Guide of doing business in the UK

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A Guide To Doing Business in The UK

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a guide to doing business in the uk

a guide to doing business in the uk

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At MMS we believe that delivering an excellent service requires each and every member of our team to be performing at the top of their game all the time, whether they be lawyers or business support staff. In recognition of the importance of this team effort the models you see photographed in our literature and our website are MMS people from a range of disciplines across the firm, not just our partners and not just our lawyers.

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a guide to doing business in the uk

PREPARED BY MACLAY MURRAY & SPENS

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MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

contents

limitations on scope of this report This Guide deals with Scots and English law only. References in this Guide to “UK law” should be construed accordingly. Northern Ireland is part of the UK and is a separate legal jurisdiction, but is not covered by this Guide. English law also applies in Wales.

Much of Scots and English law is identical and where there is no express statement in this Guide as to whether a paragraph is dealing with Scots or English law, or there is a reference to “UK law”, the position is the same under Scots and English law. The Guide only makes express reference to either Scots or English law where there are differences between the Scots and English law on a particular topic.

This Guide deals only with the conduct of business of a general nature in the UK. Many businesses (for example, banks, insurance companies and financial services businesses) are subject to detailed regulation which is beyond the scope of this Guide.

This Guide touches on complex issues and of necessity cannot be comprehensive. It is intended to give general guidance only, and is not a substitute for taking proper legal advice.

This Guide is accurate as at January 2006.

DEFINITIONS “UK Law” the laws of Scotland and England

1.

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

THE COUNTRY AT A GLANCE ______________________________________________1 What languages are spoken?________________________________________________1 What is the exchange rate for the US dollar and the Euro? ______________________1 Describe your country’s geography, proximity to other countries and climate ______1 Are there cultural influences or prohibitions on the way business is conducted? ____1 Are there religious influences or prohibitions on the way business is conducted? ____1 Explain your country’s infrastructure. Be sure to explain which cities have airports, railroad systems, ports, public transportation __________________________________2 The communication system ________________________________________________2 Public services – i.e. water, electricity, gas ____________________________________3

2.

2.1 2.2 2.3 2.4 2.5

GENERAL CONSIDERATIONS ______________________________________________7 Investment Policies ________________________________________________________7 Diplomatic Relations ______________________________________________________8 Government ______________________________________________________________8 What is the public/government attitude towards environmental regulation? ________15 Intellectual Property ______________________________________________________19

3.

3.1 3.2 3.3

INVESTMENT INCENTIVES ________________________________________________31 Export incentives or guarantees ____________________________________________31 Grants, subsidies or funds your country offers foreign investors ________________31 What is the type of financial system in the country? ____________________________32

4.

4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9

STRUCTURES FOR DOING BUSINESS ______________________________________42 The Limited Liability Company ______________________________________________42 Unlimited Liability Companies ______________________________________________44 Companies Limited By Guarantee __________________________________________44 Limited Partnerships ______________________________________________________44 Limited Liability Partnerships ______________________________________________45 Partnerships ____________________________________________________________45 Sole Proprietorships ______________________________________________________46 Other Methods Of Establishing A UK Business________________________________47 Joint Ventures____________________________________________________________49

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5.

5.1 5.2 5.3 5.4 5.5 5.6

REQUIREMENTS FOR THE ESTABLISHMENT OF A BUSINESS IN THE UK ______56 Alien Business Law ______________________________________________________56 Anti-Trust Law ____________________________________________________________56 Environmental Regulations ________________________________________________62 Government Approvals ____________________________________________________64 Insurance ______________________________________________________________64 Licences / Permits ________________________________________________________65

6.

6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10

OPERATION OF THE BUSINESS __________________________________________68 Advertising ______________________________________________________________68 Attorneys________________________________________________________________68 Book Keeping Requirements ______________________________________________68 UK GAAP ______________________________________________________________70 Business Codes / Ethics __________________________________________________72 Consumer Protection Laws. ________________________________________________73 Construction ____________________________________________________________77 Contracts ______________________________________________________________81 Price Controls. __________________________________________________________82 Cessation Or Termination Of Business ______________________________________82

7.

7.1

EMPLOYER/EMPLOYEE RELATIONS ________________________________________87 What laws govern employer/employee relations? ______________________________87

8.

8.1 8.2 8.3 8.4

EMPLOYMENT REGULATIONS ____________________________________________97 Does the investor have to hire UK nationals __________________________________97 Minimum wage __________________________________________________________97 Working hours __________________________________________________________97 Vacation and sick days ____________________________________________________97

9.

9.1 9.2

HIRING AND FIRING REQUIREMENTS ______________________________________99 Employing UK nationals __________________________________________________99 Hiring/dismissing personnel (e.g. notice) ____________________________________99

10.

LABOUR PERMITS ______________________________________________________100

11.

SAFETY STANDARDS ____________________________________________________101

12.

UNIONS ______________________________________________________________102

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

13.

13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 13.10 13.11 13.12 13.13 13.14 13.15

TAX ON CORPORATIONS ________________________________________________103 Allowances ____________________________________________________________103 Calculation of Taxes ____________________________________________________103 Capital Gains __________________________________________________________104 Filing and Payment requirements __________________________________________104 Miscellaneous Taxes Due ________________________________________________104 Registration Duties ______________________________________________________105 Sales Tax or Other Turnover Tax ____________________________________________105 Social Security and Welfare System Contributions ____________________________106 Special Tax Schemes ____________________________________________________106 Tax on Profits __________________________________________________________106 Tax Treaties ____________________________________________________________107 Territoriality Rules ________________________________________________________107 Treatment of Tax Losses __________________________________________________107 Wealth Tax______________________________________________________________107 Withholding Taxes ______________________________________________________107

14.

14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 14.9 14.10 14.11 14.12 14.13 14.14 14.15 14.16 14.17

TAX ON INDIVIDUALS __________________________________________________108 Allowances ____________________________________________________________108 Calculation of Taxes ____________________________________________________108 Capital Gains Tax________________________________________________________108 Filing and Payment Requirements__________________________________________109 Inheritance and Gift Tax __________________________________________________109 Miscellaneous Taxes Due ________________________________________________110 Real Estate/Habitation Tax ________________________________________________110 Sales Tax ______________________________________________________________110 Social Security and Welfare System Contributions ____________________________110 Stock Option, Profit Sharing and Savings Plans ______________________________110 Taxation of Benefits in Kind ______________________________________________110 Taxes on Dividends ______________________________________________________111 Tax on Income __________________________________________________________111 Tax Treaties. ____________________________________________________________111 Territoriality Rules ________________________________________________________111 Wealth Tax______________________________________________________________111 Withholding Tax ________________________________________________________111

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15.

15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 15.9 15.10 15.11 15.12 15.13 15.14 15.15 16.

16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 16.9 16.10

TAX ON OTHER LEGAL BODIES __________________________________________113 Allowances ____________________________________________________________113 Calculation of Taxes ____________________________________________________113 Capital Gains __________________________________________________________113 Filing and Payment Requirements__________________________________________114 Miscellaneous Taxes ____________________________________________________114 Registration Duties ______________________________________________________114 Sales Tax or Other Turnover Tax ____________________________________________114 Social Security and Welfare System Contributions ____________________________115 Special Tax Schemes ____________________________________________________115 Tax on Profits __________________________________________________________115 Tax Treaties ____________________________________________________________115 Territoriality Rules ________________________________________________________115 Treatment of Tax Losses __________________________________________________115 Wealth Tax______________________________________________________________116 Withholding Taxes ______________________________________________________116

IMMIGRATION REQUIREMENTS __________________________________________117 Are entry permits required? Must you apply before entering the UK? ____________117 Are exit and/or re-entry permits required? __________________________________117 What is a Visa?__________________________________________________________117 Is a Visa required for travel or stay in the UK? If so, how long is it valid? ________118 What is the process for applying for a Visa?. ________________________________118 What documents / evidence are required? __________________________________118 How long does it take to receive a Visa? ____________________________________118 What fees are involved? __________________________________________________119 Does the UK have immigration quotas? ____________________________________119 Are medical certificates or vaccinations required for someone coming to the UK? ________________________________________________________________119 16.11 Is a residence permit required? Does it have to be applied for before entering the country? ____________________________________________________________120 16.12. What information must be supplied to the immigration authorities?______________120 16.13 How long does it take to receive authorisation? ______________________________121 16.14 Is a work permit required? ________________________________________________121

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

1 the country at a glance 1.1 What languages are spoken?

The official language spoken in the United Kingdom is English.

There are minorities in Wales and Scotland who speak Welsh and Gaelic. There is also a trend to incorporate Welsh and Gaelic into some schools and students can learn them at University level.

1.2 What is the exchange rate for the US dollar and the Euro?

The UK’s monetary unit is the pound sterling (£). It is fully convertible and, since 1972, has floated freely (with the exception of the period of 1990 through 1992). No exchange controls have been imposed since 1979.

The United Kingdom is not a member of the European Union (EU) Exchange Rate Mechanism and has elected not to adopt the euro. In June 2003, the Labour Government announced that although the United Kingdom would clearly receive certain benefits by adopting the euro, such a move will not be undertaken until the five economic tests set out by the Chancellor of the Exchequer have been met. It is envisaged that there will be a further announcement relating to this matter some time in 2004.

In April 2005, the exchange rate for the U.S. dollar was £1 = $1.8749* and for the Euro was £1 = € 1.4590*. *These rates are mid rates and are rough guides as to what the conversion will be.

1.3 Describe your country’s geography, proximity to other countries and climate The United Kingdom is located in Western Europe. It is a group of islands situated northwest of France including the northern one-sixth of the island of Ireland between the North Atlantic Ocean and the North Sea. Its geographic coordinates are 54 00 N, 2 00 W. Its total area comprises 244,820 sq km which includes Rockall and the Shetland Islands. In comparative size it is slightly smaller than the US State of Oregon. Its only land boundary is with the Republic of Ireland which stretches to 360 km.

The UK has a total coastline of 12,429 km.

The UK’s climate is temperate, moderated by prevailing southwest winds over the North Atlantic.

Its terrain consists of rugged hills and low mountains which level to rolling plains in the east and southeast. The country’s lowest point is Fenland at -4 meters, its highest point being Ben Nevis in Scotland at 1,343 meters. The country’s natural resources are coal, petroleum, natural gas, tin, limestone, iron ore, salt, clay, chalk, gypsum, lead, silica and fertile arable land.

1.4 Are there cultural influences or prohibitions on the way business is conducted?

There are no adverse cultural influences of significance or prohibitions on the way business is conducted in the United Kingdom.

1.5 Are there religious influences or prohibitions on the way business is conducted?

There are no religious influences or prohibitions on the way business is conducted in the United Kingdom.

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1.6 Explain your country’s infrastructure. Be sure to explain which cities have airports, railroad systems, ports, public transportation.

The United Kingdom is easily accessible from all over the world. London Heathrow is Europe’s busiest and best-served airport with flights to all major business centres world-wide.

All major UK ports are connected to mainland Europe and Ireland via frequent ferry services.

Internally, the UK has excellent air, rail and road links to all of its major cities. Internationally and internally, air travel is available to all major UK airports including: • • • • •

London Heathrow London Stansted Manchester Glasgow (Scotland) Aberdeen (Scotland)

• • • • •

London Gatwick London City Bristol Prestwick (Scotland) Cardiff (Wales)

• • • • •

London Luton Birmingham Newcastle Edinburgh (Scotland) Belfast (N. Ireland)

There are also numerous smaller regional airports capable of handling smaller aircrafts.

There are about 100 ports of commercial significance in the UK, including such ports as London, Dover, Forth, Tees and Hartlepool, Grimsby and Birmingham, Sullom Voe, Milford Haven, Southampton, Felixstowe and Liverpool. Belfast is the principal freight port in Northern Ireland.

The main passenger ports in the UK are: • •

Hull Southampton

• •

Dover Newcastle

• •

Portsmouth Rosyth (Scotland)

1.8 Public services – i.e. water, electricity, gas.

Water – England & Wales Water services are privatised in England & Wales. These services are provided by a series of regional licensed monopolies with some limited competition at the margins. There is no integrated water transportation system in England & Wales.

The Office of Water Services (Ofwat) is the economic regulator for water and sewerage services in England and Wales. It is a non-ministerial government department led by the Director General of Water Services (known as the Director).

