An Assignment on the Legal Framework of the UK Tax Regime on Small Businesses

Introduction

In this assignment, I will be working for an organisation called smallbusiness.co.uk, this is a consultancy that offers beneficial information for small business owners. The organisation offers free legal advice online to help them start up their business. I will be helping people by replying to each enquiry, I will do this by explaining the legal framework and how the UK tax regime affects businesses starting up in England and Wales. I will also develop the awareness of the rights and responsibilities that employees and owners have within a business.

Online Enquiry 1

Dear B. Phillips, Hello and thank you for your enquiry regarding your retailer for failing to meet payment deadlines. You should try contacting the retailer by writing a formal letter and try to negotiate an agreement. To ensure this you should give them a sensible amount of time to reply back to you, this could be up to a month. If this fails the court can take action against the party. Regarding your claim this will be a private case as it is between you and the other party. This would be dealt with the County court as they deal with these kinds of matters, to make a claim against the party, this can easily be done online at courtsni.gov.uk. You may be eligible to be reimbursed money that has not yet been recovered from the overdue invoice payments, as you previously stated that you have a formal contract between you and the retailer. The retailer can be sued as this is a breach of contract, as they have failed to meet the payment deadline date according to the ‘Unfair Terms in Consumer Contract Regulations 1999’ or ‘Unfair Contract Terms Act 1977’. A ‘Breach of contract’ can be claimed when the party claiming the breach have actually done all of the duties under the agreed contract, as opposed to the other party who have failed to commit to their duties to which they have obliged. This can either be stated on the terms and conditions of the contract otherwise by word of mouth formally making a verbal/ oral contract. This however can be very difficult to prove in terms of the existence and/or its terms. Because of this your party may not be able to enforce it or may be able to settle for a variation of the original claim that is less money. There are remedies available in the occurrence of ‘breach of contract’ this could be in the form of;

• Compensatory damages is a sum of money awarded by court to compensate for any loss, disadvantages, or injuries as an unlawful conduct of another.
• Legal fees and costs so there will be a reimbursement of fees
• Rescission is unmaking of a contract between two parties, to bring them back to a position before they entered the contract.
• Injunction is an equitable remedy, where the court can order specific instructions. Any party that does not act accordingly with an injunction, can face criminal or civil penalties which include imprisonment and monetary sanctions.

Misrepresentation would refer to your party if the other party made a false statement to confirm a deal. You can also be eligible to compensate for any negligent misrepresentation if it states on the contract that invoice payments are up to date. There are more options one of which could save you from spending money on court fees and resolve any matters. You could use the small claims court, which is a local court where claims can be made for small amounts of money under A£10,000, it can be done promptly without legal representation. A third party, a Mediator can be used alternatively to bring both parties to come to an agreement and form a solution. This can be another result from the county court as small claims can be resolved through mediation. I hope that this has helped answer your enquiry and best of luck for the future.

