• knowingly causing or allowing a false entry in records;
• producing or furnishing false records or information;
• delaying or obstructing a compliance officer; and
• refusing or neglecting to answer any questions or to produce documents for a compliance officer.

Each criminal offence carries a maximum £5,000 fine and a criminal record.

The National Minimum Wage for workers aged 22 increased to £5.52 per hour on 1 October 2007. The development rate for 18- to 21-year-olds is now £4.60 an hour and the rate for 16- to 17-year-olds is now £3.40.

Property

Business Adds Value to Land Before Commencement

There is often a difference between the market value of land and the value placed on that land by its owner. The market value of land is the value that would be paid by a willing buyer to a willing seller. This is not necessarily the value which would be placed on land by the owner when, for example, it is subject to a compulsory purchase order.

When the market value and the value to the owner differ because of the value attaching to the land on account of its current use, this is termed ‘special value’. The normal circumstance in which special value is claimed is when there is a business on the land which has a significant relationship with it – typically where the owner has made an investment in the land on which the business is carried out.

Recently, the court addressed the question of whether compensation should be payable for the special value of land to be used for a business, if the business was to be carried on with a view to profit but had not yet commenced to trade on the land. In the case in point, the owner of the land had made infrastructure investments in it and had commenced work in connection with the proposed business, but the business itself had not commenced trading.

In the view of the court, once the investment in the land in pursuit of the business had been made, the fact that the business had not yet started to use the land did not prevent it from having a value over and above the normal market value.

Tell Your Tenants or Pay the Price

From 1 October, residential tenants can lawfully withhold payment of service charges unless the landlord supplies them with a summary of their rights and obligations when the demand for the charges is issued.

The rules only apply to holders of long leases. For more information on the disclosures required, see the Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations 2007. These are so detailed they even specify the size of font which must be used when printing the information.

For advice on any commercial property matter, please contact Louise Madeley ( lm@mitchellwilde.com ).

Tax

Revenue and Customs Reveal Get Tough Policy

HM Revenue and Customs (HMRC) have recently published a new ‘Litigation and Settlements Strategy’ (LSS), setting out plans for dealing with tax disputes in the future.

The core principles of the LSS are that HMRC will:

· seek, whenever possible, a non-confrontational solution to the dispute;

· focus on the issues that best serve their policy of ‘tax gap reduction’ (the difference between the tax due and tax paid);

· choose cases for their wider impact as well as for their own value (i.e. will seek to find, and presumably publicise, ‘example’ cases);

· seek the maximum sum where their case is strong and will litigate where appropriate; and

· not pursue weak arguments.

In addition, it is stressed that the different branches of HMRC will work as teams, meaning VAT and tax officers will look at the same cases.

In practice this means that whilst there may be less time wasted dealing with trivial points, where HMRC think they have a good case, taxpayers can expect them to take a hard stance on disputed points.

The best way to make sure you avoid the stress and considerable loss of valuable time that an HMRC enquiry inevitably involves is to make sure your tax affairs are in good order. If you are advised that you are subject to an HMRC enquiry, take professional advice straight away.

HMRC Increase Travel Tax – With No Change in Law

HM Revenue and Customs (HMRC) have acted to increase the tax take from business travel in two areas, simply by changing their interpretation of the law.

The first change is one which will affect businesses which use ‘double cab’ pick-up trucks, which is fairly common in the construction industry. HMRC have traditionally regarded these as vans, which carry a much lower rate of benefit in kind than cars. It is reported that they are now regarding these vehicles as cars, the benefit in kind on which can be six times that payable on vans. For owners of such vehicles, tax increases of over £1,000 could be the result.

Another change is the way HMRC now regard taxi fares paid by employers for their employees. Where the fare is from a permanent workplace to someone’s home, HMRC will regard the journey in all cases as a private journey giving rise to an assessable benefit in kind. Accordingly, income tax and national insurance contributions will be due on the value of the benefit.

