Four Things to Consider Before Going it Alone with Self Employment

Self employment in the UK reached an all time high of 4.5 million in 2014. The benefits are many: freedom to work the hours you want; control your own earnings; take holidays when you wish; challenge yourself. But is it right for you?

If you are considering taking the plunge into working for yourself, here are four key things to think about before you do so:

Security

You will need to think about how comfortable you will be without a regular, guaranteed source of income. What would you do if you became ill or had an accident that prevented you from working? If things like this worry you, there are insurances you can take out for peace of mind that will cover you should you be unable to work in such circumstances.

Short term illnesses won’t be covered however, so if you were forced off work for a week with flu, you would need to ensure you had sufficient reserves to cover your income, as sickness pay does not exist for the self employed. Uncertainty as to where your next job will come from may also cause anxiety, as will unpaid leave such as holiday and perhaps maternity leave, so you will also need to consider how this will affect you.

Confidence

Working for yourself calls for excellent networking, negotiation and communication skills. You will need good levels of confidence in order to sell your services at a rate that you believe you are worth. You will need to possess the ability to make decisions and stand by them; you’ll need patience as well as understanding of how those you deal with need to work, and your presentation skills will need to be top notch so that prospective clients have the utmost faith in your abilities.

Research

Before you go it alone, you will need to make sure there is a market for your services. Start by searching online for others offering similar services that match your skill set. Can you match the quality of work they are showing in their portfolios? Are the rates they are charging in line with what you have in mind, and are they going to keep you afloat?

Post questions on forums or blogs to help you gauge whether there is potential for you in your chosen market, and look for industry related reports to see if there are any economic or seasonal trends you should be aware of.

Insurance

Aside from the accident and illness insurance, there are other insurances you will need to consider when going self employed.

Professional indemnity insurance will protect you should a claim be made against you for professional error, negligence or omissions. Public liability insurance will offer protection against third party property damage or bodily injury that you cause during the course of your work. If you receive business related visitors to your premises or visit clients’ premises, then this is a very important insurance to have.

Legal expenses insurance will provide you with the backing you need in the event of having to pursue a claim, for example for professional negligence or debt recovery.

If you are considering becoming self employed, an excellent first port of call for advice is your bookkeepers. They will be able to advise you on the tax and accounting related elements as well as get you set up with the right type of business structure.

Self employment can be exceptionally rewarding, but you do need to ensure it is the right thing for you. Good luck!

An Important Change to the Law on Contractual Penalties

On 4^th November 2015, judgements were made in the Supreme Court that have clarified the law on penalties in contracts. The decisions on two cases mark the first authoritative final appeal court decisions in 100 years that comprehensively address and amend the law surrounding contract penalties.

Most contracts, especially contracts of a commercial nature, feature clauses known as ‘liquidated damages’ clauses. In some cases, contract law will dictate that these clauses may amount to penalties. If this happens and a liquidated damages clause is deemed by a court to be a penalty, then it cannot be enforceable. It has therefore always been vital to make sure that clauses in contracts cannot be construed as penalties.

The Cases

In the first case, Cavendish Square Holding BV v Talal El Makdessi (The Group), the owners of The Group agreed to sell a share to Cavendish. The terms of the agreement provided that Mr Makdessi, one of the owners of The Group, was required to refrain from competing activities for several years and failure to comply would mean that he would no longer be entitled to two of the payments still due, and that he could be required to sell his remaining holding to Cavendish, for a sum ignoring any value for goodwill. The case went to trial due to Mr Makdessi having breached the restrictive covenants, however he alleged that the clauses constituted penalties and were therefore unenforceable.

The second case was ParkingEye v Beavis. ParkingEye was the manager of a retail park car park. Notices placed around the car park stated that exceeding the two hour free parking limit would lead to a charge of £85. Mr Beavis had exceed the limit by almost an hour, but refused to pay the charge, arguing that it was unenforceable and unfair under the Unfair Contract Terms in Consumer Contracts Regulations 1999.

Penalties, or not Penalties?

In both cases, however, the clauses were held to not be penalties.

Previously, the penalty rule was said to have become, in the words of Lord Sumption, “an ancient, haphazardly constructed edifice which has not weathered well”. The Supreme Court had to consider various options, including the abolition of the rule, or its extension to make it more widely applicable. Instead, it reformulated the test for a penalty, which now stands as: “Whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.”

It is now much clearer to work out whether a clause counts as a penalty, which should spell good news for businesses entering into contracts.

A Guide to Keeping Employees Happy and Fulfilled

Finding good employees takes time and investment, so once you get the right people in your organisation, you really want to hold onto them.

