November 2020 - MLP Law

Employee Ownership Trusts

What is an Employee Ownership Trust (EOT)?

The EOT was introduced by the Finance Act 2014 as a particular type of EBT that meets certain statutory criteria. This works in conjunction with certain tax benefits that became available for both companies and individuals. The purpose was to encourage the creation of employee-owned companies as an alternative to a trade sale.

Why consider employee ownership?

  • Employees are more engaged with and committed to the company
  • Likely to improve productivity and performance
  • Builds a shared culture and collaborative way of working
  • Can be a solution to ownership succession
  • Owners can have a partial exit but stay involved
  • Owners can allow employees to continue their legacy
  • Tax reliefs for retiring owners and employees

What tax reliefs are available?

  • The initial sale of shares to the EOT is exempt from capital gains tax (CGT) 
  • The company under EOT control can pay bonuses to employees of up to £3,600 per year per individual free of income tax
  • EOT has the same inheritance tax reliefs (IHT) as other employee trusts

Potential drawbacks

  • There are significant tax disincentives to a subsequent sale of the company, so careful consideration must be given to the long term plans
  • The EOT must obtain and retain a majority stake (the ‘controlling interest’ requirement) so trustees must hold more than 50% of shares and voting rights of the company
  • The ‘all employee benefit’ requirement means it must apply to all employees on the same terms, so no discretion as to participation or terms
  • The ‘trading’ requirement – must be a trading company or holding company of one
  • There are stricter rules and criteria than an EBT or other trusts
  • Not suitable for all companies

Establishing an EOT

Usually, the EOT or the trust company established to hold the shares as a corporate trustee will acquire a controlling interest in a company, purchasing shares from individual shareholders. Usually, payment will be on deferred terms, although shares may on occasion be gifted. There will need to be a valuation exercise to ensure the correct value is being paid. 

There is no CGT payable but the trustees do need to justify the price they paid for the shares and there must be a realistic prospect of being able to make repayment. There will be a sale and purchase agreement detailing the terms of the sale. Articles of association will need to reflect the shares, whether they are all the same class or different classes. The trust deed will be a key document and will set out how the trust is to work, how assets/funds are to be held, how they can be used, and how distributions can be made. 

If you would like more information or if your have any questions or queries relating to the above, please contact Rachel Owen from our Commercial and Commercial team on 0161 926 1579 or rachelo@mlplaw.co.uk to receive expert legal advice for your business.

Further Delays in Enforcing Possession Orders’

The Public Health (Coronavirus) (Protection from Eviction and Taking Control of Goods) (England) Regulations 2020 provide that court enforcement officers and bailiffs will not be permitted to enter properties to enforce residential possession orders. The Regulations also prevent them from entering properties to take control of goods to pay money judgments.
The Regulations in effect give force to a “request” made last month by the Lord Chancellor, Robert Buckland, to enforcement officers not to enforce possession orders during the second national lockdown.


The Regulations are scheduled to remain in effect until 11th January 2021.
There are exceptions to the Regulations, albeit very limited in scope, which will allow possession orders to be enforced against trespassers (as opposed to those occupying under a tenancy agreement) and in circumstances where rent arrears amounting to at least 9 months’ rent – but crucially any unpaid rent arrears accrued after 23rd March 2020 must be disregarded.
During the first national lockdown, the courts did not hear residential possession claims. Any existing proceedings were stayed (i.e. put on hold) and no new proceedings could be issued.

This restriction was lifted in September. The courts have continued to hear possession proceedings during this second lockdown but the effect of the Regulations is that a landlord who obtains a possession order in the next few weeks will be unable to enforce it until January at the earliest.
Given the inevitable backlog which will have built up in the meantime, it is likely that even then there will be further delays in obtaining an eviction appointment.

Landlords remain able to serve notices to bring tenancies to an end – both under the “no-fault” section 21 route and in circumstances where the tenant is alleged to be in breach of the tenancy, using the section 8 route – but subject to certain limited exceptions the notice period required is six months, and that will remain the case until (at least) March 2021.

