ISSUE 22 - August to November 2003

In this issue:

1.   RISING INSURANCE PREMIUMS CAUSE CRISIS FOR SMALL BUSINESSES 

2. WRITTEN STATEMENTS OF EMPLOYMENT

A number of employers are unsure of the legal requirements relating to giving employees a written statement of their main terms and conditions of employment. This article attempts to give guidance as to the reasons for and the contents of such statements.

The basic rule is that if an employee has worked for you for one month or more you must provide him or her with a written statement setting out the main terms and conditions of employment. The statement must contain the following details:

• The name of your business

• The name of the employee

• The dates when their employment and continuous employment began

• The employee’s wage or salary and the frequency of payment, eg weekly or monthly

• The hours of work, e.g. 9.00a.m. to 5.00p.m. with one hour for lunch

• Their holiday entitlement

• Any entitlement to sick pay

• Any pension entitlement

• Rights concerning the employer and the employee in connection with the giving of notice on termination of employment

• The employee’s job title or a brief description of the job

• If the job is not intended to be permanent, the estimated length of employment

• The employee’s place of work

• Details of what are known as “collective agreements”. These are agreements made between the employer and the employee’s representatives (e.g. a trade union) which could affect the employee’s terms and conditions

In addition to the above, the written statement must also set out the disciplinary rules and grievance procedures of your business. However, for businesses with less than 20 employees you need only give the name of the person to go to in the event of a problem.

The written statement must also include details of any relevant pension scheme and whether a contracting-out certificate for the State Earnings Related Pension Scheme (SERPS) is in force.  

If any of the above contents do not exist, eg there is no entitlement to a pension, you must state that this is the case rather than remaining silent. You must give the written statement to each employee within two months of the employee commencing work.

Changing terms of employment:

Usually, if you wish to change any of the terms and conditions set out in the written statement, you must have the agreement of the employee. If there are any changes to the details contained within the written statement, you must inform the employee in writing as soon as possible and at the latest within one month of the changes being made.

Exceptions:

You do not have to give a written statement of terms and conditions to:

• Anyone who you employ for less than one month

• A self-employed person or independent contractors

• To certain types of trainees  

3. PROPOSED INCREASES IN ACCOUNTING AND AUDIT THRESHOLDS

The government has published proposals to raise company thresholds to the European Union maximum. There will be a consultation period on these proposed increases after which the intention is to raise the medium-sized and small company thresholds.

• The government state that the increased thresholds “will cut red-tape for businesses and allow more businesses to take advantage of tax incentives. Small companies will also be able to take advantage of less onerous accounting requirements”.

• The tax incentives referred to above centre around spending on information technology and communications in the case of small companies and tax breaks on investment in plant and machinery for medium-sized companies.

• The government’s intention is to increase the small company turnover threshold from £2.8 million to £5.6 million and medium-sized company threshold from £11.2 million to £22.8 million.

•   The proposed increases in the above thresholds were recommended in last year’s White Paper “Modernising Company Law”.

In addition to the above, the consultation document will be seeking views about increasing the audit exemption threshold, as announced by the Chancellor in his spring Budget. At present companies with a turnover over £1 million are subject to a statutory audit and the intention is to increase this threshold to £5.6 million. In making this announcement, Jacqui Smith, DTI Minister stated “Statutory auditing has also been seen as a burden for many small companies. Removing the statutory audit requirement would mean that small companies, many of which are owner managed, could decide for themselves whether or not an audit will benefit their business.”

The European Union increased the maxima for small and medium-sized companies on 15^th May this year. Member countries do not have to adopt the maxima but can if they so wish. In addition, they can increase the maxima by up to 10% to take account of currency fluctuations. With the 10% included, the sterling equivalent of the proposed thresholds will be as follows:

Small company

Turnover                                     Balance sheet total                        Number of employees

Not more than £5.6 million        Not more than £2.8 million                    Not more than 50

Medium-sized company

Turnover                                      Balance sheet total                        Number of employees

Not more than £22.8 million      Not more than £11.4 million                  Not more than 250

4. GIVE TO CHARITY THROUGH YOUR TAX RETURN

From April 2004 if you are a self-assessment taxpayer, you will be allowed to make a donation to one or more charities using your tax return. This method of donation is expected to make it much easier to make a donation which will, in turn, raise additional monies for charities. The taxpayer will be given a list of charities to which he or she can make a donation, and for this reason any charity that wishes to be included in the list must register with the Inland Revenue.

If you wish to make a donation on your 2004 tax return this will be easy to achieve. Further information can be obtained from the Inland Revenue website where you can also obtain an application form to register a charity with the Revenue: www.inlandrevenue.gov.uk/news/index.htm 

5. INHERITANCE TAX LOOPHOLE TO BE CLOSED IN FINANCE ACT

As is well known, Inheritance Tax (IHT) is generally charged on assets passing on a person’s death and on gifts made by the deceased within 7 years before death. However, special rules contained in the Finance Act 1986 apply where someone makes a gift during their life but that person continues to enjoy some material benefit from the gifted property. For example where a person gives away a house but continues to live in the house. These are known as “gifts with reservation” (GWRs).

However, in the recent case of CIR v Eversden, the Court of Appeal held that the Finance Act rules do not work when gifts made by a married person are routed through a trust for their spouse. To close the loophole created by the Court of Appeal decision the government is now amending the existing provisions so that they will apply in these circumstances. These amendments will be included in the Finance Act 2003.

The new provisions will disapply the current exception from the Finance Act 1986, for gifts to a spouse where gifts are made on or after 20 June 2003, and:

• the property becomes settled property by virtue of the gift;

• the trusts of the settlement give an interest in possession to the donor's spouse, so that the gift is exempt from IHT by reason of the exemption for transfers between spouses and the rule which treats an interest in possession as equivalent to outright ownership;

• between the date of the gift and the donor's death the interest in possession comes to an end;

• when that interest in possession comes to an end, the beneficiary does not become beneficially entitled to the settled property, or another interest in possession in it.