WHAT AGREEMENTS should I think about putting in place for my business?

You may or may not know that the Oxford English Dictionary defines furlough as “to give somebody permission to leave their duties for a period of time”.

In the press, we have seen increasing mention of ‘furlough fraud.’ It has recently been estimated that the UK Government is likely to write off £4.3 billion pounds in furlough fraud.

What is furlough fraud?

It might sound obvious but a successful business needs the right elements in place at the right time, with diverse people bringing the right skills and resources to support the business’s strategy and growth. The type of support your business requires can all depend on where you are in terms of both the legal and commercial lifecycle. These phases are not, of course, set in stone and every business is different, but considering where you’re at it might (as broadly outlined below) indicate some areas where ‘checking in’ and reviewing your legals might be timely.

Examples of furlough fraud could include:

Startup

• Furloughed staff being asked to continue to work;

• Claiming furlough pay for staff who did not qualify for the scheme;

• Claiming furlough pay for ‘made up’ staff;

Businesses within this stage will have developed an understanding of their ‘mission’, but may not yet be commercially viable. During this phase, many of the individuals supporting the business are often enthusiastic founders, who are supporting the business without formal compensation or employment contracts (this is often the case with software developers who support their families or friends without a salary).

• Over-claiming furlough pay;

• Not passing the full amount of furlough pay to the furloughed employees;

• Deliberately providing false information to receive furlough pay from HMRC.

While it is understood that only a very small minority intended to defraud HMRC, it is known that HMRC have started ramping up their investigations and actively following up on tip-offs received. Many business owners in the UK who had accessed

Typically, at this stage, your company will be incorporated and registered on Companies House (it may have unamended Articles of Association, or perhaps something more bespoke is required). Operational agreements, such as a Shareholder’s Agreement (SHA) can be helpful to set out individual roles, and the rights and obligations attaching to shares and to positions within the company.

A SHA often acts as a key legal foundation stone for start-ups, and you should also consider early on whether you will be utilising the Enterprise Investment Scheme (EIS) or Seed Enterprise the furlough scheme to help retain their employees during the pandemic may receive queries from HMRC. These could even be in cases where only legitimate furlough claims had been made.

Investment Scheme (SEIS) and factor this in. As the brand identity is cultivated and unique products or services are developed, Trademarking and other forms of IP protection are likely to be necessary to protect your brand concept being replicated by potential competitors. Patent applications can be a lengthy process, and as such should be initiated as soon as reasonably possible. Domain names and if applicable, design rights should be registered as soon as possible.

Help – I’ve had a query from HMRC

This is a really good time to consider whether any informal commercial agreements or other arrangements need to be formalised. Company websites will need to include terms and conditions, and customers’ data protection rights need to be considered. This means that privacy policies and cookie policies need to be put in place and you need to make sure you’re registered with the ICO.

show your intention of being cooperative, but will also help address any issues, without the need for escalation.

Tip 3: Make sure you review your records and keep copies.

Funding and growth

Below are some practical tips to help you respond to any queries received.

If your brand is a shop, office or otherwise requires a physical location, tenancy or commercial property leases may need to be negotiated and agreed (these might look standard but we would advise that these are reviewed before signing).

Tip 1: Do not panic!

Understand that HMRC may be following up leads or simply asking questions to ensure that all claims made were done so properly.

This will allow you to refresh your memory and more importantly have all your documents ready to disclose to HMRC if needed.

Tip 4: Be transparent.

In the event you realise that a mistake has been made, or any overpayments have occurred, make sure you promptly inform HMRC.

By now your company has begun to establish its name within certain market places. As the business has grown, perhaps the profit margin has been eroded by certain operational challenges which come with scaling up a business. There may be changes in staff, and less profitable revenue streams are hived off. Contract Reviews may be due, and other distribution / franchise / outsourcing or Service Agreements may be entered into. People’s roles within the business might have evolved, and salaries and benefits increased, and these changes also need to be documented.

Tip 2: Do not bury your head in the sand.

For most businesses terms and conditions for customers or suppliers (for either goods / services) will be required (and you’ll need to comply with consumer rights law). A number of informal commercial agreements may also be in place. Its important to consider whether customers and suppliers need to enter into NonDisclosure Agreements or Introducer Agreements, both of which are crucial legal tools for businesses to protect their intellectual property, confidential information, and business relationships.

While it is easy to get distracted in keeping the business running, it is important to understand that this is not going to go away. If you cannot find time yourself to engage with HMRC, then make sure you instruct an adviser who can do so on your behalf.

Early-stage company

At this point, the business may be operating in its riskiest phase. Cash-flow is essential at this stage, and businesses may be starting to consider whether pitching for a private equity injection could be beneficial to boost growth. Employment Agreements should be put in place for staff, as the team may be growing a little. One question we often get asked is about the use of unpaid interns – and the short answer is that everyone providing value or contributing to the company should be paid the minimum or living wage (as applicable).

It is often too easy to say that we ‘will deal with this later’ and soon enough a month or more has gone by. It is always better to be proactive and start engaging with HMRC as soon as possible. This will not only

Tip 5: Keep records for a minimum of six years.

The company may be seriously considering private equity/venture capital injections, perhaps across multiple funding rounds.

Even if you were successful in addressing any queries and the matter was subsequently resolved, do keep your records for a minimum of six years to assist you with any potential future queries.

More space may be required for the business, so commercial lease negotiations may come back into play on a larger scale for an expansion to the current space or entering into new lease agreements.

We can help

The final phase of ‘Maturity and Exit’ will be dealt with in a separate article. If you wish to read this update, or would like to discuss any of the above further, please follow Guy Wilmot, Rachael Taylor and Naomi Redman of Russell-Cooke on Linkedin, or alternatively email us directly.

It goes without saying that if any actions are being taken against you by HMRC, please seek independent legal advice urgently. Contact our senior associate Sheetul Sowdagar in our professional regulation team, for help.