Ofwat works with the Government, the Welsh Assembly Government and the quality regulators (the Environment Agency, the Drinking Water Inspectorate, English Nature and the Countryside Council for Wales) to monitor the way in which water companies provide a good quality and efficient service at a fair price.

Each regional monopoly has its own water transportation system and has an access and allocation code setting out the regime for access to its pipes. The regime operates on a common carriage basis. The water industry is characterised by high capital costs of construction and has a number of sectoral regulators for different aspects of their activities.

The Water Act 2003 (“the 2003 Act”), which received Royal Assent on 20 November 2003, has increased the deregulation of the water industry in England and Wales. The stated purpose of the 2003 Act was to strengthen the voice of consumers and implement a measured increase in competition, for example: ■

It established a regulatory Board to replace the existing individual Director General of Water Services along with a new independent Consumer Council for Water to replace the Customer Service Committees.

■

It introduced provisions intended to improve the regulatory regime and to extend the opportunities for competition in the water industry, by allowing new entrants to obtain a licence to supply non-household customers who use large volumes of water (in excess of 50 ML per year).

Railway services are provided by regional railway companies. All major UK cities are well served by public transport companies. London and Glasgow both have underground systems.

1.7 The communications system The telecommunications market in the UK consists of privately-owned operators, although they do operate in a regulated market with the operators subject to a licensing regime. The media sector in the UK is privately owned with the notable exception of the state-funded British Broadcasting Corporation (“BBC”).

OFCOM, a statutory corporation, is the regulator for the UK communications industries, with responsibilities across television, radio, telecommunications and wireless communications services. It covers both content and infrastructure and is responsible for licensing in the communications sector.

The country code for telephoning the UK is 44. This is followed by the code for the city or area you are calling. Please note that when calling from abroad, the initial 0 of the city/area code is dropped.

Postal services in the UK are currently mainly provided by Royal Mail, but their monopoly was ended at the beginning of 2006 so competition is expected in this area particularly for business mail.

Other companies have been providing courier services for some time.

Further information in relation to the water industry in England & Wales can be obtained at www.ofwat.gov.uk.

Water – Scotland The structure for the provision of water services in Scotland is different to the structure in England and Wales. In Scotland, Scottish Water, a large publicly owned business operates a regulated monopoly. The recent Water Services etc (Scotland) Act 2005 (“the 2005 Act”) overhauls the system of water regulation in Scotland. The Act received Royal Assent on 17 March 2005.

The 2005 Act establishes a Water Industry Commission to improve the transparency, consistency

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and accountability of regulation in the water industry1. This body replaces the Water Industry Commissioner, previously charged with regulating the water industry in Scotland. The Water Industry Commission undertakes to: ■

license those bodies who wish to provide retail water and sewerage services to non-household customers in Scotland in competition with Scottish Water (the publicly owned service provider in Scotland).

■

determine Scottish Water’s charge caps in much the same way as Ofwat determines price caps for the water companies in England and Wales.

The 2005 Act also prohibits common carriage in the water or sewerage systems and prohibits retail competition for households. Furthermore, the 2005 Act establishes a licensing regime for retail competition for non-household premises only.

Electricity – Great Britain The electricity industry in England & Wales and Scotland was privatised in 1989. However, separate markets existed in England & Wales and in Scotland and the process for reform in relation to each was different until the introduction of the British Electricity Trading & Transmission Arrangements (BETTA) on 1 April 2005.

BETTA introduced a single Great Britain (GB) wide set of arrangements for trading energy and for access to and use of the GB transmission system which came fully into effect at BETTA go-live on 1 April 2005. BETTA effectively extends to Scotland the New Electricity Trading Arrangements, introduced in England & Wales in 2001.

Scottish Hydro-Electric Transmission Limited (SHETL) in the north of Scotland; SP Transmission Limited (SPTL) in the South of Scotland and the National Grid Company plc (NGC)2 in England & Wales are the transmission owners responsible for the physical state of the transmission network in their respective areas. Together, the above three companies are responsible for the physical state of the GB transmission network and in each case the licensee provides access to and use of its transmission system.

The BETTA arrangements for connection to and use of the GB transmission system are administered by (NGC), the GB system operator. NGC (as well as being transmission owner in England & Wales) is the company responsible for contracting for the provision of connection to and use of the transmission system in Great Britain. Thus any party in Great Britain that wishes to have

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access to the GB transmission system since 1 April 2005 needs to have a contract with NGC. The pro-forma terms for such contracts are set down in the Connection and Use of System Code (CUSC).

Under BETTA the separate contractual arrangements for use of the Scotland – England interconnector are no longer applicable. The interconnector is now part of the GB transmission system. Provisions relating to the creation of the single wholesale electricity market are contained in the Energy Act 2004.

The GB Transmission System connects with France and Northern Ireland.

In addition to the GB transmission system, there are a number of local distribution networks owned by the various distribution companies.

Power is traded in GB in a half hourly balanced market.

The economic sectoral regulator is Ofgem (the Office of the Gas and Electricity Markets Authority). It is a criminal offence to undertake electricity transmission, supply, distribution or generation without holding a licence (licences are granted by Ofgem) or being exempted. The same person may not hold a distribution licence and a supply licence.

The generation and supply markets are competitive and are not subject to price controls. The electricity transmission and distribution markets are viewed as natural monopolies and operate under price controls with some competition on the margins of these activities.

Since privatisation, the industry has been characterised by merger and consolidation activities, including the creation of pan-European group structures. This trend is likely to continue.

Further useful information in relation to the operation of the electricity market can be obtained at www.ofgem.gov.uk and www.elexon.co.uk Gas Mains gas is available in most of Great Britain (GB) with some special arrangements for gas supplies in the Scottish islands. A separate network exists in respect of Northern Ireland which is separately regulated3.

It is a criminal offence to act as a gas transporter, gas shipper or gas supplier without holding a licence (granted by Ofgem the sectoral regulator) or being exempted.

To date, the National Transmission System (NTS) and Local Distribution Zones (LDZs) have been owned and operated by National Grid Transco (NGT) under a single transporter’s licence. The NTS is a high pressure gas transportation network. LDZ’s are lower pressure networks connected to the NTS. Subject to regulatory clearance, NGT is expected to complete the sale of four of its eight regional Distribution Networks (DNs)4 in June 2005 to third party purchasers. Transco will continue to operate the NTS and four retained DNs under two separate gas transporters licences.

The proposed changes to the gas industry will constitute a significant change within the GB gas

At the time of writing, the Water Industry Commission has not set up a website. Further useful information can be found at the site for the Water Industry Commissioner at www.watercommissioner.co.uk and the 2005 Act

3

The network in Northern Ireland is regulated by the Office for the Regulation of Electricity and Gas (Ofreg).

can be located at www.scotland-legislation.hmso.gov.uk/legislation/sscotland/acts2005/20050003.htm.

4

A Distribution Network is defined by reference to LDZs and contains one or more LDZs.

NGC forms part of the National Grid Transco (NGT) group

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industry and will allow for comparative price controls between DNs. The changes have involved the introduction of a new gas transporters licence structure for NTS and DN gas transporters. In addition, changes to what was formerly Transco’s Network Code, which set out the contractual relationship between shippers and Transco as transporter, have also taken place. As part of this process, a Uniform Network Code (UNC) has been created and separate short form codes have been put in place in respect of each of the DN networks expected to be sold in June 2005. The short form codes incorporate by reference the terms of the UNC. These set out the contractual arrangements between shippers and transporters going forward.

In addition to the National Transmission System and Local Distribution Zones, there are some independent private networks operated by other Independent Gas transporters (IGTs).

Gas shipping and supply is seen as fully competitive and is not subject to price controls. Transco has been subject to a price control in respect of its various gas transportation activities. The next price control review in respect of the NTS will take place in 2007 and in 2008 in respect of the DNs. Interconnected markets for power and gas There are a number of Interconnectors operating in the UK gas and power markets. These connect GB with Northern Ireland (and through a subsequent interconnector with the Republic) the Republic of Ireland and mainland Europe. There are also a number of proposals to build merchant interconnectors to connect with Scandinavia and other parts of mainland Europe. Most recently, work has commenced on an interconnector between GB and Norway. The interconnectors are privately owned and have access arrangements.

Further useful information in relation to the operation of the gas market can be obtained at www.ofgem.gov.uk.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

2 general considerations 2.1 Investment Policies The UK generally welcomes investment. No legislation restricts foreign investment in the United Kingdom. Foreign investment in new manufacturing and internationally traded service businesses is encouraged. Generally speaking, Foreign companies or individuals may establish or acquire businesses within the country and buy securities, land or mortgages without a special license or permission.

What is the rate of inflation?

In April 2005, the rate of inflation in the UK was 1.90%.

Explain any sector exceptions, incentives or restrictions on foreign investment?

In some strategic industries, such as defence, foreign investment may be deemed to be against the national interest and therefore subject to investigation by the Competition Commission. State assistance in particular sectors (shipbuilding and automotive) may need approval from the European Commission to ensure compliance with certain sectoral policies.

What type of business is conducted in the country?

The United Kingdom has an open economy in which international trade plays a vital role. In 2003, exports of goods and services accounted for 25% of gross domestic product (GDP).

The United Kingdom has traditionally exported significant quantities of manufactured products and imported considerable quantities of food and raw materials. In an emerging trend, manufactured goods are forming a larger portion of imports and a smaller portion of exports.

The working population of the United Kingdom is approximately 28 million. The changing employment patterns in the country have been characterised by an increase in part-time work, selfemployment and employment by small firms, which accounted for 46% of employees. In general the workforce is highly skilled but a shortage of certain skilled workers, such as engineers and technologists, mean that they are very much in demand.

The public sector remains a significant part of the economy. Government spending in 2003 was 41.1% of GDP, compared with 40% of GDP in 1989. The decline in public-sector employment by 33% since 1979 is the result of the privatisation of many public corporations and government agencies and of the reclassification of some sectors. However, in 1999, public sector employment increased for the first time in 20 years.

The UK’s relative international competitiveness has shifted from manufactured goods towards services. In 1960, manufacturing accounted for 37% of GDP and services for 45%; in 2003 manufacturing contributed 16%, and services had increased to almost 73%.

The severity of the 1990-92 recession sharply affected manufacturing, with a 7.6% decline in manufacturing output during that period. In 1993, manufacturing output began to increase, and, by

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1998, manufacturing output was 10% above the level in 1991 and 1992. However, since then, manufacturing output has declined slightly. Following the recession, several industries, including chemicals, rubber and plastic products, electrical and optical equipment and transport equipment, have achieved substantial growth. However, other sectors, including textiles, leather and wood products, remain below their 1990 levels.

The largest sector of the UK economy is now the service sector, which in 2003 accounted for 73% of total GDP. The fastest-growing areas are financial services, computer and business services, leisure and tourism. During the recession, the rate of growth of the service sector did not decrease as much as that of other major sectors and is again increasing significantly.

2.2 Diplomatic Relations The United Kingdom plays a prominent role in international relations and associations as one of the five permanent members of the United Nations (UN) Security Council, a member state of the EU and the progenitor of the British Commonwealth of Nations. It is a member of international bodies such as the UN and its special forces and missions, the Organization for Economic Cooperation and Development, the Council of Europe, the Commonwealth Secretariat, the North Atlantic Treaty Organization and the North Atlantic Assembly. The United Kingdom is also a signatory to the General Agreement on Tariffs and Trade (GATT) and a member of the World Trade Organization (WTO), the inter-national trade liberalisation agency headquartered in Geneva. The United Kingdom has also taken a leading role in international discussions on climate change.

The United Kingdom maintains diplomatic and consular relations with 184 countries and has 220 diplomatic posts worldwide. The Foreign and Commonwealth Office also administers Britain’s 15 overseas territories.

2.3 Government The United Kingdom is both a constitutional monarchy and a democracy. It is governed by the Prime Minister and a cabinet of ministers, who together form the Government. The Sovereign formally appoints the Prime Minister, who, by convention, is the leader of the majority party in the House of Commons. Other ministers are appointed by the Sovereign on the advice of the Prime Minister.

Although the ministers control the executive division of the Government, they remain responsible to the UK Parliament.