Online enquiry 2

Dear Jenny, Thank you for your enquiry, I have revised through your query and I will firstly explain the benefits and drawbacks of each type of business ownership; sole trader, partnership and private limited company. As stated by the Valuation academy (2014) sole traders are recognised as being a business with a single owner. Which means this individual is self-employed and runs the business themselves or by employing staff. It is generally difficult for the sole trader to raise capital as they can only use their own sources for example personal saving and consumer loans. The owner is also responsible for any debts the business may occur as they have unlimited liability and also retains all profit accumulated. Unlimited liability as explained by Investopedia, 2014 states that owners can be held personally accountable for a business's debt. For example, if three partners each invest A£20,000 in a business. The business accumulates A£150,000 in liabilities. If the business is unable to repay the debts or defaults on its debt, each of them is equally liable for the debt. In other words, each would have to come up with A£50,000 above their initial investment to satisfy the debt which also places their personal assets at risk. Further to being a sole trader, they will be subject income tax on all profits that are made after overheads. Income tax is one of the main source of funds that is used to support the general public and its activities, which is used by the government. Businesses are obliged by law to complete tax returns every year to assess if there is tax due to be paid or to be offered a tax rebate, as this has been explained by Investopedia, 2014. They are also subject to capital gains, this applies to everyone each tax year. This means that businesses only pay capital gains tax if their overall earnings for tax year is above this amount. The annual exempt amount for 2014/15 is currently A£11,000 for individuals, personal representatives and trustees for disabled people. For other trustees the amount is A£5,000, this information has been obtained by the HMRC, 2014. Self-employed workers are also liable to pay National Insurance contributions, they are required to pay Class 2 and Class 4 NIC’s from the first day of starting up. They are eligible to pay, if their profits are above A£5,885 and this will increase after profits pass A£7,956. Class 2 will be subject to paying A£2.75 per week for the current tax year. Also Class 4 NIC’s are paid on any profits made, the current rate for 2014/15 tax year is 9% on income acquired by the sole trader this is between A£7,956 and A£41,865 and 2% beyond that amount, and this can also be viewed on the gov.uk website for more clarity. Partnerships are formed when there are two or more people who manage a business. They both share the unlimited liabilities, so they are jointly accountable for all the responsibilities of the business. It is reasonably simple to form a partnership but should invest some times in creating a partnership agreement. It is slightly easier to raise capital as there is more than one potential investor as compared to a sole trader. Employees may also be inclined to become a partner and see this as a motivation. However partners, are equally responsible in making decisions together, so if there is a conflict arousing between them this could eventually lead on to the partnership being liquefied. Registered companies, as defined by Investopedia, 2014 provides its owners with limited liability, since it is an entity. This means the company has its own identity and can borrow money. It also has to pay corporation tax and can be prosecuted .It is owned by shareholders and is supervised by a board of directors. The company will have its own identity which means the company can still be running even after the death of the owners and it can change its existing directors and current. They can raise capital through selling stocks to potential shareholders at any time. Dividends is a compulsory distribution of profit that is offered in the form of cash, property or stocks, this is given to the company’s stock holders, however this does not concern them when paying the businesses debts as they have limited liability. There are different types of companies, some of which that may apply to you are Public Limited Companiesare businesses that are established with at least 2 shareholders and a qualified secretary, with at least A£50,000 worth of shares issued. Private limited companies have similarities to PLC’s but can be run with just one member, however they are not permitted to raise capital by trading shares publically. As a limited company you will be eligible to pay Corporation tax. This is a tax levied on the company’s profits which is at 20% on profits above A£300,000. If this figure is breached then a higher rate of tax will incur. Profits that are made can always be retained, which can be used to pay salaries and dividends. To become a company you must first be incorporated at the Companies house. There are a few things that need to be submitted to receive a ‘certificate of incorporation’ which will confirm the existence of the company, the company number and the date of establishment. These are:

• acompany name- there are rules on what it can and can’t include
• anaddress for the company
• at least onedirector
• at least oneshareholder
• the agreement of all initial shareholders to generate the company - known as a ‘memorandum of association’
• details of the company’s sharesand the rights attached to them - known as a ‘statement of capital’
• writtenrules about how the company is run- known as ‘articles of association’

To register your company you can do this online on (https://www.gov.uk/register-a-company-online) it takes approximately two days process and there is a A£15 charge. Another way to register is to post the IN01 form, memorandum of association, articles of association and any additional information. Businesses that have been established previously, have advanced from being a small limited company this alteration has benefitted them, through satisfaction and have brought out monetary inducements.

Online enquiry 2

Dear Johal, Thank you for your enquiry. I would like to congratulate you on your successful business upon winning numerous rewards. I have read that you have a concern for one of your staff, Meera who is working in the front line position. I understand that your business has a uniform and customer service policy, however the fact that Meera wears a Niqab due to her practising her religion. This would be known as indirect discrimination of an employee’s faith.

Legal Implications

According to the Employment Equality (Religion or Belief) regulation 2003, as seen on the Independent 2014, it has made it against the law for employers to discriminate against their employees on the grounds of sexual orientation or religious belief. You as the employer would have to give a justifiable reason as to why it is essential for Meera to not wear the Niqab, you must also have tried to meet her needs. If it is practical and safe to wear clothing that consists with their religion. Where some businesses implement a specific dress code, there should be some attention to the proposed code to ensure it does not clash with the dress requirements of some religions. Overall dress codes which can have the effect of clashing with religious requirements can be considered as indirect discrimination. However, in some cases, it can be possible for the employer to show that there is a genuine business, or health and safety reasons for an employee has been treated, which don’t have anything to do with religion or belief. If this is the case, this will not be classed as discrimination. An employer must consider the possibilities of religious of belief requirements. Some of these requirements are likely to include the appearance of belief for example, wearing Headscarves, having a beard, star of David, skull caps etc. Employees are protected from religious discrimination in the workplace, this means that they are protected:

• whatever their religion or belief
• whether they are already working for your employer
• Whether they are applying for a job.

Ability to make a claim from Party B

Unfortunately, Party B will be able to file a claim. If the party, whom of which experience any kind of discrimination in the workplace, may be eligible for compensation. This also contains raising a grievance with the employer or proceeding with a claim to an employment tribunal, where the compensation maybe offered. This may have an impact on an organisation, which can damage the reputation of the business and employer. Also includes the cost of staff leaving and future recruitment and training. Employees can also be submitted to go to the Supreme Court due to it being illegal to have policy which makes it unlikely to meet than other people, which puts them in a position of disadvantage.

