Insurance Act Now in Force, What Businesses Need to Know

The Insurance Act 2015 came into force on 12 August 2016. It is intended to make for a fairer balance of interests between the insured and the insurer.

Applying mainly to non-consumer policies where the insured is an organisation rather than an individual, it extends the requirements of the Consumer Insurance (Disclosure and Representations) Act 2012 even further by ordering that you have a duty of disclosure of material circumstances that you know, plus what you ought to know. At the very least you must declare enough information to let the insurers know they need to make their own enquiries.

What you Need to Know

This means you need to make efforts to find out all the possible risks that you need to disclose, and you should keep comprehensive records of this research, what it has revealed and where you acquired it. Often the knowledge you need doesn’t lie with just one person. Any member of your senior management team may be privy to it, also your risk managers and anyone else responsible for the company’s insurance, including external sources such as an insurance broker. To a lesser extent, this applies to individuals as well.

Disclosures must be clear, structured and relevant. You can’t just dump a load of documents on the insurers for them to sift through and find what is pertinent. Unless your presentation is indexed and signposted in a coherent structure, it will not be considered adequate. Nor should it be too brief, vague or ambiguous, as is pointed out in the Explanatory notes to the Act.

Permitted Penalties of Non-compliance

If you fail to find out and disclose what you should have found out through diligent research, insurers can penalise you in specific ways. If anything is proven to be deliberately misrepresented, the insurer can avoid the policy so that it is ineffective. It is unlikely that you will receive a refund on your premium.

If the misrepresentation is found not to be deliberate, and you can produce evidence that you tried to ascertain the facts that have since come to light, the insurer has options based on the situation as follows:

·         If it can prove that the policy would not have been issued at all if the facts had been known at the time, it can avoid the policy and refuse the claims, but the premium must be repaid.

·         If the risk would have been accepted and a policy written with different terms, the contract should continue as if those terms were included.

·         If the premium would have been higher, claim settlements can be reduced by an appropriate proportion.

Complying with Warranties

Some insurance contracts depend on action that you agreed to undertake at the time they were written, such as changing or adding locks or alarms. The law regarding non-compliance on this has now changed so that insurers can no longer cancel the policy completely and avoid any claims, but only suspend the policy when the breach of the warranty is discovered until you fulfil the requirements. You will then still be insured under the same policy. It will, of course, be advisable to document proof of compliance with the warranty with relevant dates noted.

Wise small business owners will want to be confident that they have the right evidence in place regarding both their disclosures and their warranties. You can always turn to your local bookkeepers for help on these issues. They will be delighted to give you the benefit of their experience with helpful advice and support.

New Immigration Act Rules Now in Force

On 12 July 2016 new legislation on employing illegal workers came into force. According to the Immigration Act 2016, if a worker is found to be in the UK illegally, the government no longer has to prove that the employer knew about it. If this were to happen in your business, you could be prosecuted if you had ‘reasonable cause to believe that the employee is disqualified from employment’ because of being in the country illegally.

New Powers and Penalties

The Act also gives Immigration Officers the power to search your premises, and seize any incriminating evidence of this kind of wrong doing. It doesn’t matter whether the work is being performed under a written contract or just an oral one; the offence of employing an illegal immigrant is the same.

Penalties are more severe as well. Fines are heavy and you could go to prison for up to five years. Previously the maximum custodial sentence was two years. The workers themselves can now be prosecuted as well, and face imprisonment for up to six months.

Enforcing Worker Standards

The Act is also concerned about the conditions of legally employed workers. A new post of Director of Labour Market Enforcement has been created, whose role is to oversee the enforcement of the national minimum wage and other minimum standards for workers.

With all these new rules upon us, all employers need to be even more vigilant with their recruiting practices. If you are not 100% certain of their legal status, it’s not worth taking them on.

What Else Is to Come?

Other aspects of the Act have yet to come into force, and have no projected date as yet, but are worth noting and looking out for.

These are:

·         A power to close down premises for a maximum of 48 hours if illegal immigrants are found working there

·         A new rule that public sector workers who deal directly with the public must be fluent in English. In Wales the rule also includes the Welsh language

·         An immigration skills charge which will be imposed on employers who sponsor Tier 2 skilled migrant workers i.e. if you want to offer a job to someone from overseas with skills you cannot find otherwise.

You might want to ask your local bookkeepers to watch out for the enforcement dates of those regulations to come. They will be delighted to help keep you up to date.