The Sovereign or Monarch, currently Queen Elizabeth II, is head of state but has no personal political involvement in the administration of the country. The role of the monarch is ceremonial rather than constitutional. The Queen has many symbolic political duties but little, if any, political power. For example, no statute that has received parliamentary approval may become law without receiving Royal Assent, but, in practice this is never withheld.

The UK Parliament is the United Kingdom’s legislative body. It consists of the Queen and the two Houses of Parliament, the House of Commons and the House of Lords.

The House of Commons is a representative body consisting of 659 Members of Parliament (MPs) elected by a system of universal adult suffrage. A general election must be held at least once every

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

five years, but the Government may call a general election at any time. MPs represent individual constituencies and are elected by a simple majority “first past the post” system, rather than by any form of proportional representation. This tends to favour larger political parties at the expense of smaller ones; the majority of MPs belong to either the Labour Party or the Conservative Party.

The House of Lords is not elected. It is not allowed to amend in any way certain bills passed by the House of Commons and has only limited powers of revision or delay over others. The current House is a transitional body consisting of a small number of hereditary peers and a larger number of appointed peers. The Queen appoints peers on the advice of the Prime Minister. Further proposals for reform are expected to be made in the near future.

Proposed legislation must receive the support of a majority in each house and then Royal Assent before it becomes law. After it becomes law, the constitution-al validity of legislation may not be overturned by a court of law.

Scotland and Wales have regional bodies (the Scottish Parliament and the Welsh Assembly).

These bodies are elected under a mixed system consisting of first past the post and a proportional element, which ensures proper representation for smaller parties. The Scottish Parliament and Welsh Assembly have powers over regional issues, but the UK Parliament has power over all matters involving defence and the economy. The UK Parliament also deals with all matters relating to England.

The voters in the United Kingdom also elect members of the European Parliament on a broadly proportional system of voting.

The most recent general election in the UK was held in May 2005 where the status quo was maintained although the Labour Party now has a reduced majority.

The UK’s political history in the last decade.

The present government is stable, and the UK has experienced stable government since it became a parliamentary government in the seventeenth century. Two factors are critical in ensuring this. Firstly, the electoral system usually ensures that a single party wins an outright majority of seats in the House of Commons. This reduces the necessity for forming coalition governments, which are often thought to be less stable. The last peacetime coalition government in the UK was formed in 1931.

Secondly, the UK’s parliamentary system of democracy requires a government to enjoy the confidence of the House of Commons in order to survive. By convention, a government which loses a vote in the House of Commons on an issue of confidence must dissolve Parliament and an election is called immediately, as happened in 1979. This tends to mean that governments are only removed and replaced as a result of elections. Only once in the last twenty-five years, in 1990, has a Prime Minister been replaced other than via an election. Elections are not conducted at fixed terms, but the dates of elections are chosen by the incumbent Prime Minister, provided that an election is held every five years.

The British political system was mostly a two-party system until around 1974, involving a centreright party (Conservative) and a centre-left party (Labour). They tended to alternate in office, with the Conservatives holding power for longer than Labour. Since 1974 there has been increasing tendency

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for the public to vote for other parties, such as the main third party, the Liberal Democrats, or for Scottish, Welsh, or Northern Irish regional parties, each of which are represented in Parliament.

However, the electoral system tends to support the two-party system and militates against smaller or fringe parties winning seats. The opportunity for smaller parties to gain influence would appear to be limited to the rare occasions when there is a “hung” Parliament, such as in 1974, 1977-79 and 199697.

There was a Conservative government from 1979 to 1997, led firstly by Margaret Thatcher and latterly by John Major. The Conservative government won successive majorities in the House of Commons of 43 (in 1979), 144 (in 1983), 102 (in 1987) and 21 (in 1992) (throughout this time, the House of Commons had between 630 and 650 seats in total). Due to by-elections, suspensions and defections to other parties, the Conservatives’ majority was wiped out in 1996. However, the government survived until May 1997, when it had to call an election. In 1997, a Labour government was elected with a landslide majority of 179 and Tony Blair became the Prime Minister. This was in many ways a momentous result, since Labour won their highest number of seats ever and the Conservatives won their lowest share of the vote, and their lowest number of seats, since 1832. The Labour government was re-elected in 2001 with a majority of 167, and re-elected again for a third term with a reduced majority .

Explain your country’s judicial system.

The United Kingdom does not possess a single document (or “written constitution”) which is the foundation of all constitutional law. There are many constitutional rules, but these are derived from a variety of legal sources, including Acts of Parliament and subordinate legislation; decided cases; institutional writings; practices, procedures and conventions; and the laws of the European Union. In this sense the United Kingdom’s constitution is described as unwritten. These rules have also evolved throughout the centuries, rather than being planned as part of a deliberate design.

This unwritten constitutional tradition means that the UK does not enjoy a formal separation of powers between the executive, legislative and judicial branches of the State. The Sovereign, who is the Head of State in the UK and throughout the Commonwealth, is the ultimate authority in constitutional law. Decisions of the Executive and of the Courts are made in Her Majesty’s name; and Her Majesty’s formal Assent is required before any statute is enacted. The United Kingdom’s sovereign legislative body, the Queen in Parliament (which consists of the Sovereign, the House of Lords and the House of Commons), is also the High Court of Parliament, the highest court. The Lord Chancellor is a member of the Cabinet, is the Speaker of the House of Lords as a legislative body and is also the chairman of the House of Lords sitting as an appeal court.

The Appellate Committee of the House of Lords exercises the judicial functions of the High Court of Parliament. The House of Lords is the highest court for civil matters in Scotland, and for both civil and criminal matters in England, Wales and Northern Ireland. It consists of 12 Lords of Appeal in Ordinary (or “Law Lords”), of whom customarily not less than two are qualified in Scots law. Efforts are made to ensure that both Scottish Law Lords sit in appeals from Scotland, although this is not mandatory.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

The current UK Government recently announced proposals to create a Supreme Court, which would exercise the judicial functions of the House of Lords but would no longer be connected to Parliament. Supreme Court judges would not sit as legislators.

The next highest court in Scotland is the Court of Session. This was created in 1532 to assume the judicial functions of the old Scots Parliament (which existed while Scotland was an independent country, until the Union with England and Wales in 1707). It is sometimes also described as the College of Justice, and judges are also referred to as Senators of the College. It is a court of both originate and appellate jurisdiction: the Outer House is a court of first instance and appeals are heard in the Inner House. The Inner House consists of two divisions: the First Division, which is presided over by the Lord President, the highest judge based in Scotland, and the Second Division, which is presided over by the Lord Justice-Clerk. There is no difference in status between the Divisions, although there is an informal division of subject matter. Divisions usually consist of 4 judges, although occasionally a court of five or more judges (a “full bench”) is formed to consider overruling a previous decision of a Division. It is a collegiate court, and it is competent (although unknown) for all 32 judges to sit together. In the Outer House judges sit alone and, in that capacity, are referred to as Lords Ordinary. Occasionally, a jury of 12 persons will sit with a Lord Ordinary in a civil damages case. The Court only sits in Edinburgh.

The next courts in Scotland are the Sheriff Courts. These courts have a wide originate jurisdiction in both civil and criminal matters, and hear some administrative appeals. Its civil jurisdiction is almost as wide as the Court of Session. There are 49 Sheriff Courts across Scotland. Most judicial business in Scotland is conducted in the Sheriff Courts.

In criminal matters, the highest court in Scotland is the High Court of Justiciary. There is no appeal to the House of Lords (unlike the position for criminal cases in England, Wales and Northern Ireland). The High Court goes on circuit around Scotland. The High Court consists of the same judges as the Court of Session, in which capacity they are referred to as Lords Commissioner of Justiciary. The High Court is a trial court, in which a judge sits with a jury of 15. There are three verdicts – guilty, not guilty and not proven – and any verdict may be returned by a majority of 8 jurors.

The Sheriff Court is a criminal trial court for a wide range of criminal matters. Sheriffs sit with a jury for serious crimes, and sit alone for less serious crimes.

The lowest court in Scotland for criminal matters are the District Courts. There are 53 around Scotland. These deal mainly with minor and regulatory offences. Non-legally qualified justices or stipendiary magistrates.

In addition, there are a variety of courts and tribunals created by statute or at common law to deal with specific issues, including the Election Petitions Court, the Court of the Lord Lyon, the Lands Valuation Appeal Court, the Scottish Land Court, the Courts-Martial Appeal Court, the Scottish Lands Tribunal, the Employment Tribunals and the Employment Appeals Tribunal, the Social Security and Child Support Tribunals, and the VAT and Duties Tribunals.

An independent and impartial judiciary is required by Article 6 of the European Convention on Human Rights to determine criminal charges and disputes concerning civil rights and obligations.

Statutory provisions and common law rules must be interpreted and applied consistently with Article

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6 so far as this is possible; if this is not possible the courts cannot overturn legislation but the UK risks challenge in the European Court of Human Rights in Strasbourg. There are important Scottish rules requiring judges to decline to hear a case if they are, or would reasonably be perceived to be, personally affected by its outcome. Recommendations for judicial appointment are made by an independent commission. Once appointed, a judge cannot be removed except where an investigation led by a senior judge has decided that the judge is unfit for office. Judicial salaries are also protected.

Disputes need not be settled within Scotland. If a Scottish court is hearing a case it will sit in Scotland (the only exception being the Lockerbie trial, in which the High Court of Justiciary sat in the Netherlands) for all stages of the case. Parties to a case should be represented but need not attend personally, except in criminal cases or where a party is a witness. A court may appoint an independent commissioner (usually a lawyer) to obtain evidence from another country, where that evidence cannot practically be brought to the court: alternatively it is possible for evidence to be given via a video link. It is possible for an overseas court or tribunal to apply Scots law in resolving a dispute and for the Scottish courts to recognise that judgment as valid. This would depend upon the rules of private international law both in Scotland and in the other country.

There is no alternative method of political dispute resolution to the courts, but it is possible for either the UK Parliament or the Scottish Parliament to legislate to make exceptions or additions to the general law for individual persons or property by a Private Act of Parliament. This can be an expensive, uncertain and time-consuming process.

There are also Alternative Dispute Resolution methods to the courts, which have been growing in popularity over the last 10-15 years. Mediation is increasingly used in family disputes. Arbitration or adjudication clauses often appear in modern construction contracts. Many commercial disputes are subject to informal negotiation by the parties or their legal representatives before resorting to formal methods of dispute resolution, such as the courts. In contractual cases, parties can agree that the outcome of arbitration or adjudication will be binding on them, and the courts will usually not interfere with this.

The time taken to resolve disputes largely depends upon the complexity of the issues and the degree to which they are disputed. An uncontested action in the Sheriff Courts can be resolved within two months, but it may take two or three years to resolve a dispute in the Court of Session. If the parties agree to sist (suspend) an action, it can remain “live” for many years. The Court of Session has a Commercial Court which uses specialist procedures and can process cases more quickly.

The UK is a contracting party to the 1968 Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters, which is given effect in Scots law by the Civil Jurisdiction and Judgments Act 1982. This allows “free movement” of civil and commercial judgments between EU countries. There is a similar arrangement in place between the UK and Canada. Otherwise, in general terms foreign decisions can be enforced in Scotland if there is a satisfactory link between the person obtaining the decree and the legal system from which the decree originated. A judgment for the payment of money may be registered and enforced in terms of the Foreign Judgments (Reciprocal Enforcement) Act 1933, which is based on a number of international

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conventions relating to this issue. Matrimonial decrees (such as for divorce and annulment) may also be recognised if they conform to domestic laws in the appropriate area. The Civil Jurisdiction and Judgments Act 1982 also allows certain arbitration awards to be enforced in Scotland.

The highest court in Scotland for civil matters is the Court of Session, although an appeal may lie to the UK House of Lords (shortly to be replaced by a UK Supreme Court). The highest court in Scotland for criminal matters is the High Court of Justiciary, and there are no appeals to UK courts in criminal matters. The Court of Session and the High Court of Justiciary are both appeal courts and courts of first instance, although they are constituted differently for these purposes.