Money may seem like the obvious lure in this respect, but this won’t always be possible, and in fact there are things that can mean a lot more to your staff. Here are some ideas to help you retain your star workforce.

Offer Incentives

As the saying goes, little things mean a lot, and outside of salary, bonuses and benefits, there is plenty that can go a long way to making employees feel content and valued. How about the odd duvet day, or an afternoon off? A fruit basket on a Friday, or a longer lunch break on a Monday? Use your imagination and see what you can come up with. The gift of time is often something that is much appreciated, and always remember that rested employees are productive employees.

Be Flexible

Employees value flexibility, it is a proven fact. Allowing home working, longer hours on one or more days a week that allow for a half day or day off and good old flexi-time where hours can be staggered to allow for getting the kids to school or starting the commute once the peak hours are over can go a long way to showing your appreciation of each staff member as an individual.

Provide a Sense of Purpose

The majority of people naturally seek out a purpose for their work and their life. If you feel that you are not really offering any benefits through your work, you can feel like there is little point in doing what you do. The feeling that you are contributing to a good cause makes your work and life feel worthwhile, so if you can give your staff a sense of feeling that they are really contributing towards something, it could make a remarkable difference to their motivation.

So how to do this? You need to give people a good reason to believe in your business. So for example you could promote the benefits of the work that you do and how it is appreciated; you could get involved in community or charity work and include your staff in your efforts, or adopt a positive environmental policy.

Always Listen

The final piece of advice is to always listen to what your employees have to say. Asking for input will, above anything else, make people feel valued. Ask for ideas about marketing the business, about how to get new customers and about how the company could run more efficiently. And don’t forget to ask them what they value from their employers!

If you need some help coming up with staff incentives, or working out how perks might affect your bottom line, speak to your bookkeepers for advice.

Why You Need to Take Care Over Employment Advertising

If you are recruiting in 2016 you will need to heed the recently released advice of the Committees of Advertising Practice (CAP) when putting together the wording for your advertisements.

CAP is in charge of writing and maintaining the UK Advertising Codes. These are administered by the Advertising Standards Authority (ASA). CAP has in the past few weeks issued guidelines for recruiters to help attract the right people staying in compliance with the CAP Code.

Here are the key aspects of the advice:

Post, or ‘Opportunity’?

Is the role an employed position, or is it a business opportunity? You may call an invitation to collaborate on a project a ‘post’, but candidates could confuse this with salaried permanent role rather than something offered on a shared profits basis.

Financial Investment Required?

Will the job call for financial investment by the candidate? If they are expected to buy stock for example then the amount they will be expected to invest should be clearly advertised.

Does the Position Actually Exist?

You may think taking the opportunity to test the market to see if there is any interest in a position or project is a good idea, but this is not permissible under the CAP Code. If no position actually exists then this must be made clear in the advertisement.

Is the Advert Misleading in any way?

No advert of any kind is allowed to mislead, including recruitment adverts. Candidates must not be deluded by promises of fixed salaries that in fact will vary due to seasonal peak and troughs, or that are commission based or performance dependent. If the advertisement is for a training course then it must be quite clear as to whether there will be a job at the end of it.

Are Contact Details Clearly Displayed?

CAP says that the employer’s contact details should be displayed clearly in the advertisement so as to reassure the candidate.

What Happens When a Complaint is Made?

If a potential candidate makes a complaint to the ASA about an advert and it is upheld, then the ad will have to be amended or withdrawn with immediate effect. The ASA is more focused on educating advertisers rather than penalising them, however if there is a complaint and an advertiser fails to take action, then there are various sanctions the ASA will impose, such as making it impossible to purchase advertising space.

The CAP Advertising Codes for all types of marketing communications can be read in full here.

Is Your Business Prepared for the National Living Wage?

April 2016 will see the introduction of the compulsory national living wage.

The new minimum wage of £7.20 per hour is set to become law for all working people aged 25 plus. The National Living Wage (NLW) will have to be paid as a minimum by all employers, and the Government aims for it to rise to £9 per hour by 2020.

The Office for Budget Responsibility (OBR) has said that the estimated cost to businesses will represent 1 per cent of profits. But the costs will be offset with a cut in corporation tax in 2017 to 19 per cent, and further down to 18 per cent in 2020. National insurance contributions for smaller companies will also be cut in an attempt to balance the wage rise.

“From 2016, our new Employment Allowance, will now be increased by 50% to £3,000,” announced the Chancellor George Osborne. “That means a firm will be able to employ four people full time on the new national living wage and pay no national insurance at all.”

The national minimum wage rose to £6.70 in October 2015, and the over 25s will see a 50p per hour pay rise from April 2016. That is a hike of 11 per cent for employers.