Carrying Over Annual Leave – What you Need to Know as an Employer

As an employer you will be aware that you are obliged to give your staff 5.6 weeks annual leave, or the appropriate proportion of that for part-time personnel. You can, of course, offer more than that if you want to offer a really attractive contract and compete with other companies to gain and retain a loyal and motivated team.

More Complicated Aspects

As an entrepreneur who has to cover all bases, you may find the rules on when annual leave can be carried over from one year to another somewhat fuzzy and a level of detail too far – until a situation arises when you need to know.

Did you know that only 1.6 weeks of annual leave can be carried over at your discretion, and written into the employment contract, and why that is the case? This is because that 1.6 weeks has nothing to do with EU rules. It is awarded under UK law which allows it to be carried over.

The other 4 weeks, or 28 days, are awarded under the EU’s Working Time Regulations 1998, and they cannot be carried over under normal circumstances. If you offer additional contractual leave, you need to make it clear in the written contact whether you allow this leave to be carried over.

The Out of the Ordinary

Sometimes of course, there are exceptional circumstances why annual leave cannot be taken before the end of the leave year. The most common of these is sickness. If someone develops a serious illness or has an accident that means they have to take sick leave, they may not be able to take their annual leave in time but be in need of it at a later date. In a number of court cases applying EU law, employees have been allowed to take some or all of their EU leave from a previous year.

Other exceptional circumstances can arise because of the nature of the work and whether other staff members are available, as well as the personal circumstances of the personnel concerned. Your policy on carrying over contractual leave in these kind of circumstances should be made clear in your employment contracts, otherwise it will be necessary to have a written agreement signed by yourself and the employee for each individual occasion.

While you have a certain amount of leeway in your policies on taking leave in exceptional circumstances, it is important to know the rules of law. Clearly you would be wise to write all your leave policies into your staff contracts, so that no-one can claim to be unfairly treated and everyone knows where they stand. If you are not sure you have covered everything, your local bookkeepers would be happy to take a look at the draft and give you their opinion.

How Flexible Working Makes Businesses Attractive to Employees

When you are considering the type of people you want to join your business, and how to attract them, you would do well to look at your working practices, especially if you are competing for a small pool of good people.

How to Get them on Board

Naturally you demonstrate your own passion for what you are doing and hope to motivate the same in them. Alongside this, and the attractive pay package, sits the way you operate and will expect them to perform.

Recent research by Regus, the major international player in business services, indicates the need to offer flexible working conditions to attract and retain the best personnel. Of their survey of 3,000 professionals, 90% said that if everything else about two positions was equal, they would go for the one that had the most flexible working options.

Richard Morris, Chief Executive of Regus UK, said that these days flexibility is not looked on as a perk – it is seen as more of a right. It has become “a key differentiator for talented individuals”.

The Retention Factor

Almost a third of respondents in the survey also said they would not have left their previous position when they did if working hours and conditions had been more flexible. Clearly, if you value your people, it would pay to make their workplace setup and hours as flexible as possible. Entrepreneurs need to have hard working people they can trust to remain in place or progress through the business. You don’t need the expense and hassle of the recruitment process every year.

According to Richard Morris, “A flexible role is one where the individual has more control over where and when they are productive. Managers must get better at measuring on results rather than on time spent at a specified desk … There is also the current business climate to consider. The economic uncertainty requires business to be more agile and nimble so operating with a fluid and flexible workforce, using available workspace, makes real commercial sense…”

If you think it’s time to make changes to accommodate all this, you could discuss it with your local bookkeepers. They will most likely have experienced a variety of ways in which companies have made flexible conditions work for them, so they can warn you of pitfalls and advise on how to avoid or negotiate them.

How to Deal with Bank Holidays and Part Time Workers

Under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, it is illegal to treat any workers differently from their colleagues, and this applies as much to how leave is allowed and paid as to anything else. All employees must have at least the minimum annual leave entitlement. For those working a five day week or more, this is 28 days a year. Those working fewer days or hours must be given the appropriate proportion of this amount.

What About Bank Holidays?

You can choose to include these within this annual leave entitlement or give them additionally. If you do the former, everything is straightforward. The employee is paid for a normal week or month. It makes no difference whether or not they normally work on the day of the week on which the bank holiday falls. But suppose you are like the majority of employers who give additional leave for bank holidays; how do you calculate the payment they are due?

