The Fizz! Blog

National Minimum Wage increases

From 1 October 2009 the national minimum wage will increase:

• £5.80 an hour to workers aged 22 and above
• £4.83 an hour to workers aged 18-21
• £3.57 an hour to workers aged below 18 who are no longer of compulsory school age

As ever,  employers should make sure they adhere to these new rates.

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Some redundancy payments to increase

The weekly limit used in the calculation of statutory redundancy pay increases from £350 to £380 on 1st October. For employees earning less than £350 a week, redundancy pay won't change, but for those earning more than that threshold it will.

Business Link has another of their very helpful tools here, designed to help you follow the correct procedures when an employee must be dismissed or made redundant.

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Are you giving your staff enough time off?

From 1 April 2009, the minimum paid annual leave that employers must to give their employees increased.  For a full time worker, the old minimum was 24 days.  Now it's 28 days.

For part-timers, and people joining part-way through a holiday year, Business Link has provided a calculator for working out their holiday entitlement.

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Holiday pay for the long-term sick

There was some publicity over the weekend (pretty neutral in the case of The Telegraph, doom and gloom in The Mail) about the decision of the House of Lords in the case of Keith Ainsworth.  He was a tax inspector who was off work sick for two years, after which he left.  When he left, he wasn't paid for the holiday that he hadn't taken over those two years.  His employer (HM Revenue & Customs, obviously) considered that a) he hadn't worked for two years, so wasn't entitled to any holiday in that time and b) even if he was entitled to it, he'd left work without taking it, and that was his loss - he had no right to be paid for it.

Mr Ainsworth thought they were wrong on both counts, and that's what I thought on the face of it as well.  In the case of the first point, I'd have been absolutely certain that HMRC was wrong, and that he was entitled to holidays (and holiday pay) even if off sick.  On the second point, I'd have thought that HMRC was probably wrong, and in the absence of any contractual agreement they couldn't just not pay him for the holidays he'd been unable to take while sick.

Which, although it's taken years of wrangling to finally establish it, is correct.  However, I would have to concede that, reading the detail of the story, the reasons for the verdict were completely different from my reasons and the accuracy of my view was entirely coincidental.  So I'm not going into a career in employment law any time soon.

In any case, if you're an employer, be aware that the rules on holiday pay for those off sick is something that you need to give some thought to if you find yourself with a long-term absentee.

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'Tips as wages' loophole to close

This is a business news story from a week or two ago that didn't receive as much coverage as I thought it would.  Ever since the minimum wage legislation was introduced, many restaurants (including some major chains) have avoided complying with it by considering tips to be part of their employees' earnings.  Unions have been arguing against this, saying that tips are supposed to be a gesture from the customer over and above the minimum wage.  It looks like the unions have won - the government has announced that from October restaurants must pay the minimum wage regardless of any additional tips that employees make.  I imagine this will significantly impact the profit of quite a few restaurants, and perhaps hospitality businesses will find a new way of escaping the rules, but I think most people will agree that in principle it's fair enough.

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Project management gone very, very wrong

One of my passions in life is the Edinburgh Fringe Festival.  You may be aware that last year’s festival was hit by massive ticketing problems –new software commissioned by the Fringe to sell tickets at counters, by phone and online pretty much imploded almost as soon as it went live.  If you were there at any point, you couldn’t possibly have remained unaware of the chaos caused.

Yesterday, an independent report into the fiasco, commissioned by the Fringe, was released.  It essentially amounts to a checklist of all the mistakes you can make when running a project.  Here are some of the key issues that it highlights:

• The type of package chosen was based upon dogma, not a real business case.  The Fringe decision-makers were insistent that new, bespoke software had to be created just for them.  They were convinced that their requirements were so special that “off the shelf” software – even modified for their purposes – was not good enough.  It appears that this was based on an obsession with innovation, not a reasoned, costed approach.  As a result, a proposal from an established supplier of ticketing software was rejected, despite being far cheaper than the bespoke proposals.   I’ve often seen this happen in smaller organisations.  They will create special software, either by commissioning it externally or by a director or employee spending time on it.  And all the while something off-the-shelf probably could have done the job fine.  We all like to think our businesses are unique, but often they do have things in common with others.

• The final shortlist of three suppliers included one whose sole business was ticketing software, one with extensive experience of ticketing software, and one with absolutely no experience of ticketing software whatsoever.  Guess which one was awarded the contract?

• One of the shortlisted suppliers was considered to be in good shape financially.  The other two were both assessed during the tendering process as having a “high risk of business failure” – that’s literally what was formally documented.   Guess which category the winning supplier fell into?  This had a real effect in the end, as towards the end of the development process it found itself unable to pay developers to whom it had subcontracted work – and they downed tools.

• Not enough time was allowed for the creation of the software.  The Fringe basically runs for August.  You’d think that work on any new ticketing system would begin in September, right?  No, the contract was signed at the start of March, giving 14 weeks before the system had to go live.  With a supplier who had no experience of ticketing software.  Lunacy.  It’s often the case that large organisations – particularly public sector or not-for-profit ones – can take a long while to make decisions.  That’s what happened here – the Fringe started the process internally after the 2007 Fringe, but meeting followed meeting followed meeting and the decision-making process took an age.  They must have known that would happen.  They should have either started the process earlier, to give a bigger window in the lead up to the 2008 festival, or deferred the implementation date until the run up to the 2009 festival.