If you are a landlord and need advice on how to deal with a tenant that isn’t paying their rent or other tenancy issues, please contact Mark Turner on 0161 926 9969 or email markt@mlplaw.co.uk.

Deadlines for lodging furlough claims

HMRC has made it clear that there are strict time limits for lodging a furlough claim.

Broadly, the claim has to be submitted within two weeks of the end of the previous calendar month (see below) unless there is a “reasonable excuse for failing to make a claim in time”.

The Government has produced guidance, giving examples of what is meant by a ‘reasonable excuse’, summarised below.

These are the deadlines:

Claim for furlough days inClaim must be submitted by
 November 2020 14 December 2020
 December 2020 14 January 2021
 January 2021 15 February 2021
 February 2021 15 March 2021
 March 2021 14 April 2021

The HMRC guidance states that the following examples ‘may’ amount to a reasonable excuse for missing the deadline: 

  • your partner or another close relative died shortly before the claim deadline
  • you had an unexpected stay in hospital that prevented you from dealing with your claim
  • you had a serious or life-threatening illness, including Coronavirus related illnesses, which prevented you from making your claim (and no one else could claim for you)
  • a period of self-isolation prevented you from making your claim (and no one else could claim you)
  • your computer or software failed just before or while you were preparing your online claim service issues with HMRC online services prevented you from making your claim
  • a fire, flood, or theft prevented you from making your claim
  • postal delays that you could not have predicted prevented you from making your claim
  • delays related to a disability you have prevented you from making your claim
  • an HMRC error prevented you from making your claim

Please don’t hesitate to contact the team at MLP Law with ideas about topics or for detailed advice in connection with any of the issues raised. You can reach us at employment@mlplaw.co.uk or @HRHeroUK or on 0161 926 9969.

Unsolicited marketing: we all moan about it…but is it a case of Pot, Kettle, Black when it comes to your approach to marketing?

Most of us at some stage have expressed frustration about receiving unwanted marketing calls, trying to sell us something we do not need or are remotely interested in. Chances are, many of those organizations are contacting us foul of The Privacy and Electronic Communications (EC Directive) Regulations 2003 (PECR). 

However, is there a chance that your organization’s marketing practices could also put you at risk?

Overview

Although the introduction of the GDPR was arguably one of the most high profile shake-ups of privacy laws in recent years, a perhaps lesser well known, but equally important, set of privacy rules, is PECR. Having been adopted in 2003, PECR came long before the GDPR or the Data Protection Act 2018. The PECR now sits alongside the GDPR and sets out guidelines on unsolicited marketing using electronic communications i.e. by telephone, email, or text. 

It’s important firstly to note the difference between solicited and unsolicited marketing: 

  • Solicited marketing is when your customer has asked you to send them a specific type of marketing information. 
  • Unsolicited marketing is when you send your customer marketing information that they have not specifically asked for. So, even though they may have ‘opted in’ to receive marketing information from you, this simply means that they are not opposed to receiving such information in the future – regardless of the content. 

If you undertake solicited marketing, then the PECR will not apply to you, as it does not restrict this form of marketing. However, if your organization sends unsolicited marketing messages, you will need to ensure you comply with PECR – or risk incurring a hefty fine.

So, can you continue sending your customers unsolicited marketing?

Put simply, under PECR, consent to receiving marketing messages is needed before you send any unsolicited marketing material. 

This consent needs to be given knowingly and freely, and you need to provide information about your organization and the method of marketing you wish to use (e.g. by telephone, email, or text). The customer must take positive action to confirm their consent. This could mean, for example: ticking a box, adding a consent button on your website linking to an ‘opt-in’ page, or completing an online consent form. Whatever method you use will depend on your organization and your usual course of business with your customers – however, as stated above, the main thing to bear in mind is that the consent must be given freely. 

Once consent has been obtained, you should keep a record of which customers gave it, the type of marketing they wish to receive, and how they want to receive it. This is important, as if there are ever any complaints against your organization, you will be able to show that you were compliant and hopefully avoid incurring a fine. 

