Operating as a Sole Trader Following Director Disqualification

Directors who have been disqualified for fraudulent or wrongful trading in insolvency, or for other reasons, are bound by the restrictions placed upon them by the Company Director Disqualification Act 1986.

Disqualification can last between 2 and 15 years. Many directors wonder what they can do in terms of working.

The fact is, no disqualified director can go on be the director of any UK registered company or an overseas company connected with the UK. Neither can they form, market or run a company or sit on the board of a charity, police authority, school or social care body. There is also a ban on practising as a solicitor, barrister or accountant. Any breach of the terms of the disqualification order can lead to a prison sentence of up to two years.

Continuing Working After Disqualification

It is however still possible for most ex-directors to carry on working in some way. If there is a wish to continue running a business, then setting up as a sole trader is an option, as the restrictions laid down by the Company Director Disqualification Act only apply to the forming, running and marketing of limited companies and limited liability partnerships.

Setting up as a sole trader will of course require a degree of reorganisation. Tax and legal implications will come into play, so it is essential to take professional advice. Here are the main differences:

Remuneration and tax

Before: As a director you were paid through a salary and dividends. Corporation Tax and dividend tax applied. Now as a sole trader, you will keep your earnings which will be subject to tax on a Self-Assessment basis.

Liability

As a director, you enjoyed freedom from personal liability for company debts and negligence. As a sole trader however you will face unlimited personal liability, which means your personal assets could be called upon to settle any debts connected with the business or partnership.

The Importance of Expert Advice

If you have been disqualified as a director and want to carry on trading in the sector that you know, it is vital to exercise due consideration when restructuring your business. Always bear in mind that a breach of the terms your disqualification order could land you with a custodial sentence.

It is therefore wise to seek advice from an accountant who will be able to guide you on the right way to proceed. They will also be able to make certain you are following the right guidelines when it comes to tax and filing commitments.

Why not make your first port of call your local bookkeepers? They can help you with a general overview of your obligations as a sole trader and how these will differ from your previous role as a director. They can then introduce you to an accountant for the full guidance you need.

A Guide to Misfeasance Claims

Misfeasance is the misapplication of money or company property. As far as directors of a company are concerned, misfeasance is considered a breach of fiduciary duty. For directors facing a misfeasance claim, there are certain steps that must be taken.

Step 1: Respond to the claim letter without delay

When you receive a letter of claim, be sure to deal with it straight away. The liquidator will expect a response within a particular time period. If you fail to respond within this time then you could face court proceedings, the costs of which could be very damaging. You should however not respond on a whim and without taking legal advice, because doing so could scupper your chances of minimising the impact of any claim.

Step 2: Take Professional Advice

Misfeasance claims can be for considerable sums of money which could be seriously damaging for a business. It is therefore essential to seek specialist legal advice as early on as possible. You should never respond to a claim before you take such advice. This is your opportunity to clearly present the facts of the situation. With a well-structured response, you will stand a much better chance of avoiding the claim altogether, or at very least, mitigating the consequences.

Step 3: Arrange to Meet the Liquidator

If you can sit across the desk from the liquidator and discuss your circumstances and put across a good case (as assisted by your solicitor) then your chances of a more advantageous outcome will be boosted.

Step 4: Decide What You Want to Achieve

It may be that you are intent on completely denying the claim and you wish to have it set aside. Then again, you may be satisfied to settle the claim in part, with the goal of minimising the amount being claimed.

Some directors are happy to accept the claim in full and settle with as little hassle and time spent as possible. If you are in agreement with most of the claim being made, or you just want everything to be settled quickly, you may be best advised to settle early. Sometimes the liquidator will accept a payment plan for settlement over a period of time.

If you wish to completely defend the claim, you will need to be realistic. It is going to take time and money to reach a settlement. Some claims can take up to two years to reach even a final hearing, with costs spiralling as more time passes.