• Through the planning stage, the Fringe sensibly retained an experienced project manager to run the process on behalf of the Fringe.  When the contract was awarded, they let the project manager go.  At that point, the management of the project became the sole responsibility of the software company, and the Fringe just had to trust them when they said the project was going well.  There was no single individual within the Fringe organisation with primary responsibility for making this project happen – despite that fact that it was easily the biggest threat to the smooth running of the 2008 Fringe.  That almost defies belief.

I could go on, because there’s plenty more where that came from!  If you’re interested in reading all 48 pages of the actual report, you can find it here.

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Selling your business?

In the current economic climate, it's unlikely that too many people are selling their businesses - at least not for a good price - but here's something to think about anyway.

A new system has been introduced recently for calculating the penalties due when an individual or business underpays its tax.  Among other factors, the penalty will be reduced if the taxpayer co-operates with the authorities.

This raises an interesting problem when a company is sold to a new owner.  The sale contract will almost always include a clause requiring the old owners to suffer the cost if it subsequently turns out that the company has underpaid its tax under their stewardship.  However, the exact amount that's due will depend upon how helpful the new owners are to the taxman when the problem is uncovered.  And, since the new owners aren't going to have pay the tax, there's absolutely no reason at all for them to be helpful in the slightest!

Vendors would be well advised to have the sale contract require the new owners to do all they can to mitigate any tax penalties.

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Banks - an observation

If I'd asked you this morning to invest £800 in the UK banking industry, I imagine it's quite likely that you'd have declined the opportunity.  "You know what, Greg?  I'm just a bit of short of cash this month.  No can do.  Sorry about that."

If I'd then suggested that this wasn't a problem, and that you could just borrow the £800 from somewhere and then invest it, I suspect I would have been turned down once more.  "Greg, it's a tempting and imaginative plan, but, taking into account the volatile and insecure nature of the banking sector at present, along with the general fears about the wider economy both here in the UK and abroad - not to mention my existing borrowing - I think that taking out a loan in order to invest in the banking sector would suit neither me nor my investment plans at present.  Thanks - but no thanks."

But this morning, the government ordered every man, woman and child in the country to do exactly that.  You have no choice in the matter.  We, as a nation, are borrowing £50 billion to help the banking industry - that's about £800 pounds each.  We'll have to pay that amount back later on, to whoever we have borrowed it from, with interest.  If you didn't want to borrow £800 to invest in the banking sector - unlucky!  You just have.

The banks will then use the money by lending it straight back to us (in the form of mortgages, loans and credit cards) and charging us interest.  The plan is that the interest they charge us on the amount that we owe them will enable them to repay the amount that they owe us so that we can then repay whoever has lent us the £50 billion.

I'm not really saying that this is the wrong thing to do.  We are where we are, and, although it might not be an ideal situation, we have to do what's necessary to get ourselves out of it.  But when you break the plan down into its constituent parts, you have to acknowledge that it's a bizarre state of affairs.

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Doing business in difficult times...

...was the name of a seminar that I went to this morning.

It was a very worthwhile session, though one of the presenters did assert that, with a recession coming, accountants will be advising that you cut back on costs as far as possible.  For what it's worth, that's not generally my feeling.  If anything, it's even *more* important than usual in a recession to maintain your marketing efforts, recruit and develop talented staff and keep building solid systems and infrastructure.  If your competitors are struggling, it could be a brilliant opportunity to take advantage of their weakness and come out of the downturn way ahead of the game.

The presenter did then talk about a lunch he'd had with the managing partner of one of the Big 4 accounting firms, who is apparently argung over just this with his partners.  The other partners want to be cautious, cut back and lay off staff, the managing partner wants to keep pushing on in order to maintain their market position and keep the pressure on their rivals.  So that's at least one other accountant who isn't advocating cutting costs to the bone!

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Your liability isn't always limited

Traditionally, the main benefit of trading via a limited company has been limited liability - if the company goes pop and is unable to pay its debts, then the shareholders have no obligation to settle those liabilities on the company's behalf.  However, that doesn't mean that the directors (who, in 90% of cases, are the same as the shareholders) can behave in a cavalier manner.  If they do, then they may commit a civil offence known as Wrongful Trading, and be found personally liable for company debts.

One company director found this out over the summer, at enormous cost.  Basically, the events in the case of Paycheck Services 3 Limited were as follows:

• Although the companies he controlled were closely related, the director of them believed, from his understanding of the legislation, that they were not associated for tax purposes.  If they had been associated then their tax liabilities would have been significantly higher.

• On his assumption, the director paid out dividends from the companies that only left enough in the bank to pay the smaller amount of tax he believed to be due.

• The taxman told the director that he was incorrect, and that the companies *were* associated and their tax bills should be higher.

• The director continued as before, paying out big dividends leaving only enough in the kitty to pay the lower tax bills he considered appropriate.

• The taxman once again suggested that to the director that he was wrong, and so the director sought the view of a barrister specialising in tax law.  The barrister told the director that the taxman was right.

• Once again, the director continued as before, now considering both the taxman and the barrister to be mistaken.

• The director eventually accepted that he was wrong and the taxman right.  However, because of the chunky dividends that had been paid out, the companies could not pay the higher tax bill and they were put into liquidation.

You will be unsurprised to learn that the director's conduct in paying out dividends that left the companies unable to pay their tax liabilities was found by a court to be reckless.  Amusingly, they decided that he wasn't reckless during the period that only the taxman disagreed with him - the judges considered that the taxman is wrong so often that disagreeing with them was not reckless, it was reasonable!  However, from the instant that the barrister gave him the written opinion that he was in the wrong, he very clearly was being reckless.  On profits made from that point onwards, he was liable to pay the extra tax due.

The moral of the story - just because you trade through a company, you cannot do exactly as you wish and then walk away from the consequences.

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