Calculating How Much you Should Pay

The way to do it is to work out the number of hours you need to pay them for, much as you calculate the amount annual leave they should have. If your working week is 35 hours, the hours of a normal years’ eight Bank Holidays is eight times the hours of a working day, which equals 56. For a part timer working 3 full days (21 hours), the hours they should be paid for bank holidays are calculated in this way:

21 divided by 35 x 56 = 33.6

Divide this total by eight and you get 4.2. If the rate of pay is £10 an hour the payment for a bank holiday day is £42 gross instead of £70 for a full time worker on the same hourly rate. To ensure full parity with full time workers, you would be wise to pay this amount whether or not the worker would otherwise have been at work on the bank holiday.

Keeping Within the Law

While human resources personnel should have no problem with these calculations, entrepreneurs who have a myriad of details to cope with may find it confusing. Getting help from your local bookkeepers could ensure you stay within the law and keep your staff happy and loyal.

New Tax Rules Affecting Company Distributions

In previous years it has been financially advantageous for business owners and directors to take a small salary during the year, and take a lump sum dividend at its end. This is because the rates of dividend tax have been much less than the rates of income tax. From 6 April 2016, however, this changed and dividend tax has been raised.

The first £5,000 is tax free, at zero rate. After that the basic rate amount is taxed at 7.5%, but the higher rate tax amount is 32.5% and for the additional rate it is 38.1%. So there is now much less advantage in taking high dividends instead of salary.

Government Concerns About Taking Capital on Winding up

Capital gains tax is also much less than income tax and now is less than both income and dividend tax. The maximum is 28% but it can be as little as 10% if an individual is eligible for entrepreneurs’ relief.

It is therefore tempting to take as much as possible as capital, which you might be able to do on winding up a company. But the government is wise to this and has set up new rules designed to discourage it. In certain circumstances they will tax such a distribution as income tax.

What Are Those Circumstances?

Firstly, the rule will apply if you are classed as a closed company, ie. one which only has up to five shareholders, or where the directors have full control of the company. Secondly, it will apply if a shareholder is paid capital from surplus reserves following a winding up, but they are involved with a new company set up for the same purpose within two years. When this is discovered the individual will be billed for extra tax, probably plus penalties.

The government takes a dim view of companies dissolved with new ones set up just to avoid higher rates of tax. They will always charge income tax on capital extracted in such circumstances.

What About Deliberately Retained Profits?

The practice of retaining profits instead of issuing dividends, so that they can be taken later as capital on winding up, has also been nipped in the bud. In future it will be penalised so you need to have a good reason for retaining profits.

Beware any tax adviser who recommends these dodgy tax avoidance schemes. Your local bookkeepers can assist you to stay within the law. They will also help you to document any legitimate reasons for retaining profits and to keep adequate records in case there are queries from HMRC. 

What you Need to Know About the New Confirmation Statement

If you own or are with a company that normally submits an annual return to Companies House, since 30 June 2016, you can no longer do this. Instead you must file a Confirmation Statement no later than 14 days after the anniversary of your last review date. This grace period is reduced from the 28 days previously allowed for the annual return. If you set up a new company, the first Confirmation Statement filing will be due one year after the date of incorporation, together with your first People with Significant Control (PSC) Register.

Failure to comply could mean prosecution for yourself and any other directors or officers of the business as well as the company itself. Late filing can carry severe financial penalties.

How to Submit

The Confirmation Statement is filed on form CS01 which consists of 62 pages, but it will only be necessary to complete it all the first time. The pages cover the company details; the date the confirmation is due, the business activities; the statement of capital held; the trading status of its shares and shareholder information; and details about PSCs. Confirming all this information assists Companies House to keep the public register up to date.

The Confirmation Statement is to be filed each year, following the due date, with a payment that is currently £13 for online filing or £40 if you send it by post. You can send in changes as they occur during the year without any additional payment. When the confirmation date comes round again, you need to check whether any further changes need to be made.

What to Check

These changes might be to:

• Company directors – any new appointments or terminations or changes in personal details
• The Company Secretary or registered office
• Shareholder information
• The SIC code or changes to the business activities
• Information in the PSC register
• Previously reported statement of capital
• Where the statutory books are kept 

This second and future statements will be made on a 2 page document that confirms or amends these details. It’s not a good idea to file early, because this will adjust the next due date to 12 months from this filing.

After the first Confirmation Statement, this should be a simple chore, but it must not be forgotten. Your local bookkeepers will be happy to remind you to get your filing done at the right time and to assist with all the submissions.