Finally, you need to remember that customers have the right to withdraw their consent at any time. As such, you need to provide the option for them to do so in all your communications with them. This could be as simple as a statement saying ‘if you wish to no longer receive any marketing from us, please click here’

What will happen if you don’t comply?

Non-compliance with PECR can result in hefty fines of up to £500,000. Sanctions for breaches of PECR are enforced by the Information Commissioners Office (ICO), which can fine you up to £500,000.

The ICO’s powers are wide-ranging, however, and a lot of factors will be taken into account as explained in its current Regulatory Action Policy.  

For example, they will consider factors such as the nature of the breach and how serious it is, the number of people affected, and how much their privacy is invaded. Aggravating factors include your organization’s attitude to non-compliance – have you been intentionally negligent and reckless in their approach to marketing? Equally, the ICO may also take mitigating factors into account, a consider, for example, what steps have you taken to minimize any damage caused by affected individuals. 

Things to consider

If you or your organization sends any form of marketing material out, firstly consider whether it is unsolicited; if so, we recommend you review your current marketing practices to determine if you are PECR compliant and, if not, take immediate steps to ensure you are. 

How we can help

In light of the above, are your current marketing practices compliant under PECR? 

If you think you require advice on this and if you would like us to review your current marketing regime to ensure you are compliant, contact our Commercial and IP team on 0161 926 9969 or commercial@mlplaw.co.uk to receive expert legal advice for your business.

Share Incentives: A Brief Overview of Employee Benefit Trusts and Employee Ownership Trusts

What is an Employee Benefit Trust (EBT)?

An EBT is a discretionary trust usually set up by a company for the benefit of the employees. A trust refers to the legal relationship created by a person (the settlor) when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. 

The trust property of the EBT is held by a trustee for the benefit of a class of beneficiaries, which is usually employees and former employees. Usually, the employer company will set up the EBT, unless there is a group of companies, in which case usually the ultimate parent company will constitute the EBT, but an EBT can be established by an individual or a company.

Why establish an EBT?

There are several reasons why companies establish EBTs, such as:

• to acquire and hold shares for the purpose of providing awards under an employee share scheme

• to store a number of shares for the purposes of benefitting employees

• to enable bonuses in cash or shares to be deferred

• to act as a co-owner of shares (with employees) under a joint share ownership plan

• to provide an internal market for company shares

• to protect against increases in share price when granting awards under an employee share scheme

• to provide a buyer for shares which a seller (usually a departing employee) is required to sell under share plan rules, the company’s articles of association, or a shareholders’ agreement

There are tax benefits for establishing an EBT, including certain inheritance tax reliefs and capital gains tax reliefs.

What is an Employee Ownership Trust (EOT)?

The EOT was introduced by the Finance Act 2014 as a particular type of EBT that meets certain statutory criteria. This works in conjunction with certain tax benefits that became available for both companies and individuals. The purpose was to encourage the creation of employee-owned companies as an alternative to a trade sale.

What tax reliefs are available?

  • an exemption from capital gains tax (CGT) on certain disposals of shares to an EOT
  • limited relief from income tax on bonuses—up to £3,600 per year per individual paid by an employer company owned by an EOT
  • relief from inheritance tax (IHT) on certain transfers into and from EOTs

Conditions to be an EOT

  • the trading requirement – must be a trading company or holding company of one
  • the all-employee benefit requirement – must apply to all employees equally
  • the controlling interest requirement – trustees must hold more than 50% of shares and voting rights of the company

For a more detailed look at both EBTs and EOTs, subsequent blogs will follow in this Share Incentives series.

HMRC publishes guidance on the extended furlough scheme

HMRC has published further guidance in respect of the now extended Coronavirus Job Retention Scheme (“CJRS”).

As previously announced, the CJRS will now continue until 31 March 2021 and, for the period 1 November 2020 to 31 January 2021, the Government will pay 80% of wages for hours not worked by furloughed employees, up to a cap of £2,500 per month. A review will take place in January 2021, following which employers may be required to make a contribution (as they did in September 2020 and October 2020).