“HMRC are increasingly seeking to maximise their tax take and businesses seem to be bearing the brunt of the process,” says David Wilde. If you need advice on tax compliance or planning, contact us. ( dw@mitchellwilde.com )

Intellectual Property

Trade Mark Registration Procedures Change

1 October saw changes to the way in which the UK Intellectual Property Office (UKIPO – formerly the Patent Office) deals with the registration of trade marks.

The most important aspect of the change is that UKIPO will no longer prevent the registration of a trade mark which is similar to an earlier conflicting trade mark unless the owner of the existing trade mark opposes the application.

When an application is made, if the examiner finds a pre-existing trade mark which appears to conflict with that being applied for, he will give the applicant the choice of continuing the application or withdrawing it. If the applicant continues, UKIPO will write to the registered owner of the existing trade mark to see if they wish to oppose the application. UKIPO will not write to owners of Community Trade Marks (CTMs), so if you have copyrights protected by CTMs, you will need to ‘opt in’ to be informed, otherwise the risk is that a UK trade mark might be registered which conflicts with your CTM.

Once a trade mark application has been published in the Trade Marks Journal, you have three months in which to raise your objection.

For further information on monitoring a trade mark application or registration, see http://www.ipo.gov.uk/tm.htm.

Faster International Patents on the Way?

The UK Intellectual Property Office (UKIPO) has announced a collaboration with its US counterpart, the United States Patent and Trademark Office (USPTO), designed to speed up patent applications. Under a 12-month pilot scheme, announced on 4 September, patent applicants who have received an examination report by either UKIPO or USPTO will be able to request accelerated examination of a corresponding patent application filed in the other country.

If successful, the scheme – colourfully known as the ‘patent prosecution highway’ –

will be continued. For more details, see http://www.ipo.gov.uk/patent/p-applying/p-after/p-after-pph.htm.

Contact David Wilde for advice on any aspect of Intellectual Property law.  ( dw@mitchellwilde.com )

Company Law

Company Bonus Rules – Directors Take Note

A little-reported change in accounting rules has altered the way HM Revenue and Customs look at bonuses given to company directors and will affect many smaller companies.

Traditionally, it was normal to decide on the bonus level to accrue in the company’s accounts based on the draft year end accounts. These are normally only available some weeks after the end of the financial year. Once the level of profit was known, the bonus would be decided and the appropriate accrual put in the accounts, allowing corporation tax relief to be obtained on the bonus payment in that tax year, provided the bonus was paid within nine months of the year end.

Under current accounting rules, a bonus can only now be accrued if the company has the legal obligation to pay it at the year end. The precise sum need not be known, but the bonus must be declared prior to the year end to be claimable against that year’s profits.

The PAYE on a bonus to a director is payable on the earliest of the following:

· the payment of the bonus;

· the director becoming legally entitled to the receipt of the sum;

· when the payment is credited to the director in the company’s books of account; or

· when the amount of the bonus is fixed.

This means that the voting of a bonus of (say) ten per cent of the profit before tax would not result in a PAYE liability until that figure were known. The rule requiring the payment to be made within nine months of the year end in order to be deductible for corporation tax purposes in that year still applies.

Clock Ticking on Trustee Opt-Out

Those with occupational pension schemes which do not have member-nominated trustees are reminded that the clock is ticking! The opt-out from the requirement ends on 31 October 2007.

For more information on company law and commercial law matters, contact David Wilde.  ( dw@mitchellwilde.com )

Contract

When is a Contract Over?

A contract is normally considered to be over when one of two things happens – when it is finished or when one side or the other ‘repudiates’ (cancels) it. However, a contract can also be brought to an end by the intended or inadvertent actions of one of the parties to it, as a recent construction case shows.

It involved the common circumstance of a building contract which was not being completed to the satisfaction of the house owner involved. The builder was contracted to build an extension to a house. The woman who owned the house had paid stage payments to the builder but was very unhappy with the work done. By the time the extension had reached the point at which the roof was about to be put on, she called a halt. She wrote to the builder, through her solicitor, banning him from re-entering the property, claiming damages for the cost of remedial works, which she demanded were to be done on her terms, and seeking a return of the interim payments. The letter alleged that the builder was in breach of contract and that he had failed to design and construct the extension with reasonable care and skill and in a proper and workmanlike manner. It also denied that interim payments had ever been agreed. In effect, it proposed that the builder should return only on her terms and do the work according to her new instructions and without the benefit of stage payments.