Scotland and England were separate countries between 1314 and 1707. In the 1707 Treaty of Union, the distinct nature of Scotland’s legal system was preserved. The court structures; rules of procedure, evidence and remedies; and many of the substantive legal rules themselves are quite different. However, the development of the UK economy and the increasing influence of the European Union have meant that there is great harmonisation between the laws of Scotland and England on issues such as company law, taxation, social security, competition and intellectual property. There are still important differences, particularly in the fields of criminal law, property law, contract and obligations and family law. Northern Ireland is also a distinct legal jurisdiction within the UK, although it has a much greater degree of similarity with England than Scotland does.

Individuals can broadly choose that Scots law may not apply to certain situations or legal relationships. For example, parties to a contract can choose which law the governing law of a contract should be. This need not have any direct connection with the parties or the place of performance or payment. However, in some areas, such as company law, an overseas investor will be subject to the UK company law rules and will not be able to avoid these.

The UK’s legislative system The UK’s legislative system is largely shaped by its history as a union state. The principality of Wales conjoined with England in 1295, Scotland and England were joined in Union, subject to conditions, in 1707, the whole island of Ireland formed a Union with Great Britain in 1800, although in 1922 26 of the 32 Irish counties seceded to become the Republic of Ireland. The basic parliamentary system involves a single, bicameral unitary parliament based at Westminster. However, in recent years subordinate legislatures have been created in Scotland, Wales and Northern Ireland. The pattern is not neat, though, as England has no devolved legislature. The UK Parliament remains sovereign, and can theoretically overrule a decision of a devolved legislature, although this has not happened yet and would be politically controversial.

The elements of the UK Parliament are the Sovereign, the House of Lords and the House of Commons. The Sovereign assumes the Crown according to heredity by male primogeniture. The House of Lords consists of around 700 peers, most of whom are appointed as life peers by the UK Government. Until 1999, some 800 hereditary peers were also entitled to sit and vote in the House of Lords, although now there are only 92 such peers who represent the larger number. There are also 26 Bishops of the Church of England and 12 Law Lords. The House of Lords has been roundly criticised as being undemocratic, and the UK Government has an electoral commitment to reform its

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composition. However, there is no political consensus on what to replace the current system with and, as a result, reforms have been slow and contentious. In recognition of the House of Lords’ unelected status, there is a convention that, if a UK Government enjoys a single party majority in the House of Commons, a Bill to implement a manifesto promise will not be opposed by the House of Lords at second reading (the debate on the general principles of the Bill), although the House of Lords may seek to amend the detail of the Bill. The House of Lords also does not debate money bills (relating to the raising or spending of public money). However, the parliamentary timetable is less pressurised in the House of Lords than in the House of Commons, and the House of Lords is often praised for its technical ability to consider and improve the detail of legislation.

The House of Commons consists of 659 Members of Parliament (MPs). The Commons does not have a fixed term: the Sovereign dissolves Parliament and triggers a general election, although this is almost inevitably on the advice of the Prime Minister, although there is a maximum term of five years.

A Bill may be introduced by the UK Government or by an individual MP or peer. Bills introduced by individual MPs or peers stand far less chance of success than Government Bills because the Government controls the parliamentary timetable.

In both houses, the Bill is introduced (first reading), its general principles are debated (second reading), then a committee goes through the Bill on a line-by-line basis and considers amendments (committee stage), the committee reports back to the whole House, and further amendments can be considered then (report stage), and finally there is a debate and a vote on whether to pass the Bill as amended (third reading). Any amendments agreed by one House must be agreed by the other. If there is an impasse, the Parliament Acts allow the Commons to overrule the wishes of the Lords if an identical Bill is passed a second time by the Commons one year later. A Bill may not be passed in terms of the Parliament Acts if it seeks to extend a parliamentary term beyond five years. Only five Acts have been passed by the Parliament Act procedure since this became possible in 1911.

Once a Bill has been agreed by both Houses (or in terms of the Parliament Acts) the Sovereign must give Royal Assent. This role is now largely formal, and a refusal to assent to an Act passed by the Houses would probably trigger a constitutional crisis.

As there is no UK constitution, legislation passed by Parliament is theoretically the supreme source of law, and the courts are bound to give effect to it. However, Parliament has accepted limitations on its own authority, most prominently by acceding to the laws and regulations of the European Union, which may have direct effect in Scots law in preference to contradictory provisions of a UK statute. The Human Rights Act 1998 also gave greater effect to certain fundamental rights contained in the European Convention on Human Rights and Fundamental Freedoms 1951, and provided that statutory provisions had to be interpreted consistently with those rights if that was possible, even if a different meaning would be more suitable.

The Scottish Parliament was created in 1999. As a creature of statute, its powers are limited and the courts may strike down a piece of legislation that is outwith those powers. It consists of 129 members (MSPs), elected under a system of proportional representation. This has made the Parliament more politically diverse than the UK Parliament, in which a single party usually has an overall majority. The first two devolved Scottish governments have been political coalitions. It can

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

legislate in relation to key issues such as health, education, transport, housing and agriculture. Issues such as the constitution, tax, foreign affairs and defence and social security are reserved to the UK Parliament. Although the UK Parliament is sovereign, a convention is developing that the UK Parliament will not legislate for Scotland on a devolved issue unless the Scottish Parliament has agreed first.

The Scottish Parliament’s legislative system is similar to the UK Parliament’s, with some key differences. The parliamentary timetable is controlled by a business committee, which is chaired by the Parliament’s presiding officer and has representatives of each significant political grouping in the Parliament. Bills may be introduced by one of the Parliament’s sixteen committees, and some of these have already become law. Individuals and organisations may petition the Scottish Parliament directly, which can lead to changes in the law, since it is elected by a more proportional electoral system.

2.4 What is the public/government attitude towards environmental regulation?

In general, environmental issues/regulation are not given a high priority by the UK Government. The UK and Scottish Governments are, however, developing an ambitious climate change programme.

The Department for Environment, Food and Rural Affairs (DEFRA) and the Scottish Executive are responsible for environmental policy issues. Over 80% of Scottish environmental laws are created as a result of EC environmental legislation and this is the main driver for the increase in environmental legislation rather than UK Government initiatives. There are currently two instances where the UK may be fined by the EC for not implementing EC legislation timeously e.g. for the Directive on the end-oflife vehicles.

In the UK the key areas of environmental legislation are: waste management, water pollution, air pollution, noise, hazardous substances, contaminated land and the IPC/IPPC regimes; and there is a significant amount of non-statutory guidance, practice and technical notes.

In general terms Scotland and England are subject to similar legislation. They have two separate regulators – the Environment Agency (EA) in England (www.environment-agency.gov.uk) and the Scottish Environment Protection Agency (SEPA) in Scotland (www.sepa.org.uk). Local Authorities also play a role in environmental regulation e.g. in the Contaminated Land Regime and the regulation of Noise Pollution. There is a significant overlap between planning and environmental regulation regimes.

SEPA, which has no prosecution powers, must refer details of environmental offences to the Procurator Fiscal who will determine whether a prosecution should be brought under the guidance of SEPA. The EA in contrast has prosecution powers. In England, guidance has also been issued for Magistrates to assist them with dealing with prosecutions for environmental offences. A breach of environmental law will ultimately result in criminal proceedings but there are also civil liability and clean-up sanctions.

In general the public are becoming more and more concerned with environmental issues and are more aware of environmental issues. The Green Party is enjoying an increase in support, particularly in Scotland where there are now seven Green MSPs. Industry remains concerned about the costs

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and the complexity of increased environmental regulation and this has resulted in initiatives to encourage compliance such as the Netregs guidance being available on the EA website.

Environmental insurance is also becoming increasingly common for environmental law issues, in particular for contaminated land issues, and there are an increasing number of environmental law issues for Solicitors to understand and advise on.

Explain any environmental regulations This review focuses on Scottish environmental regulation with some references to the English position.

Installations Air/Water/Land pollution by installations/plants is governed by Part I of the Environmental Protection Act 1990 (EPA 1990) and the Pollution Prevention and Control Act 1999 (PPCA 1999). SEPA is the enforcer and is responsible for issuing Integrated Pollution Control authorisations (IPC) or Integrated Pollution Prevention and Control (IPPC) permits.

Air The main provisions for the control of air pollution are contained in Part I of EPA 1990, PPCA 1999 and the Clean Air Act 1993. It is an offence to operate a prescribed process without a relevant authorisation or in breach of any conditions attached to an authorisation for an IPC or Air Pollution Control (APC) process. IPPC is progressively replacing the IPC and APC regimes. The Clean Air Act 1993 also gives power to the local authorities to deal with air pollution, and makes it an offence to emit dark smoke, grit and dust in certain situations.

Water The relevant legislation is the Control of Pollution Act 1974 (COPA), the Sewerage (Scotland) Act 1968 and the Groundwater Regulations 1998. In Scotland the major controlling mechanism for water pollution is a general prohibition on the entry of matter or pollutants into a water system unless with the consent of SEPA. An offence is committed where a person is found guilty of causing or knowingly permitting the unlawful entry into controlled waters of solid matter, or of poisonous, noxious or polluting matter, or of trade and sewage effluent. The EC Water Framework Directive has recently been implemented in Scotland by the Water Environment and Water Services Act 2003 (similar to the provisions of the Water Bill in England). Discharges of sewage/trade effluent are controlled in Scotland by the Sewerage (Scotland) Act 1968 and Scottish Water is the regulator of this piece of legislation.

Waste on Land Pt II of EPA 1990 provides the main controls for waste management in the UK. The Controlled Waste Regulations 1992 (as amended) detail the categories of household, industrial and commercial wastes but the definition of waste is a particularly complex issue. A waste management licence is required

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from SEPA or the EA for the treatment, keeping and disposal of controlled waste in accordance with the Waste Management Licensing Regulations 1994. Special waste is governed by the Special Waste Regulations 1996 but these regulations are currently the subject of a detailed consultation process and will be amended within the next two years. It is an offence to treat, keep or dispose of controlled waste in a manner likely to pollute the environment or harm human health, even where these activities are in accordance with a waste management licence. There are also detailed provisions regarding the procedures for the transport of waste and special waste.

Radioactive Substances The Radioactive Substance Act 1993 provides the framework for the keeping and use of radioactive substances and accumulation and disposal of such substances. Radioactive substances registration certificates are required for keeping and using specific radioactive material on premises and authorisations are also required for the accumulation and disposal of radioactive material from premises. In addition, a certificate of registration is required for the keeping, using, lending or letting on hire mobile radioactive apparatus. The certificates are personal and not transferable. SEPA and EA are the regulators of this legislation. The Government are finalising plans for a new supervisory body, the Nuclear Decommissioning Authority (NDA), to oversee the decommissioning of nuclear operations in the UK in the future.

Noise The EPA 1990 Part III and COPA 1974 address noise nuisance. Construction site noise and noise abatement zones are dealt with by COPA 1974. Noise emitted from premises which is “prejudicial to health” or a “nuisance” may be a statutory nuisance under EPA 1990 Part III. Local authorities are under a duty to inspect their area and to take steps to investigate any complaints made by members of the public. There are a number of exemptions. The local authority can serve an abatement notice either requiring action to be taken or prohibiting the noise from occurring/recurring. There is a twentyone day period during which time the notice can be appealed. The Noise Act 1996 which is intended to deal specifically with music coming from residential properties does not apply in Scotland.

Harmful Substances The Contaminated Land regime came into force in England in April 2000 and in Scotland in July 2000 (Part IIA of EPA 1990). The regime creates a system for the remediation of historically contaminated land with current and future pollution being dealt with under existing UK pollution control regimes.

Local authorities in the UK are obliged to identify contaminated land within their boundaries. A site is deemed contaminated if, “significant harm is being caused or there is a significant possibility of such harm being caused or pollution of controlled waters is being, or likely to be caused.” The remediation of contaminated land through the planning regime is often the most appropriate way to remediate contaminated land with the Planning Authority having power to impose planning conditions in a planning consent requiring remediation measures to be carried out for a site.

There is a raft of other environmental legislation governing the storage, keeping and disposal

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of harmful substances which include: the Health & Safety at Work etc Act 1974, the Control of Asbestos at Work Regulations 2002, the Asbestos (Prohibitions) Regulations 1992 and the Asbestos (Licensing) Regulations 1983 where the Health and Safety Executive is the enforcer and the Environmental Protection (Disposal of Polychlorinated Biphenyls and Other Dangerous Substances) (Scotland) Regulations 2000 (for Polychlorinated Biphenyls (PCBs)) where SEPA is the enforcer.