Recommendations

If you encounter any situation such as this in the future, you can manage this by dealing with the complainant that doesn’t involve any unlawful discrimination in case there is, you can correct the situation by concerning Meera, on what can be improved and what can be resolved by coming to an agreement. The risk of discriminatory employment can be avoided, by creating unbiased principles when assessing potential candidates. Also During interviews, the same queries can be implemented for all candidates that are applying for the job, making it a fair process. I suggest you to read the Equality Act 2010 & Employment Equality (Religion or Belief) regulation 2003. This will increase your understanding in order to process and act upon these laws and regulations. Also the ‘The Equality and Human Rights Commission’ provides guidance explaining, how to comply with equality and human rights law. As well as explaining the law, we can enforce it. Powers include helping individuals with their legal cases, and taking legal action against organisations that appear to have broken the law (Equality Act 2010). This will protect Meera’s rights because of her religion and belief, also try and discuss basic Rights at work of responsibilities of Managers/Owners (Yourself). Another best practice I can recommend is that you can reduce the risk of religious discrimination claims by carefully and timely recording the accurate business reasons for disciplinary or performance related actions and sharing these reasons with Meera. You can reduce the risk of discriminatory decisions by providing training to inexperienced managers and encouraging them to consult with more experienced managers or human resources personnel when addressing difficult issues. As an owner of your business, you may consider engaging with and educating the staff regarding any misperceptions they may have had or the equal employment opportunity laws. Also, I recommend implementing Maslow’s hierarchy of needs into your workplace. This will mature your understanding as an employer, and to carry out a fair and compliable working environment for employees. Maslow’s ideas surrounding the Hierarchy of needs, shows an understanding of employees motivation, training and personal progress and how to acquire their full potential. For example with Meera, by not allowing her to practice her beliefs in the workplace could overall affect her working performance. It could interrupt her physiological needs due to her clothing, social stability, her self-esteem will also be affected as this can have a knock on her confidence. I hope I have answered to all your enquiry, thank you.

References

Valuation Academy | The advantages and disadvantages of business organisation types Accessed: 15/11/14 (https://valuationacademy.com/advantages-and-disadvantages-of-business-organization-types/). Income Tax Definition | Investopedia. 2014.Accessed 15 November 2014 https://www.investopedia.com/terms/i/incometax.asp HM Revenue & Customs | Capital Gains Tax rates and annual tax-free allowances. 2014. https://www.hmrc.gov.uk/rates/cgt.htm. [Accessed 15 November 2014]. Limited Liability Definition | Investopedia. 2014. https://www.investopedia.com/terms/l/limitedliability.asp. [Accessed 15 November 2014]. Dividend Definition | Investopedia. 2014. https://www.investopedia.com/terms/d/dividend.asp. [Accessed 15 November 2014]. Advantages and Disadvantages of a Limited Company | The Company Warehouse Blog - Company Formation and Business Startup Advice. 2014 at:https://blog.thecompanywarehouse.co.uk/2010/02/03/advantages-and-disadvantages-of-a-limited-company/. [Accessed 15 November 2014] Guide to National Insurance Contributions (NICs) for small businesses | ByteStart. 2014. https://www.bytestart.co.uk/national-insurance.html. [Accessed 15 November 2014]. Self-employed National Insurance rates - GOV.UK. 2014 https://www.gov.uk/self-employed-national-insurance-rates. [Accessed 15 November 2014]. Set up a private limited company - GOV.UK. 2014 https://www.gov.uk/limited-company-formation/overview. [Accessed 15 November 2014]. Support for employees - Know your religious rights - Business Analysis & Features - Business - The Independent.2014 https://www.independent.co.uk/news/business/analysis-and-features/support-for-employees--know-your-religious-rights-1984327.html. [Accessed 15 November 2014]. Religion or Belief and the workplace https://www.acas.org.uk/media/pdf/f/l/religion_1.pdf. [Accessed 15 November 2014]. Citizens Advice - Discrimination because of religion or belief. 2014.Citizens Advice - Discrimination because of religion or belief. https://www.adviceguide.org.uk/england/discrimination_e/discrimination_discrimination_because_of_race_religion_or_belief_e/discrimination_because_of_religion_or_belief.htm#h_what_is_discrimination_because_of_religion_or_belief. [Accessed 15 November 2014]. Worship and Psychology [Part 2] RobStill.com https://www.robstill.com/worship-and-psychology-part-2/. [Accessed 15 November 2014]. Abraham Maslow's Hierarchy of Needs and diagrams of Maslow's motivational theory - pyramid diagrams of Maslow's theory. 2014.Abraham Maslow's Hierarchy of Needs and diagrams of Maslow's motivational theory - pyramid diagrams of Maslow's theory. https://www.businessballs.com/maslow.htm. [Accessed 15 November 2014]. 1

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