The builder successfully defended the claim, arguing that such defects as there were in his work could be rectified without difficulty. Furthermore, he sought damages on the basis that the woman had unjustifiably repudiated the contract. The court agreed with the builder that she had breached the contract and that he was entitled to damages.

This case shows that an overly aggressive approach can have negative repercussions.

Insolvency

Protect and Survive

A recent case, in which a trustee in bankruptcy obtained an order for the sale of a house in which the bankrupt had a share, has lessons for all business owners. In the case in point, on divorce the bankrupt’s ex-spouse had been allowed to remain in the house and she owned two thirds of it. Her ex-husband’s entitlement was agreed as one third of the value of the house, which he could only have when it was sold.

The ex-husband was subsequently made bankrupt and several years later his trustee in bankruptcy sought an order for the sale of the house. The ex-wife argued that the trustee took over the rights that her ex-husband had been granted under the consent order – i.e. the right to a third of the eventual sale proceeds of the house. The Court of Appeal ruled that the trustee in bankruptcy could apply for an order to sell. The woman’s right to resist a sale was qualified by the right of the other person interested in the property – in this case the trustee – who had acceded to her ex-husband’s rights.

What is important for businesspeople is that it is normally possible for assets –

including business assets – to be protected against subsequent financial misfortune if the correct structures are put in place beforehand.

David Wilde can advise you on all matters relating to the protection of business and private assets.  ( dw@mitchellwilde.com )

Licensing

Pre-Christmas Purge on Underage Drinking

This is the time of year when drinkers in any University town are well used to lengthy queues at the bar while the latest crop of freshers is ID’d by the bar staff. Licensees are reminded, however, that implementing a scrupulous policy with regard to underage drinking is essential at all times. The Home Office is widely rumoured to have provided significant funding for the police to mount and maintain a blitz on underage drinking from the beginning of November until the end of the holiday season.

Also, from 1 October it is illegal for people under 18 to buy cigarettes or tobacco products. With the severe sanctions available to police and local authorities, operators of licensed premises should make sure that their staff know and apply the laws relating to the service of alcohol and the sale of cigarettes to minors.

IT and Data Protection

New Guidance on What is Personal Data

The Information Commissioner’s Office has published guidance on what is ‘personal data’ for the purposes of the Data Protection Act 1998. Only data which falls within this definition is subject to the rules imposed by the Act.

The guidance is designed to help data practitioners to decide whether data falls within the definition of personal data where this is not immediately obvious. It uses examples to illustrate circumstances in which data relates to an identifiable living individual.

The guidance can be found at http://www.ico.gov.uk/about_us/news_and_views/current_topics/what_is_personal_data.aspx.

Employment Law

Increase in Statutory Holiday Entitlement

Employers are reminded that the Working Time (Amendment) Regulations 2007 increase the statutory minimum annual holiday entitlement from 4 weeks (20 days for those working a 5 day week) to 4.8 weeks (24 days) from 1 October 2007.

As this is a change in terms of employment to the benefit of employees, employers do not need to reissue contracts of employment. However, staff must be informed in writing of the increased holiday entitlement, either by letter or a statement on their pay slips.

Employees do not have to work for a qualifying period in order to be entitled to the extra days. Paid time off does not have to be given for bank and public holidays but, if it is, employers can include this in the holiday entitlement.A list of the expected bank and public holidays for the years 2007 to 2010 can be found on the website of the Department for Business, Enterprise and Regulatory Reform at

http://www.berr.gov.uk/employment/bank-public-holidays/index.html.

Part-time workers must receive annual leave equal to 4.8 times their usual working week, regardless of what days of the week they normally work.