Next Steps

Whatever you decide to do, be sure to take professional advice. You’ll need an accountant and a lawyer who specialises in misfeasance claims. Be sure to choose one with particular skills in negotiation and strategy planning. Why not ask your local bookkeepers if they can recommend anyone?

What to Consider When Choosing a Business Bank

Whether you are setting up a business bank account for the first time as a new business, or switching to a new banking facility, there is a lot to consider when making your choice of business bank. Here we look at what you should think about when weighing up your options.

Interest Rates

For your savings accounts, it is obviously desirable to have the best possible rates of interest so that you earn as much as possible. But don’t place all your focus on this element, because there are other factors that may provide you with benefits that turn out to be more significant. If you don’t hold too much of a balance in your savings accounts as a rule then don’t make this your main basis for choice.

Financial Products

Some banks offer a more preferential range of business credit cards and loan facilities. If products like these are important to your business, for example if there is a credit card on offer that has no fees, gives you a higher credit limit and a competitive balance transfer rate then that could be a deciding factor for you. Just be sure to prioritise your requirements, because these features could come at a cost in terms of reduced benefits in other areas.

Also consider that the products you need during the early days of your business are likely to be different to those required as your business becomes more established. At the outset for example, you may benefit from an overdraft facility whilst you find your feet with cashflow. You may even need a start-up loan. Later on, these features may not be so important and you may be more inclined to appreciate things like business development funding.

Bank Charges

When it comes to bank charges, there is little you can do to avoid them on a business account. Some banks will offer free banking for the first one or two years, but you’ll need to weigh this up with the charges you’ll face once the free period is over.

When looking at bank charges, think about how you bank. If you mostly use online banking and electronic transfers, work out what sort of charges you’ll be looking at for those types of transaction. If however you make more use of counter services, perhaps because you get paid in cash or cheques rather than bank transfer, consider an account that doesn’t levy too high a charge for those. If you need to take card payments, look at the costs involved in processing those.

Branch Services

If you value a face to face service and personalised advice, and / or you are going to need to use counter services on a regular basis, make sure you choose a bank with a good choice of local branches for easy access. Bear in mind that some banks are more geared towards online services, and that others are closing branches in certain areas of the country on a fairly regular basis.

Some branches offer specialist services, such as access to small business advisers. These can be very valuable, especially to the fledgling business. Check out what is on offer in this respect during your research.

Other Considerations

Other factors to consider when choosing a business bank are payment processing times for your inbound and outbound payments; international banking facilities – vital if you do business with overseas clients; access to discounts and offers, and ease of switching account should you wish to move to another bank.

If you are uncertain as to what should matter most to you when choosing a business bank, why not ask your local bookkeepers for advice?

The importance of having a privacy notice and data protection policy in light of GDPR

The General Data Protection Regulation (GDPR) comes into force on the 25^th of this month.

Under the Regulation, businesses have a duty to keep individuals informed about the use of their personal data and about their legal rights concerning that data.

Your Privacy Policy

If you have a privacy policy on your website and you have not yet updated it in line with GDPR, you will need to move quickly. Changes will need to be made to the policy in respect of making it clear how personal data is being collected through your website and how cookies are being used to track behaviour whilst they navigate your pages.

In addition, if you are doing business offline, which most businesses do in addition to online trading, you will need to be aware that GDPR and its information requirements apply in just the same way.

The right to be informed is one of the key parts of GDPR. This means that if you deal with consumers, you will need to inform them of the following:

• What personal data you hold about them
• What you use the data for
• The grounds for using the data
• How long you will hold the data
• Whether you intend to share the data, and with whom

You will also need to provide people with information about people’s rights, including the right of access and the right to withdraw consent, if that applies.

If you collect personal data directly from consumers, you should be informing them of all this at the time of collecting the data. If you collect the data through a third party, then you must inform the data subjects either when you first communicate with them; within a month or when you disclose the data to someone else, whichever occurs first.