Habitats/Wildlife Protection The Wildlife and Countryside Act 1981 regulates the protection of plants, animals and habitats and it is enforced by Scottish Natural Heritage and English Nature.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

2.5 Intellectual Property There are five main intellectual property rights in the UK, namely: Patents; Trade Marks; Copyright; Design Rights; and Know-How. With the exception of Know-How, each of these intellectual property rights will be considered under 4 headings: Procedure and Costs – which will consider the requirements to register the intellectual property right and the associated costs; Requirements – which will consider the legal requirements in the UK to obtain the intellectual property right; Scope of Protection – which will consider the right which is bestowed upon the owner of the intellectual property right; and Duration and Renewal – which details the period of protection, the possibility of renewal terms and the associated costs.

Patents

Forest Conservation The Forestry Act 1967 is enforced by the Forestry Commission. Under the Act a felling licence must be obtained from the Forestry Commission for the felling of certain trees and it is an offence to fell without a licence. There are exemptions to the requirement to obtain a licence such as felling trees in a garden or felling fruit trees.

Packaging Waste The Producer Responsibility Obligations (Packaging Waste) Regulations 1997, as amended, came into force in 1997 and were made under the EA 1995 to implement the EC Directive on Packaging Waste (94/62/EC). They create a regime to ensure certain amounts of packaging in the production chain are recovered or recycled. SEPA are currently increasing their enforcement of this regime. The EA in England has brought over 80 successful prosecutions.

Common law liability In addition to statute law there are remedies under the common law. The most common types of civil proceedings are actions of nuisance or negligence. In environmental cases successful nuisance or negligence actions can result in damages being paid for the loss suffered or an order granted against the person causing the damage requiring him or her to refrain from doing the act causing the damage. For both types of action an action must be taken by the person who has suffered or been injured by the wrongdoing.

Environmental Management Systems An Environmental Management System (EMS) is the part of the management of a company that includes all the practices and procedures for implementing and maintaining the environmental policy to minimise environmental impacts and improve the environmental performance of a company. There are two internationally recognised environmental management systems schemes – ISO 14001 and the EC Eco-Management and Audit Scheme (“EMAS”) which are both valuable tools for businesses organising and demonstrating environmental management.

Procedure & Costs UK patents are governed by the Patents Act 1977, as amended, and the Patents Act 2004. Applications for a UK patent may be submitted to either to the UK Patent Office or the European Patent Office. A European patent designating the United Kingdom falls to be treated under the 1977 Act as if the UK Office had granted it.

A patent application should contain: (a) a request for a patent to be granted; (b) the name and address of the applicant; (c) a specification, containing a description of the invention; (d) a statement of claims delimiting the scope of the patent; and (e) an abstract.

A patent will normally be granted within 4 years of the date of filing the application although there is a fast track process.

There are 3 types of applications which can be pursued in respect of the UK: (1) a UK Application; (2) a European Application; (3) an International Application (PCT). A UK Application will result in protection covering the UK alone. A European Application will result in Community Patent protection covering a bundle of national patents for such countries as are designated in the Application. The Application is handled by the European Patent Office (EPO). A PCT Application can be made, designating the PCT countries in which patent protection is sought. Administration is provided by the World Intellectual Property Office (WIPO) and the Patent Office of Australia, Japan, Asia, USA, together with the EPO provide assistance.

The current approximate costs of filing a patent application include the preliminary search £130 and the substantive examination £70. There is no longer any charge for filing the application itself.

In relation to European Patent Office applications, the costs including the filing fee are €160 (if not filed online) or €90 (if filed online), search fee of €690, designation fee of €75 for each state (subject to maximum of €525), examination fee of €1,430, and claim fee of €40 payable per claim in excess of 10 claims.

In relation to international (PCT) patent applications the costs include a transmittal fee of £55, search fee of £1078, basic fee of £628 for the first 30 sheets and £7 for each sheet thereafter and the designation fee of £60 up to 4 states or a maximum fee of £300 (and other professional) for 5 states or more.

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All the above costs are exclusive of professional fees.

A full list of up to date UK and European Patent fees can be found at http://www.patent.gov.uk/ and http://www.european-patent-office.org/ respectively.

Requirements A patent may only be granted for an invention where the following is satisfied: (a) the invention is novel, that is to say it does not form part of the state of the art; (b) the invention involves an inventive step which is not obvious to a man skilled in the art; and (c) the invention must be capable of industrial application.

The 1977 Act makes clear that discoveries, scientific theories and mathematical methods cannot be regarded as inventions and are thus not patentable. Similarly, works properly found within copyright are non-patentable e.g. schemes for performing a mental act, playing a game or doing business. Computer programs are technically not patentable per se but this is far from the reality in that software with a “technical effect” can be patented and good patent drafting can often procure effective protection for software nonetheless. Finally the Act denies patent protection to offensive, immoral or anti-social inventions and also for any animal, plant or biological process.

Scope of Protection Where the patent is for a product, patent protection provides the patentee with the exclusive right to make, dispose or otherwise use the product.

Where the patent is for a process, the patent protection provides the patentee with the right to use the process or dispose or otherwise use a product obtained directly by means of the process.

If a third party exercises any of these rights with permission from the patentee this will constitute patent infringement.

Notwithstanding the foregoing there are circumstances where a third party may make use of a patented product or process without infringing the patent. This includes private use for non commercial purposes and experimental purposes.

Whilst the patent belongs to the patentee, after three years of the patent’s life application can be made for a compulsory licence on various grounds, including, the patent has not been sufficiently worked in the UK or the patentee has failed to meet the demand for a product on reasonable terms.

Duration and Renewal Patent protection runs from the date of filing for twenty years. Renewal payments are on a sliding scale from currently £50 for the fifth year to £400 for the twentieth year.

Trade Marks Procedure & Costs UK trademarks are governed by the Trade Marks Act 1994.

A trademark application should include (a) a request for registration of the mark, (b) a

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statement of the goods or services in relation to which the mark is sought, (c) a representation of the mark, and (d) a statement that the mark is to be used in connection with those goods or services.

There are 3 types of Application which can result in coverage in the UK: (1) a UK application; (2) a Community Trade Mark (CTM) application; and (3) an International application. A UK application will result in protection covering the UK alone. The application is handled by the UK Patent Office and the UK Trade Mark Registry. A CTM application will result in protection in such CTM countries as are designated in the application. The application is handled by the Office For Harmonisation in the Internal Market (OHIM). International applications will result in protection in the countries which have signed up to the Madrid Protocol and as are designated in the application.

Patent Office fees are £200 per mark for one class with a further £50 for each additional class. In addition there will be Trade Mark Agent’s (and other professional) fees which will vary depending on whether any opposition is encountered.

The costs for filing a CTM application are €975 for the first 3 classes of goods and €200 for each additional class. The costs for registration are €1100 for the first 3 classes of goods and €200 for each additional class.

The registration process should be completed in approximately 9 months.

Requirements Any sign which is capable of being represented graphically and which is capable of distinguishing goods or services of one undertaking from another may be registered. A trademark may consist of words (including personal names), designs, letters, numerals, shapes, colours and smells. It is thought that phrases ending in “.com” or “.org” etc may be capable of registration if shown to be distinctive in character.

Trademarks which consist exclusively of signs or indications which may serve, in trade, to designate the kind, quality, quantity, intended purpose, value, geographical origin or other characteristics of goods or services are not capable of registration.

Scope of Protection Trade Mark protection in the UK allows the owner of the Trade Mark to prevent: (a) a third party using, in the course of trade, a mark which is identical to the registered Trade Mark in relation to the same goods or services; (b) a third party using, in the course of trade, a mark which is identical to the registered Trade Mark in relation to similar goods or services and this causes a likelihood of confusion on the part of the public; (c) a third party using, in the course of trade, a mark which is similar to the registered Trade Mark in relation to the same or similar goods or services and this causes a likelihood of confusion on the part of the public; (d) a third party from using, in the course of trade, a mark which is identical or similar to the

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registered Trade Mark in relation to dissimilar goods or services and where the Trade Mark has a registration in the UK and use of the identical/similar mark takes unfair advantage or is deferential to this reputation.

Duration A registered trademark may be kept in existence indefinitely, subject to renewal every ten years. The current fees for renewal are £200 for one class and £50 for each additional class.

Copyright Procedures & Costs Copyright is governed by the Copyright Designs and Patents Act 1988.

Copyright in the UK arises automatically. There is no registration system and there are no fees to pay.

Whilst there are no official registration procedures for copyright in the UK, it may be helpful to the owner to have proof of the work and when it was created. This may be achieved by depositing a copy of the work with a trusted party such as a bank or a solicitor, or sending a copy of the work to him/herself by registered post and leaving the envelope unopened.

Whilst not a requirement, copyright notices are advisable and good practice under the Universal Copyright Convention.

Requirements Copyright protection covers the following works: (a) original literary, dramatic, musical or artistic works; (b) sound recordings, films, broadcasts or cable programmes; and (c) the typographical arrangement of published editions.

All works must be reduced to material form before enjoying protection.

Computer software is protected by the 1988 Act as a literary work.

Often the owner of copyright and the author of the work will not be one and the same. The 1988 Act includes moral rights for the author, namely (a) the right to be identified as the author or director of a work (paternity right); (b) the right of the author or director of a work to object to derogatory treatment of that work (integrity right); (c) the right for someone not to have work falsely attributed to them; and (d) the commissioner’s right of privacy in respect of a photograph or film made for private and domestic purposes. To protect the author, moral rights are inalienable, although they can be waived. Such waivers may relate to existing or future works.

There is no right to be identified as author in relation to computer programs or computer generated works.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Scope of Protection The copyright owner has the exclusive rights in the UK: (a) (b) (c) (d) (e) (f)

to copy the work; to issue copies of the work to the public; to rent or lend the work to the public; to perform, show or plan the work in public; to make an adaptation of the work; and to broadcast the work.

If a person carries out any of the above acts without the permission of the copyright owner this will constitute copyright infringement.

Duration and Renewal Copyright in a literary, dramatic, musical or artistic work (including a photograph) lasts until 70 years after the death of the author. The duration of copyright in a film is 70 years after the death of the last to survive of the principal director, the authors of the screenplay and dialogue, and the composer of any music specially created for the film. Sound recordings, broadcasts and cable programmes are protected for 50 years, and published editions are protected for 25 years.

Computer generated works enjoy copyright protection for fifty years. The Copyright (Computer Programs) Regulations 1992 were introduced adopting the EC Directive on Computer Programs into domestic law.

Moral rights subsist for the duration of the copyright in the work, with the exception of the right against false attribution, which subsists until 20 years after the person’s death.

Design Rights There are Registered Designs and Unregistered Designs.

Registered Designs The current position relating to Registered Designs is provided by the Registered Designs Act 1949, as amended by the Copyright Designs and Patents Act 1988 and the Registered Design Regulations 2001.

There are two types of Design Applications which can result in coverage in the UK: (a) a UK Application; and (b) a European Application. A UK application covers the UK only and application is made to the UK Design Registry at the UK Patent Office. A European Application is made to OHIM. The costs of a UK Application are £60 for one design. The costs for a European Design are €230 for one design and an additional fee of €115 for other designs up to 10 and €50 thereafter.

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An application must provide representations of the design, an application form and the relevant filing fee.

(b) steps taken to protect the information both within and out with the individual/business; (c) the value to the individual/business and that of the individual’s/business’ competitors.

Requirements A registered design is a monopoly right in the outward appearance of the whole or part (so long as it is visible) of a product resulting from the lines, customs, colours, shape, texture or other feature.

Designs which are purely functional are not registrable.

The design must be: (1) novel – it must not be the same as a design already available to the public. There is a 12 month period of grace in which a designer can test a design in public without losing the right to register the design; and (2) distinctive character – the original impression the design producer on an informed user must differ from the overall impression produced on such a user by a product already made available to the public.

An important difference introduced by the 2001 Regulations is that the design is now protected rather than the article to which it is applied.

If a company does have know-how then it needs to take adequate steps to protect it, for example appropriate security measures, entering into confidentiality agreements and putting in place internal procedures vis a vis employees etc.

Scope of Protection Registered Design rights provide the exclusive right to make, import, export, use or stock any product to which the design has been applied or incorporated. A third party exercising the above rights without permission from the owner will constitute infringement.