From 1 April 2009, all workers, including those working part-time, will be entitled to 5.6 times their usual working week – capped at a maximum of 28 days.

Further information on the operation of the Regulations can be found at http://www.berr.gov.uk/employment/holidays/faq/index.html.

Interestingly, even with a minimum statutory annual leave entitlement of 28 days, the Incomes Data Services Pay Report reveals that the UK will still be near the bottom of the EU league for paid holiday entitlement.

Return to Work After Maternity Leave – What is the Same Job?

Under the Maternity and Parental Leave (etc.) Regulations 1999 an employee who takes additional maternity leave is entitled to return to the ‘job in which she was employed before her absence or, if it is not reasonably practicable for the employer to permit her to return to that job, to another job which is both suitable for her and appropriate for her to do in the circumstances’.

The Employment Appeal Tribunal (EAT) recently considered for the first time the criteria to be used when determining what counts as the same job under the Regulations.

A woman who was teaching a reception class before she took maternity leave claimed that a return to work as a year 2 teacher or to a job with ‘floating duties’ was a breach of the regulations. The school in which she taught was in the habit of moving teachers to different positions every two years in order to widen their experience.

The EAT rejected the teacher’s argument. It judged that in this case ‘the job in which she was employed before her absence’ meant the job of teacher, not the temporary position she had held as a reception class teacher. The EAT concluded that ‘where a precise position is variable, a Tribunal is not obliged to freeze time at the precise moment its occupant takes maternity leave, but may have regard to the normal range within which variation has previously occurred’.

In this case, it was clear that the job the teacher was given on her return to work was within the range of variability which she could reasonably have expected.

Says Paul Mitchell, “To reduce the likelihood of a similar challenge, it makes sense to keep the job descriptions in employment contracts flexible whenever possible.”

Health and Safety

Petal Slip Damages

A commuter recently won the right to damages for injuries he sustained when he slipped on the pavement outside a florist’s shop. Brian Piccolo was walking past Chiltern Flowers at Marylebone Station in London when he slipped on a petal and fell, damaging his back. The accident initially caused some paralysis and Mr Piccolo was hospitalised for six months.

Since the accident, Mr Piccolo has been unable to return to work at a City bank. Doctors have told him that his condition may deteriorate and that he might one day need a wheelchair.

Mr Piccolo brought a claim for negligence against Chiltern Flowers, for failing to clear stray petals from the concourse outside the shop, and against Chiltern Railway Company, which had overall responsibility for running the station.

The shop's owner maintained that it was not a petal from her shop that was responsible for the accident. However, the court heard that prior to the accident Chiltern Railway Company had contacted Chiltern Flowers pointing out that debris on the pavement could pose a potential hazard to commuters.

The evidence led Judge Altman to rule that Chiltern Flowers alone was liable for the accident. The system it had in place for cleaning the concourse was inadequate. The shop had a duty of care to those passing by and it had breached that duty by failing to implement an effective system. Chiltern Railway Company was cleared of any wrongdoing.

This case is a reminder to those who run a business that they owe a duty of care to their customers and to members of the public to ensure that they are not harmed as a result of the business’s activities. In this instance, the landlord also owed Mr Piccolo a duty of care as it had a responsibility for the common areas of the station. However, it was deemed to have taken adequate steps to monitor the behaviour of its tenant.

Health and Safety for Disabled People and their Employers

The Health and Safety Executive and the Disability Rights Commission have developed a website to promote good practice in disability equality at work and health and safety risk assessment. This provides:

• an introduction to disability discrimination and health and safety law;
• advice for people doing health and safety risk assessments;
• advice for disabled people; and
• links to further sources of information, including grants.

The website can be found at http://www.hse.gov.uk/disability/law.htm.

If you would like advice on how health and safety law affects your business, please contact Paul Mitchell. (pm@mitchellwilde.com)

This newsletter is intended to keep our clients aware of recent changes in the law. However the position in any actual case may depend on its specific features, and you should always take legal advice. We do not accept any liability for any action that you may take in reliance on the contents of this newsletter.