You will need a privacy notice ready to provide to consumers. This notice will need to set out the required information in an easy to follow, user-friendly way. It will need to be designed specifically for use in situations where data is being collected offline rather than online through a website. This might be for example point of sale.

Your Data Protection Policy

If you already have a data protection policy then you will need to update it in line with GDPR. If you don’t already have one, now is the time to get one drafted.

It is vital that your entire organisation is aware of the rules involved in GDPR and how they should be handling personal data now that things have changed. Without a data protection policy, you have no proof that you have made any attempt to install procedures within your business for protecting personal data in line with the new Regulation.

Remember, we have discussed this before: fines for breaches of this Regulation are substantial to the point where they could devastate a business.

Time to Take Advice?

If you have not yet brought your business up to speed in readiness for GDPR, you really do need to get moving. Getting your policies in order is absolutely crucial if you are going to remain compliant, so either consult a lawyer or look online for good quality policy templates that you can adapt to your specific business needs.

A Guide to Choosing the Best Business Structure for Your New Enterprise

When you start a new business, one of the biggest considerations is how to structure it. Some businesses start out small as a sole trader or partnership then, as they grow, they decide to incorporate so that their personal liability is limited.

Here we take a look at the main options available to you for structuring your business, and what is involved in each one. Before we do however, just a note that it is always highly advisable to discuss your business structure options with a financial professional. They will be able to advise you on the most tax efficient method to use in your particular situation.

Sole Trader

As a sole trader, the business is run in your own name. This is the most straightforward structure when it comes to administration. There is no need to register with Companies House, although you will need to register with HMRC.

The disadvantage to being a sole trader is that you are faced with unlimited liability. This means that if your business gets into debt, then people to whom you owe money are within their rights to claim on your personal assets, because you and the business are considered a single entity.

Partnership

If you set up a business in partnership with one or more others, this is known as a partnership and that is what you will be considered even if you don’t formalise it. A partnership is the same as operating as a sole trader, but with more than one person.

As with sole trader status, you won’t need to register the business with Companies House and debtors of the partnership can claim against the personal assets of any of the partners.

There is also the additional risk of exposure to liability for the actions or omissions of fellow partners. This means that you could be punished for mistakes made by a partner in the business, even if you personally are not at fault.

Any business operating as a partnership must have a formal partnership agreement. Without one, disputes are likely to arise, and these will often prove very expensive. A partnership agreement should be legally drafted. It sets out the individual responsibilities of the respective partners, and how the profits and losses will be shared amongst them. The agreement will also cover things such as what would happen in the event of the exit of one of the partners.

Limited Liability Partnership (LLP)

An LLP is a popular choice for partnership-based businesses that want to limit the personal liability of the partners.

With an LLP, all partners are protected from the risks associated with being a sole trader or partnership.

All LLPs must be registered at Companies House and are required to submit financial accounts and a confirmation statement every year. There is no shared capital, just interests, and the governing principles are defined via a partnership agreement. An LLP is a separate entity from the partners. This means all the partners are personally protected from any legal or debtor action.

Concerning tax, each LLP member is taxed through Self-Assessment as a self-employed individual.

Private Limited Company

A limited company tends to be the most popular structure for most companies. Unlike an LLP, a limited company has shareholders. This means that if the company makes a profit, the shareholders are able to take advantage of dividends. This can prove beneficial when it comes to tax and National Insurance contributions.

There are further tax incentives available to limited companies that other types of business cannot take advantage of. These include schemes to raise external investment.

With a limited company, the everyday running is the responsibility of the board of directors which may be made up of a single director or more than one. The Articles of  sets out this structure and is put in place at the time of forming the company prior to being filed with Companies House.

As a limited company you will need to make annual returns to Companies House. You will be taxed under Corporation Tax and may also be subject to Dividend Tax. You will also need to make returns under Self-Assessment to cover the personal tax aspect of your earnings.

If you are unsure as to the best structure for your business, your bookkeepers will be able to provide outline advice in the first instance. For tax-specific advice, consult your accountant, and for legal advice be sure to seek guidance from a specialist commercial lawyer.