The updated guidance provides confirmation that:

· the extended scheme is open for employees who were employed on 30 October 2020, as well as employees who were made redundant or stopped working on or after 23 September 2020 if they are then rehired;

· employers do not need to have previously claimed for an employee before 30 October 2020 to claim for periods from 1 November 2020;

· the option of “flexible furlough“ remains, meaning employers can furlough employees for any amount of time and any work pattern, while still being able to claim the grant for the hours not worked;

· employers can continue to claim for periods ending on or before 31 October 2020 until the deadline on 30 November 2020; 

· there is no maximum number of employees that an employer can claim for from 1 November 2020;

· employers must confirm in writing to the employee that they have been furloughed, and keep a written record for five years; and

· employers can agree retrospectively to furlough someone with effect from 1 November 2020, as long as the agreement to retrospectively claim furlough occurs on or before 13 November 2020.

The updated Guidance also contains two interesting developments. The first is that the Government is currently reviewing whether employers should be able to claim for employees serving contractual or statutory notice periods and will change the approach for claim periods starting on or after 1 December 2020. Further guidance on this review will be published in late November 2020. 

The change of approach regarding furlough grant claims for employees serving out notice periods would on the surface appear to be a reflection of the CJRS purpose as a job retention scheme, but in practice may simply encourage employers to bring forward any planned dismissals to ensure notice is served before the change of approach kicks in. 

The second development is that, from December 2020, HMRC will publish employer names and company registration numbers of any companies and Limited Liability Partnerships (“LLPs”) who make claims under the CJRS for December onwards.

Please don’t hesitate to contact the team at MLP Law if you have any questions about the CJRS or need assistance on managing the impact of the COVID-19 pandemic on your business. You can reach us at employment@mlplaw.co.uk or @HRHeroUK or on 0161 926 9969.

CJRS (Furlough) Scheme Extended to March 2021

The Chancellor has announced that the Coronavirus Job Retention Scheme (CJRS) will remain open until 31 March 2021.

For claim periods running to January 2021, employees will receive 80% of their usual salary for hours not worked, up to a maximum of £2,500 per month, therefore the scheme is more generous than the scheme that ran earlier this year in September and October.  We may find, however, that the percentage is reviewed (and reduced) for February and March 2021.

Full guidance is due to be published on 10 November 2020 but this is the detail that has been provided:

  • Employers can claim even if they, or the relevant employees, had not previously used the CJRS.
  • The furlough will continue to be flexible, i.e. employees can continue to do some work.
  • Employees who have previously been furloughed continue to have their reference pay and hours based on the existing furlough calculations (as under the old scheme).  
  • Employees who have not previously been furloughed will have a different pay/hours reference period, where their pay is based on 80% of the wages payable in the last pay period ending on or before 30 October 2020 (for those on fixed wages), or 80% of the average payable between the start date of their employment or 6 April 2020 (whichever is later) and the day before their CJRS extension furlough periods begins (for those on variable wages).
  • Employees can be furloughed if they are shielding in line with public health guidance (or need to stay at home with someone who is shielding).  That does not, of course, mean they have to be furloughed.
  • Employees that were employed and on the payroll on 23 September 2020 who were made redundant or stopped working for their employer after that date can be re-employed and claimed for.
  • The Job Support Scheme and the Job Retention Bonus have been put on hold.
Please don’t hesitate to contact the team at MLP Law with ideas about topics or for detailed advice in connection with any of the issues raised. You can reach us at employment@mlplaw.co.uk or @HRHeroUK or on 0161 926 9969.

Taking care of you during lockdown and beyond

Leading mental health workers have warned that this second lockdown could trigger spikes in self-harm, alcoholism, and domestic abuse, which could also lead to intense loneliness and depression. Ironically, this could make people vulnerable to Covid.

Our family Partner Rachel Wood is a Resolution accredited specialist in dealing with domestic abuse and is here to support and assist anyone requiring advice and or necessary protection from domestic abuse within a relationship.

If you would like more information or would like to speak with Rachael, please do so by calling 0161 926 1581 or email at rachaelw@mlplaw.co.uk