Duration Designs may be registered for an initial period of five years and the registration is renewable for successive periods of five years up to a maximum of twenty years. Renewal fees are currently around £130 for the first five years, £210 for the second, £310 for the third and £450 for the final period.

Treaties The UK is a party to certain intellectual property treaties. These are as follows: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)

Unregistered Designs Original, non-commonplace designs of the shape or configuration of articles may constitute an unregistered design right. The design does not require registration although it does require to be in a tangible form. The design right comes into existence at the moment when it is either recorded in a design document or when an article is made to the design. The right lasts for 15 years unless articles are made to the design which are made available for sale or hire within 5 years, in which case the right lasts for ten years.

Know-How Know-How covers knowledge, such as methods of working, specific to an individual/business, which are kept secret. There is no specific right or requirement for registration nor any statutory protection.

The extent to which Know-How will be protected will be determined by a Court considering a nonexhaustive list of factors such as: (a) the time taken to develop it;

(l)

Convention establishing the World Intellectual Property Organization.

Paris Convention for the Protection of Industrial Property.

Berne Convention for the Protection of Literary and Artistic Works.

Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods.

Madrid Agreement Concerning the International Registration of Marks and Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.

Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks International Convention for the Protection of Performers, Producers or Phonograms and Broadcasting Organisations.

Patent Cooperation Treaty.

Strasbourg Agreement Concerning the International Patent Classification.

Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms.

Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure.

Trademark Law Treaty.

The list of treaties above are correct at the date of publication. Reference should be made to the World Intellectual Property Office website for full details of intellectual property treaties (http://www.wipo.org/treaties/general/parties.html#1).

Intellectual Property Agreements – General As previously mentioned, there are some differences between the laws of the territories comprising the UK but the statutory regime governing intellectual property is very similar throughout the country.

The general principles of contract law throughout the UK support freedom of contract – parties are free to choose with whom they will contract and upon what terms. There are few terms implied into a contract by law and, in general, courts will uphold commercial terms which have been negotiated between the parties to an arm’s length transaction.

Parties are also at liberty to choose the law they wish to govern the contract. However, the parties

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may not, by choice of a different legal system, avoid the application of the mandatory rules of the country which would otherwise apply to the situation. For example, the courts may apply local statutory consumer protection laws.

The courts in the UK will generally hear IP disputes, although the parties are again free to provide in the contract for alternative means of resolving disputes e.g. mediation or arbitration.

Although local courts are entitled to hear many actions concerning intellectual property, some actions (such as patent infringement issues) may only competently be brought in the higher courts of the land.

Remedies include injunction/interdict (court order prohibiting the defendant from carrying out certain actions), delivery (an order requiring offending goods to be delivered up), and/or damages or an account of profits – all depending on the nature/extent of the infringement. There are also certain criminal liabilities under relevant intellectual property legislation.

Transfers of Intellectual Property How are transfers achieved?

Outright transfers of IP are completed by way of an assignment (in Scots law terminology, the same document is generally known as an assignation). There is no statutory form of assignment, although they tend to be relatively short documents following a typical style. However, legislation does require that certain IP assignments be in writing, and signed (at least) by, or on behalf of, the assignor and in the case of assignments of patents, by both parties.

It is possible to assign past, present and future rights (by way of present assignment). It is also possible to assign rights in security for a loan, and to assign in return for periodical payments (effectively a staged consideration) although the latter can be complex and an exclusive licence with royalty payments may be a better solution (see below).

Is there anything that cannot be assigned?

Moral rights, which are personal to the author of a work, cannot be assigned (they are only transferred to successors upon death), but can be waived. Certain statutory rights of employees to compensation (in the case of an employer deriving extraordinary benefit from employee inventions) under sections 39 – 43 of the Patents Act 1977 cannot be transferred or waived. However, both of these sets of rights are relatively weak, not often used and can be expensive to enforce.

Are there any other parties who require to be notified of changes in ownership?

Changes in the ownership of registered rights must be notified to the appropriate authorities to receive the full protection of the law. In the case of UK registered trade marks, this is the Trade Marks Registry; UK registered designs, the Designs Registry; and patents, the UK Patent Office. Changes in the ownership of Community Trade Marks and Community Registered Designs should be notified to the Office for Harmonisation in the Internal Market (OHIM) in Alicante, Spain.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Intellectual Property Licensing What are the rules about licensing in the UK? There is no statutory form of Licence Agreement although most will follow a common pattern and contain standard terms one would expect to see in such an agreement e.g. scope of the licence, permitted territories, financial terms and so on. There are generally no restrictions under law as to the appointment of sub-licensees or parties to whom the licence may be assigned, so if there are to be any restrictions, then these should be covered in the agreement.

Are there any pre-contractual considerations?

In the same way as in other territories, confidentiality can be an important aspect of pre-contractual negotiations, depending on the sensitivity of information or technology concerned. Non-disclosure agreements should be entered into in writing prior to disclosures being made, particularly in view of the lack of statutory protection in the UK for confidential information, trade secrets and know-how.

Are there any formalities of contract?

An intellectual property licence is a contract and, like any other contract under UK law, it can be constituted verbally or in the course of correspondence, and even inferred from the actings of the parties. However, a written agreement is usually entered into by the parties. As well as clarifying the terms of the licence, writing can of course be useful or even necessary to strengthen the rights of the parties concerned. If there is to be no written agreement, or matters are to proceed on an informal basis, it is wise to have at least a document setting out the commercial heads of terms of the agreement. Lack of a written agreement could lead to ambiguities and uncertainty, which may in turn require the courts to determine implied terms (not necessarily to both parties advantage) in the event of disputes arising.

There are advantages to ensuring that a written agreement signed by the parties is in place. For example, in relation to copyright, an exclusive licence must be in writing and an exclusive licensee will have no right to sue infringers unless the written formalities are met. Similarly, registration of a written patent licence will allow an exclusive licensee in the UK to step into the shoes of the patent owner and raise proceedings in respect of infringement of the patent, whereas failure to register may result in a licensee forfeiting the right to damages/an account of profits. There are also advantages under applicable UK trade marks legislation to registering both exclusive and non-exclusive licences, such as rights against holders of conflicting interests in a trade mark where these were acquired in good faith, and certain rights to bring actions for infringement in the name of the licensee.

Please note that there are generally no notarisation requirements for the transfer or licensing of IP in the UK. Are there financial restrictions?

There are no specific constraints under UK law in relation to the financial terms which may be included in a licence agreement, although there may be certain anti-trust/competition law

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considerations if the licensor is seeking payment of a royalty which extends beyond the patented or licensed process.

The licensor will require to consider the taxation implications of any payments to be remitted by the licensee. The UK applies a withholding tax on UK patent royalties and certain copyright royalties if payment is to be made to a non-resident company.

The terms of any applicable double taxation agreement should be considered carefully, particularly in relation to payment of royalties. In the absence of any double taxation agreement withholding tax at the basic rate (22% at time of writing) applies to patent royalties paid to nonresidents. Appropriate professional tax advice should be taken in each case, including the implications of Value Added Tax legislation on the payment of royalties and other payments under the licence.

Intra-group sharing of IP between parent/subsidiary companies may also give rise to financial, accounting and taxation considerations depending on the nature of the arrangement and the relationship between the companies and specific advice should be sought in individual cases.

Are there regulatory requirements or necessary approvals?

Licence Agreements do not generally need to be approved or registered by any governmental agency. However, there are specific requirements in certain areas. In relation to medicines and medical devices, for example, there is specific domestic and EU legislation and guidelines, but there are also issues relating to clinical trials; current good laboratory, clinical and manufacturing practice; health and safety and environmental issues governing the use, storage and disposal of various materials. Specialised advice should be sought in each case.

In addition, there may be competition law considerations at a European Union level – see below.

What are the competition law (antitrust) considerations?

The UK is an EU Member State, and therefore, EU law has direct effect in the UK and actions based on EU law can be brought in the national courts. One of the areas more heavily regulated by the EU is competition law.

The key provisions of the UK’s Competition Act 1998 mirror the EU Rules (Articles 81 and 82).

The Act prohibits agreements or concerted practices which have the effect of preventing, restricting or distorting competition in the UK (known as “the Chapter I prohibition”) and conduct by one or more undertakings which amounts to abuse of their dominant position in the UK marketplace (“the Chapter II prohibition”). The UK authorities are required by the Act to ensure that application of these prohibitions is consistent with EU jurisprudence to the extent that this is possible.

IP agreements may be able to take advantage of so-called ‘block exemptions’ from the competition rules. There is a specific exemption from the EU rules for technology transfer agreements which satisfy certain requirements. There is a ‘whitelist’ of permitted clauses and a ‘blacklist’ of prohibited clauses. The position in the UK is currently being consulted upon, but we expect that once published it will probably resemble the EU approach. There is also an EU exemption for research and development co-operation agreements satisfying certain criteria.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

It is also possible to apply for individual exemption at both EU & UK level for agreements that are outwith the scope of the block exemptions. It should be borne in mind that exemptions and exclusions do not preclude the possibility of a ‘dominance’ type analysis of the effects of an agreement.

Both the EU and UK authorities have exemptions/exclusion orders in relation to ‘vertical agreements’ (e.g. supply, distribution, purchasing, etc where the parties operate at different levels of the market). Provisions relating to IP are generally exempted in so far as they are ancillary (not the main purpose) to the agreement. The EU block exemption focuses on market shares thresholds below which the rules will not apply, whereas the current UK approach is ‘blanket’ in approach (save where an agreement contains a flagrant breach). It is possible that the UK approach on vertical agreements will be brought more into line with the EU rules in future.

What are the liability implications of the licensing model?

Whilst the UK courts will generally respect parties’ rights freely to contract, there are notable exceptions. One such exception relates to possible liability for defective products manufactured under licence. There may be liability at common law, but there may also be strict liability under UK consumer protection legislation, which places liability for personal injury or property damage on the producer. The licensor, not being the producer, may not be liable. However there could be implications for the licensor, for example, if the licensee is authorised to use the licensor’s trade mark or get up in relation to the products.

Attempts to limit or exclude liability will be subject to a test of reasonableness by the courts under legislation governing unfair contract terms and could be struck down or revised. Other unreasonable terms in standard form contracts (e.g. standard end-user software licence) could similarly be subject to a reasonableness requirement.

As regards termination of licences: in the absence of any contractual provision to the contrary there is no compensation payable to licensees on termination of a licensing arrangement under the law of the UK unless, of course, the contract has been wrongly terminated and damages are sought, or the contract itself provides for compensation.

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Useful Links UK Government and Trade Bodies British Chamber of Commerce www.chamberonline.co.uk Department of Trade and Industry www.dti.gov.uk UK Office of Fair Trading www.oft.gov.uk UK Government advice on trading online www.e-envoy.gov.uk UK Customs and Excise www.hmce.gov.uk UK Inland Revenue www.inlandrevenue.gov.uk Confederation of British Industry www.cbi.org.uk Federation of Small Businesses www.fsb.org.uk Institute of Export www.export.org.uk British Council Scotland www.britcoun.org Scottish Development International www.sti.org.uk Scottish Enterprise www.scottish-enterprise.com (and www.ecommerce-scotland.org) UK Patent Office www.patent.gov.uk European Patent Office www.european-patent-office.org World Intellectual Property Organisation www.wipo.int U.K Government Home of Intellectual Property on the Internet www.intellectual-property.gov.uk Licensing Executives Society for Britain and Northern Ireland www.bi.les-europe.org Intellectual Property Law Information www.intelproplaw.com

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

3 investment incentives 3.1 Export incentives or guarantees The United Kingdom no longer allows the drawback of import duties or revenue duties on components for exported goods, unless the duty-paid imports that will be re-exported are separately identifiable. In practice, this may mean separately packaged.

Most government assistance for exporters takes the form of advice rather than financial aid, but grants are available to enable companies to mount exhibits at overseas trade fairs. The Department of Trade and Industry (DTI) also offers advice and information regarding foreign markets.

3.2 Grants, subsidies or funds offered to foreign investors A wide range of incentives are available to companies, joint ventures, partner-ships and other commercial entities investing in the United Kingdom.

Regional Selective Assistance Grants and Selective Finance for Investment in England grants.