The Living Wage Foundation set a rate of £7.85 as the figure they deem appropriate, and the rate of £7.20 would seem a step closer. However, Rhys Moore, director of the Living Wage Foundation, said it was “delighted” that more than 2.5 million workers will receive a much needed pay rise, but then asked, “Is this really a living wage?

What Business Organisations Think

John Cridland, director-general of the Confederation of British Industry, said: “This is a double-edged budget for business. Firms will welcome measures to balance the books and boost investment, but they will be concerned by legislating for wage increases they may not be able to deliver.”

Chief economist for the Chartered Institute of Personnel and Development Mark Beatson said, “This policy will only deliver higher pay without significant job losses if it is accompanied by a drive to increase productivity in low pay sectors such as retail, hairdressing, hospitality and the care sector – and that will need more than delivery of apprenticeship numbers or employment subsidies via the national insurance contributions system.”

If you are concerned as to how the new National Living Wage will affect your cashflow and profit, don’t delay in discussing it with your bookkeepers who will be able to put you in the picture with forecasts and practical advice.

Tax Changes Affecting Buy to Let Investors

Back in August we reported on how the landlord fair wear andtear allowance was to be scrapped as of April this year, and how tax relief on buy to let mortgages was also set to be decreased down to the basic rate by 2019.

Then there was the news that landlords would face a change to the way tax is paid when a buy-to-let property is sold. From April 2019 capital gains tax will be due within 30 days of selling a property, rather than at the end of the tax year.

Stamp Duty Changes 2016

Now we hear that stamp duty changes will also be introduced in April this year, applying to anyone purchasing additional residential property.

Buy a second home or investment property after 1 April and you will be paying an extra 3 per cent on properties over £40,000. So on a currently zero-rated property costing from £40,000.01 to £125,000 you will pay 3 per cent on the full purchase price; on a property from £125,000.01 to £250,000 it will be 5 per cent rather than the current 2 per cent; from £250,000.01 to £925,000 the rate will be 8 per cent and up to £1.5 million 13 per cent. Over this amount, stamp duty will be charged at 15 per cent.

Investors with 15 or more properties, however, will not have to pay the additional percentage, and there may be further potential exemptions for larger and corporate investors.

However, there could be a glimmer of light in the shape of offsetting purchase costs against any eventual capital gains tax – including stamp duty. So whilst there will be a large bill to pay on purchase, if the property is eventually sold at profit, the stamp duty can be claimed back later against CGT.

With the many changes on the horizon, it makes sense for buy to let investors to take advice as soon as possible. If you are an investor looking to add to your portfolio then you may be wise to do so sooner rather than later, but speaking to your bookkeepers for cash flow planning guidance is a good first move.

What you Need to Know About Gender Pay Gap Reporting

Early this year, draft Regulations will be published by the Government that will call for larger employers to publish information detailing any differences in gender pay. Information about variations in pay between men and women will have to be provided and this will need to include a single annual figure setting out the gender pay gap and the method by which the calculations have been made.

There is also likely to be a second reporting tier which will outline the gender bonus gap. Employers will have the opportunity to include commentary on the factors that contribute to their gender pay gap, and any measures being taken to close the gap.

Who Will Gender Pay Gap Reporting Affect?

All private, public and voluntary sector employers in England, Wales and Scotland that employ 250 or more personnel will be affected by the Regulations. Businesses on the borderline with employee numbers will need to take note of the Regulations so that they are ready to comply when the time comes. Smaller businesses may also wish to take note of the information being published, as it could well affect them at a point in the future, and may influence their pay structures.

When Will Gender Pay Gap Reporting Start?

Watch this space. There is no precise date as yet and it is likely the reporting requirement will be phased in, starting with larger employers.

What Does ‘Gender Pay Gap’ Mean?

According to the Equal Pay Portal, the gender pay gap is ‘a calculation of the difference in the average earnings of the women and men in any given population’. Basically it is the difference in average hourly earnings of male and female full time employees.

The Office for National Statistics has published figures stating that women in the UK earn on average 19 per cent less than men. The new Regulations aim to eliminate gender inequality and take down the barriers that are in the way of women’s success.

It has been illegal for more than four decades to pay women and men varying rates of pay for equal or similar work. The Government says the pay gap exists mainly amongst older workings and reflects ‘the types of jobs that women tend to enter, and the levels of seniority they progress to’.

How Should I Prepare for Gender Pay Gap Reporting?

Ahead of the Regulations being introduced, it is a good idea to conduct an equal pay audit on an informal basis. This will help you identify potential issues in advance, and will give you time to take steps to address the issues.

As soon as the Regulations are introduced and there is clearer information about employers’ requirements, we’ll let you know. In the meantime, talking to your bookkeepers will help you with your equal pay audit.