Government Gigabit Scheme a Boon for the Small Business

The government has just launched a new scheme across the UK to assist small to medium sized businesses in upgrading their broadband. The Gigabit Broadband Voucher Scheme will see firms being able to claim up to £3,000 to upgrade their broadband.
 

The Gigabit Broadband Voucher Scheme will enable smaller companies and the local communities that they are a part of to receive grants of up to £3,000, allowing them to upgrade their broadband to a Gigabit-capable connection.
 

This means that companies will find it easier to take advantage of today’s modern working technologies such as VoIP, cloud-conferencing and other hosted solutions known to save time and money and make everyday tasks and communication so much more streamlined and efficient.
 

The Gigabit Scheme forms part of the Local Full Fibre Networks programme which is backed by a £200 million government investment.
 

Secretary of State for Digital, Culture, Media and Sport, Matt Hancock, said: “Small businesses are the backbone of the British economy and now they can turbo-charge their connectivity with gigabit speeds.
 

 “By building a full fibre future for Britain we are laying the foundations for a digital infrastructure capable of delivering today what the next generation will need tomorrow.”
 

The scheme will be supplied by Daisy Group, the largest independent supplier of business communications and IT solutions in the UK. Julien Parven, marketing director of its small to medium sized business division, says: “Digital transformation should be a top priority for SMBs and we are passionate about helping companies to get started on that path so that they can maximise the opportunities around them.
 

“This scheme to provide customers with greater bandwidth certainly promotes that priority in providing the backbone to launch their digital futures.”
 

To be eligible for the Gigabit Voucher Scheme, companies must be UK-based; employ fewer than 250 employees; have a turnover of less than £50 million and / or an annual balance sheet total that does not exceed £43 million. Sole traders are also eligible.
 

For more information visit https://gigabitvoucher.culture.gov.uk/.

Fraudulent Trading in Insolvency Explained

In our last post we discussed ways to avoid accusations of wrongful trading in insolvency. We said that whilst wrongful trading is a result of negligence, fraudulent trading is more about dishonesty. Fraudulent trading occurs when a director purposely sets out to deceive or defraud creditors, or acts unethically or recklessly. It is a very serious offence that leads to criminal proceedings.

 

Fraudulent trading is covered by Section 213 of the Insolvency Act 1986. Where a company is entering into insolvency, it will find itself in the midst of a very in-depth investigation by the liquidator, during which the liquidator will look to ascertain whether any of the directors were guilty of wrongful or fraudulent trading at the time of being insolvent.

 

If the liquidator finds any evidence that could imply that the directors we operating outside of their official duties then this evidence will form part of the report they submit to the Secretary of State.

What is fraudulent trading?

If it can be proved that a director did any of the following, it is likely they will be subject to a fraudulent trading claim: 

• Accepted payments from customers for orders they knew they would not be able to fulfil
• Made attempts to maximise income in advance of liquidation
• Used credit facilities in the knowledge that the debts incurred could not be paid
• Sold company assets under market value
• Placed a particular creditor or creditors in a preferential position, for example by paying one creditor but not another (preferences)

What is misfeasance?

Any director or manager of a company entering liquidation who uses funds for an unauthorised or improper purpose; who makes or takes unauthorised loans or remuneration to other directors or who takes improper dividends is likely to be investigated under Section 212 of the Insolvency Act.

If found guilty, the director in question could well be forced to repay or restore any funds or property that has been misapplied, or pay the sum involved into the assets of the company.

How to deal with financial challenges in business

There is plenty of help available to businesses facing financial difficulties. The thing NOT to do is ignore what is going on and use hope as a tactic or, worse still, any of the actions listed above. Instead, be open and upfront with everyone. Talk to your creditors. Discuss things with your bookkeepers and accountant. Ask the bank for advice. No one will want to see you fail and will be ready and willing to help, as long as you just ask.