“Selective Finance for Investment in England” grants are available for businesses that are looking to invest in “Assisted Areas”. Delivery of the scheme is through Regional Development Agencies, and the grants are discretionary and are negotiated as the minimum necessary for the project to proceed.

A detailed and well-developed business case and application must be submitted to demonstrate that, without the grant, the project would not proceed, would take place outside the Assisted Areas or overseas, or would be substantially smaller or significantly delayed. The project must create new jobs or safeguard existing employment and involve expenditure on fixed assets.

Scotland and Wales operate similar schemes called Regional Selective Assistance Grants (RSA) The Assisted Areas of Great Britain are based on a map agreed with the European Commission in July 2000. The map will run until 31 December 2006. Three types of Assisted Areas exist. Tier 1 areas are Cornwall, Merseyside, South Yorkshire and West Wales and the Welsh Valleys. The highest amounts of grants can be negotiated in these areas. Tier 2 covers a wide area, including parts of Scotland, South Wales, and in England, the Northwest, the Northeast, the Midlands and parts of the Southeast. Grants in Tier 3 Areas are restricted to small and medium-sized firms. These grants are flexible incentives that are intended to aid regional development and respond to local economic crises.

The amount of a grant is subject to upper limits that vary depending on the tier in which the project falls. If a sufficient number of jobs are to be created, the likely rate of grant is 10% to 15% of the project’s capital expenditure in Tier 2 or 3 Areas, but larger grants are possible. Grants of double this rate may be avail-able in Tier I Areas. All SFI and RSA grants are taxable.

On first impression, the grants system may seem unduly complicated, and it does contain pitfalls for the unwary. However, well-founded projects that are persuasively presented can receive significant grants.

Northern Ireland operates a similar grant scheme.

For smaller businesses, funding is provided via EGS (Enterprise Grant Scheme) for capital

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expenditure projects undertaken by small companies within the designated Tier 1, Tier 2 and Tier 3 Areas of England. AIG (Assembly Investment Grants) are similarly available in all areas of Wales. IFG (Investment for Growth) grants are available for capital expenditure projects undertaken by small companies within the designated Tier 1, Tier 2 and Tier 3 Areas of Scotland.

Research and Development The UK government supports a wide range of research and development (R&D) programs. These are generally collaborative programs involving partners from industry, universities and government research establishments. To obtain government assistance, these partners must demonstrate the following: such assistance would have a positive influence on the scope or scale of the project; the project is innovative and technically realistic; and it has reasonable prospects of eventual commercial exploitation.

Training and Recruitment The Government provides support for the recruitment and training of staff. Most assistance is directed at young workers, the disabled and the long-term unemployed. Local agencies and regional government offices provide such grants. The Small Business Service can also be contacted.

3.3 What is the type of financial system in the country?

The UK’s financial system is governed by the Financial Services and Markets Act 2000 (the “FSMA”).

This act deals in detail with all aspects of financial regulation in the UK. It also sets out the functions and duties of the Financial Services Authority (the “FSA”) which has responsibility for UK financial institutions. The FSA is an independent non-governmental body, given statutory powers by the FSMA. The FSA has four main aims: To maintain confidence in the UK financial system; To promote public understanding of the system; To secure the right degree of protection for consumers; and To help to reduce financial crime.

The FSA website (www.fsa.gov.uk) is extremely helpful in setting out not only their functions and duties, but also a list of their publications which can be accessed online.

The FSA took over responsibility for the regulation of banking from the Bank of England. This followed some fairly high profile failures to regulate the financial industry including the collapse of Barings Bank.

One of the most important tasks of the FSA is to help reduce financial crime.

What kind of financial institutions exist in the UK? In the UK there has never been a clear distinction between financial institutions and banks. A general prohibition exists under s.19 of the Financial Services and Markets Act 2000 (the “FSMA”) on any person carrying out a Regulated Activity in the UK unless authorised or exempt. Regulated Activities,

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

which include banking, are defined in schedule 2 of the FSMA. Section 3 of the Banking Act 1987 (the “Banking Act”) places an absolute prohibition on the acceptance of deposits unless the person is an institution authorised by the Financial Services Authority (the “FSA”) or is otherwise exempted under the Banking Act. The persons who are entitled to seek permission from the FSA to accept deposits from the public are called ‘Authorised Institutions’. These are the bodies listed in schedule 2 of the Banking Act and include: The Bank of England The central bank in the UK, which was previously at the head of a system designed to regulate deposit taking businesses. The Bank of England’s duties and responsibilities are to control bank note issue; to act as the bankers’ bank; to act as the government’s bank and to advise them on monetary policy; to be a lender of last resort to the commercial banking system and operating the exchange equalisation account which consists of buying and selling sterling in the money markets in an attempt to stabilise its value in relation to other currencies.

The deposit banks London clearing banks are the main commercial deposit banks in the UK. They are called clearing banks because they are a member of the British Bankers Clearing House, through which the majority of cheques are cleared. There are four main clearing banks in England; National Westminster Bank, HSBC, LloydsTSB and Barclays Bank. They generally provide core banking activities including insurance/assurance, pensions and loans to individuals, small business and corporate banking facilities.

The Scottish clearing banks The Royal Bank of Scotland plc, The Governor and Company of The Bank of Scotland, Lloyds TSB Scotland plc and Clydesdale Bank plc. These banks carry out essentially the same functions as their English counterparts. One distinction however is that the Scottish clearing banks are still able to print their own bank notes. These notes have to be backed by an equivalent reserve of Bank of England notes.

The investment banks The large investment banks will be either members of the Accepting Houses Committee or the Issuing Houses Association. There are essentially two categories of investment banks; issuing houses and accepting houses. Issuing houses are primarily concerned with the provision of financial expertise to large industrial companies, giving advice on raising finance, mergers, take-overs and reorganisation of capital. Accepting houses have a wider remit. They accept bills of exchange, conduct foreign exchange deals, provide money management and investment management, finance capital ventures, and act as stockbrokers. These banks can also offer special services to private individuals and corporate clients. These include corporate finance work, short term loans, fund management of deposits and advice on investments.

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The British overseas and Commonwealth banks Previously used to facilitate the growth of trade. Now that most overseas states are independent, the banks attempt to raise funds in other ways i.e. the euro-currency markets.

Foreign banks As a leading financial centre many foreign banks have offices in London.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

setting out the rights and duties of both parties to the banking contract. The principal code, drawn up by the Banking Standards Board, represents best practice. The codes are voluntary. However, the courts can have regard to them when deciding cases involving banking. The Financial Service Ombudsman (an independent body set up by statute to deal with disputes between consumers and financial institutions, and whose decisions are binding on the institutions concerned) also refer to the codes when handling complaints against banks.

The various codes are:

Consortium banks Organisations which have been established jointly with existing banks. A main function is to lend to large corporations on a mid-term basis.

Banking Code Designed for personal customers;

The National Savings Bank Accepts deposits through the Post Office and allows withdrawals of up to £50 at Post Offices. It is regulated by the National Savings Bank Act 1987.

Business Banking Code Designed for sole traders, partnerships and limited companies with annual turnover less than £1m; and

Girobank Set up to modernise the transmission of money through the Post Office. Girobank was acquired

by Alliance and Leicester in 1990 and this lessened the strong connection with the Post Office. The services offered are money transfer, standing orders, personal loans and deposit accounts.

Mortgage Code Designed for any institution offering mortgage facilities.

Copies of the Banking Codes can be obtained from many places for example:

The discount houses Specialise in discounting bills of exchange. They obtain most of their funds by borrowing from commercial banks at a slightly lower interest rate than they charge for discounting bills.

The British Bankers Association (the “BBA”) Facilitates a forum for discussion of matters of interest to UK Banks. It also represents the UK in the European Banking Federation. Membership of the BBA is available to all banks with a head office in the UK. All other banks authorised under the Banking Act 1987 are entitled to Associate membership. Each institution appoints a Principal Contact for dealing with the Association’s affairs.

The BBA currently represents over 300 banks from more than 60 countries. It is the principal trade association for the banking and financial services industry.

How is the banking system structured?

The structure of the banking system in the UK has a strong legal framework. Statutory regulation and supervision of banks has moved away from the Bank of England and the various Banking Acts, and is now under the umbrella of the FSMA and the FSA. Banking is a highly regulated activity, not only in terms of statutory regulation, but also in the practices that have arisen by way of trade and practice.

Many of the rules governing banking practice have been subject to judicial interpretation, and this is yet another source for rules governing the banking system.

Banks are also subject to various ‘Banking Codes’. These take the form of written documents

Banking Code Standards Board www.bankingcode.org.uk British Bankers Association. www.bba.org.uk Council of Mortgage Lenders www.cml.org.uk As a result of e-banking, electronic fund transfers and general improvement in technology and travel, banking has become more international in nature. There are several committees which attempt to regulate and globalise banking, one of the most important of these being the Basel Committee on Banking Supervision (the “Committee”).

The Committee, was established by the Governors of the central-banks in the Group of Ten countries at the end of 1974. The Committee does not possess any formal supranational supervisory authority, and its conclusions do not have legal force. Rather, it formulates broad supervisory standards and guidelines and recommends statements of best practice in the expectation that individual authorities will take steps to implement them through detailed arrangements (statutory or otherwise) which are best suited to their own national systems. In this way, the Committee encourages convergence towards common approaches and common standards without attempting detailed harmonisation of member countries’ supervisory techniques.

The Committee’s members come from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, United Kingdom and United States.

Countries are represented by their central bank and also by the authority with formal responsibility for the prudential supervision of banking business where this is not the central bank.

Over the past few years, the Committee has moved more aggressively to promote sound

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supervisory standards worldwide. In close collaboration with many non-G-10 supervisory authorities, the Committee in 1997 developed a set of “Core Principles for Effective Banking Supervision”, which provides a comprehensive blueprint for an effective supervisory system. The Financial Action Task Force on Money Laundering has spearheaded the effort to adopt and implement measures designed to counter the use of the financial system by criminals. It established a series of forty Recommendations in 1990 that sets out the basic framework for anti-money laundering efforts which are intended to be of universal application.

Is there a stock market?

Yes, the main markets in the UK are the Official list of the London Stock Exchange (“LSE”), the AIM market (formerly known as the Alternative Investment Market) ( “AIM”) and OFEX. Shares in many public listed companies are traded on the principal market for listed companies. AIM provides small and medium sized companies with the opportunity to raise development capital and for their shares to be traded. This growth market of the London Stock Exchange is deliberately designed to operate and be regulated separately from the Official List. The criteria for joining AIM are much more flexible than those required when seeking a listing on the Official List making it an ideal market for young and growing companies. OFEX is an independent market for small and medium enterprises, and is a trading facility for unquoted and unlisted securities. It is regulated by the FSA. FTSE calculates over 20 000 indices daily, including more than 600 real-time indices. The best known indices are the FTSE UK Series which includes the FTSE 100. The fastest growing index series is the FTSE All-World Index Series, a benchmark covering 49 countries. FTSE has no capital markets involvement. The company originated as a joint venture between the Financial Times and the London Stock Exchange.

LSE’s services are regulated in order to provide an efficient market place. As a Recognised Investment Exchange, the LSE has to satisfy the requirements detailed in the FSA’s Recognised Investment Exchange Sourcebook. Orderly markets are maintained via rules, guidance and through the monitoring of trading and market activity. One example of this is The City Code on Takeovers and Mergers (“the Code”). The Code applies to all listed and unlisted public companies, and also some private ones which have had shares listed on the London Stock Exchange within the previous ten years. It also protects shareholders involved in a bid. The Code was last fully revised and reissued in July 2000. The code sets out General Principles and is enforced by the Panel on Takeovers and Mergers. The panel is a self-regulating body. However, decisions are subject to judicial review. Details of the Rules of the LSE can be found at www.londonstockexchange.com. The Code can be found at www.thetakeoverpanel.org.uk FSMA will be amended shortly to comply with the Prospectus Directive, which is required to be implemented by 1 July 2005. The aim of the Directive is to enhance investor protection through the production of high quality prospectuses when an offer of securities is made to the public and when securities are admitted to trading on a regulated market. The prospectus will have to contain historical financial information, risk factors and other relevant information on the proposed investment and the new Rules will replace the Public Offers of Securities Regulations 1995.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Must an investor maintain a bank account in the UK? It is not necessary for an investor to maintain a bank account in the UK in order to invest in shares or other types of investment such as the housing market.

In terms of banking facilities, some accounts and services will only be available to people resident in the UK for example credit cards.

Relationships with banks are usually contractual in nature. Early case law suggested that to be a ‘customer’ (and thus be entitled to benefit from the bank’s duties to its customers) it was necessary to have an account with the bank. However, nowadays it is not always necessary to have an account to be a bank customer.

What are the requirements for opening a bank account?

The requirements for opening a bank account in the UK will vary depending on who is opening the account, what the purpose of the account is and which bank they wish to join.

Individuals will be subject to credit checks and they will be subject to money laundering checks as described below.

There may also be certain specific requirements for account opening depending on the bank. For example you are only eligible to apply for certain credit cards if you are aged 18 years or over; are permanently resident in the UK (excluding Channel Islands and Isle of Man); are able to provide details of residential addresses for the last two years; have a UK bank or building society account from which you can pay direct debits. The account must be in your name or in joint names where you are one of the account holders (excluding business accounts).

When providing services to individuals such as loan facilities or mortgage facilities, the bank will usually ask for some form of security. A common example of this would be security over the individual’s house.

Companies and other legal entities are able to open accounts in much the same way as individuals. They will be subject to credit checks, and expected to comply with money laundering provisions as described below.

When lending money to companies and other entities, most banks will look for security over property in the UK. However, depending on the nature of the entity, they may also request security over property situated in other countries.

Anti Money Laundering Restrictions The prolific increase in international terrorism has facilitated a world wide response, usually in the form of anti-money laundering legislation. Money laundering breaks or attempts to break the audit trail of funds, the purpose being to put them in a state where they appear to have an entirely respectable provenance. Money laundering has become easier through the use of electronic banking and correspondent banking, i.e. through different time zones and currencies.

The main provisions relating to the prevention of money laundering in the UK are contained in Part 7 of the Proceeds of Crime Act 2002 (“PoCA”) and the Money Laundering Regulations 2003 (the “2003 Regulations”). Money laundering is defined in general terms as concealing, transferring or facilitating the

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holding of criminal property. PoCA makes it a criminal offence for any person to conceal criminal property (money is included in the definition of criminal property), to enter into an arrangement which a person knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person, and finally makes it an offence to acquire, use or possess criminal property.

The consequence is that there is an obligation placed on banks and other regulated institutions to ‘know their customers’. This entails verification of customer identity when opening accounts. Banks must also satisfy themselves as to the source of any funds or assets used in transactions. Suspicious transactions must be reported to the authorities. A bank must disclose not only a knowledge or suspicion of money laundering, but also if they have reasonable grounds for knowing or suspecting that a person is engaged in money laundering.

In order to protect themselves from criminal sanctions banks now have a stringent series of checks which they carry out before opening accounts. PoCA does not specify exactly what steps banks must take in order to comply with money laundering regulations; however there is plenty of guidance available from the FSA in particular. Under the FSMA the FSA has power to make rules in relation to the prevention and detection of money laundering in connection with the carrying on of regulated activities. The FSA produces a handbook of rules and guidance in relation to money laundering. Breach of these guidelines can result in severe monetary penalties for the bank involved. For example Northern Bank were fined £1,250,000 by the FSA for breaching its guidelines in relation to customer verification procedures. The Joint Money Laundering Steering Group (the “JMLSG”) is made up of the leading UK Trade Associations in the Financial Services Industry. Its aim is to promulgate good practice in countering money laundering and to give practical assistance in interpreting the UK Money Laundering Regulations. This is primarily achieved by the publication of Guidance Notes. They are viewed as a statement of good industry practice.

The 2003 Regulations require any person who carries out a relevant business in a business relationship or one-off transaction including a payment in excess of £15,000 with or for another person to maintain certain administrative and training procedures designed to prevent money laundering occurring. The definition of relevant business has been expanded significantly by the 2003 Regulations and includes almost all kinds of financial business; e.g. casino operators, accountants, lawyers, tax advisers and estate agents to name a few. Failure to comply with 2003 regulations is an offence punishable on conviction by a maximum of two years imprisonment.

The Basel Committee (see above) recommends that in order to open a bank account, the following information should be produced: Natural Persons Legal name, correct personal address and telephone/fax/email details Date and place of birth and nationality Details of occupation An official personal identification number or unexpired unique identifier that bears a photograph of the customer Type of account and nature of banking relationship Signature

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Corporate Entities Name of institution and principal place of operation Mailing address and contact telephone and fax numbers Form of official identification number, if available Original or certified copy of the Certificate of Incorporation and the Memorandum and Articles of Association Resolution of the Board of Directors to open an account and identification of those who have authority to open the account Nature and purpose of the business and its legitimacy This is fairly typical of the information required by banks in the UK. They may also require documentation (e.g. passport, driving licence) in respect of company directors and secretaries.

What are the restrictions, if any, on the investor’s use of the account?

Again this will depend on the nature of the account. Before opening any account, the bank will provide a list of terms and conditions which a customer must adhere to in order for the account to operate. For example if the bank agrees to an authorised overdraft, and you spend over this limit, it is likely that you will incur penalty charges from the bank.

Specific accounts will also carry restrictions. For example if a bank provides a company with loan facilities, the bank can, and frequently do, specify the purpose for which the money is being lent. Any use of the facilities outside these purposes would result in the customer being in breach of the agreement and could mean possible withdrawal of the loan facilities.

Can the investor receive bank loans?

In many cases an investor will be able to receive loans from a bank. Any loan will be subject to status. This means that a bank would require details of an investor’s financial status and credit history. If an investor has been refused credit in the past or previously been declared bankrupt, this may affect the bank’s decision on lending.

The bank may also consider what security is available. An example of this would be where a bank is lending to a company. In this case the bank would usually ask for a floating charge or debenture over the assets of the company. This type of charge can cover all the assets of a company both heritable and moveable.

How are nationals, residents and non-residents defined?

In general terms a national is a person who has a place of permanent residence in a country, and not merely a temporary abode. The courts have determined that as a company cannot eat or sleep, but it can do business, it is necessary to look at where the company carries out its business. Just as a person may be of foreign nationality and still be resident, so may a company. The same applies to internet banking. Banking services provided this way are not within the territory of the customers Member State, but rather where the bank is located. However the local bank will still be dealing with a

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foreign national. How banks deal with this situation will be down to their own internal procedures.

The meanings of national, resident and non-resident have never been specifically defined in terms of banking law. In the UK such questions are determined by the concept of citizenship. British citizens have the right to live here permanently and are free to leave and re-enter the United Kingdom at any time. Citizenship is obtained through, birth, descent or registration. Foreign nationals may apply for certificates of naturalisation. This also applies to Commonwealth citizens and Irish citizens.

Applicants must: have lived legally in the United Kingdom for five years (the last year should have been free of any time limit); be 18 or over; not be of unsound mind; be of good character; have sufficient knowledge of English, Welsh or Scottish Gaelic (depending on their age and physical and mental condition); and stay closely connected with the United Kingdom.

More detailed information about registration and naturalisation is available via the UK government’s website at http://www.ind.homeoffice.gov.uk Can the investor receive loans from national, residents or non-residents?

The major requirement when dealing with foreign nationals is to ensure that the transactions comply with local anti-money laundering provisions.

Are there restrictions on conducting business with nationals, residents or non-residents?

There are few legal prohibitions on foreign nationals not resident within the UK opening bank accounts in the UK. The account is situated within the territorial jurisdiction of the UK and therefore is subject to all local laws and regulations. In certain circumstances, however, restrictions may apply under the anti-money laundering legislation. The Financial Action Task Force, an intergovernmental body, whose role is to combat international money laundering and terrorist financing, lists noncooperative countries and territories. Banking transactions involving these countries, or nationals from these countries, will attract closer scrutiny from the authorities to ensure compliance. As of 11 February 2005 these countries are Myanmar, Nauru and Nigeria.

Other restrictions may be imposed by anti terrorism legislation such as the Anti Terrorism, Crime and Security Act 2001, which amended the Terrorism Act 2000. This places much the same obligations on banks as the money laundering legislation. Banks would also be unable to conduct business with individuals in contravention of United Nations sanctions.

Are there reporting requirements?

Banks have to adhere to anti-money laundering provisions, which if they believe have been infringed

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necessitate reporting to the authorities. In terms of PoCA failure to disclose a suspicion of money laundering is a criminal offence. Thus there is a requirement on both the bank and the customer to disclose any suspicious transactions. Banks also send information to the Inland Revenue for deduction at source of any relevant taxes.

Are there restrictions on direct investment in the country?

Provided that money laundering requirements are complied with there are no restrictions on direct investment.

Must the investor make declarations regarding the nature of his investment?

There is no general requirement to make declarations regarding the nature of the investment.

However, in terms of the Companies Act 1985, there is an obligation of disclosure in certain circumstances. This obligation will arise where a person has a material (beneficial) interest in more than 3% of the nominal value of the share capital of a public limited company, or a notifiable interest in more than 10% of the relevant share capital.

Is there determination of exchange rates?

Exchange rates in this country are determined by free market forces. The Bank of England is responsible for the management of the UK’s foreign exchange.

Are there restrictions on the transfer of money into or out of the country?

Articles 56 to 60 of the Treaty establishing the European Community, as modified by the treaty of Amsterdam, promote the free movement of capital. This is one of the fundamental principles of the European Single Market. Restrictions on the free circulation of capital are prohibited both between member states and with third countries. Capital is a vast term and includes not only money but also stocks, and foreign investment. Again all circulation of capital is still subject to anti-money laundering regulations.

Are there restrictions on the remittance of profits abroad?

As long as the appropriate taxes are paid and anti-money laundering provisions are not breached then there are no restrictions.

Can hard currency be taken out of the country?

Provided there is no breach of the money laundering obligations as described above.

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4 structures for doing business 4.1 The Limited Liability Company The limited liability company is perhaps the most common formal structure for the conduct of business in the UK. In such companies ‘limited liability’ means that the extent of the shareholders’ liability is restricted to the amount of share capital in which they have invested. The company itself remains liable, without limit, for its debts. Two forms of limited company exist, the private limited company (“XYZ Limited” or “XYZ Ltd”) and the public limited company (“XYZ plc”).

Both private and public companies can be very flexible vehicles with extremely wide powers. The company’s constitutional documents are the memorandum and articles of association (similar to the constitution and by-laws respectively of other jurisdictions). These can be drafted to encompass almost all commercial objects, so that the scope for ultra vires action is be very narrow and organise the running of the company in the most efficient manner. Changes to the memorandum and articles of association are possible with the consent of the shareholders.

In both private and public limited companies the share capital can be organised into many different classes, each conferring different rights or restrictions. Shares may be denominated in currencies other than sterling. There are no minimum capital requirements for private companies, although it is rare that a private company will have an issued share capital of less than £1.00 sterling.

Only public companies can offer shares to the public (which for these purposes means, subject to certain exemptions, more than fifty persons) and as a result certain additional obligations are imposed upon them, including a minimum capital requirement of £50,000 (although only £12,500 need be ‘paid up’ capital). Not all public companies offer their shares to the public nor are all listed on Recognised Investment Exchanges.

In return for the benefits of limited liability, UK law requires a degree of transparency and every company must file with the Registrar of Companies (who maintains a public register of company information) details of its directors and shareholders and, subject to certain exceptions, annual audited accounts.

The directors, along with the company secretary, are the only officers of the company and, unless limited by the company’s constitutional documents, are implicitly authorised to act on behalf of and bind the company. The board of directors is not responsible to any supervisory board, but the directors must have regard to the interests of employees and they owe a number of statutory and non-statutory duties to the company including, for example, a duty to act in good faith and a duty not to make a personal profit at the expense of the company. In certain circumstances directors may be held liable for debts of the company in the event of insolvency (see below).

Directors do not have to be resident in the UK, nor have any professional qualification. Directors are not required to hold shares in the company that they manage. The minimum number of directors for private companies is one (although that person cannot also be the company secretary) but a public company must have at least two directors.

At the date of writing (April 2005) a new Company Law Reform Bill is currently out for

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

consultation. Broadly, the proposal is to make significant changes to UK company law in order to make matters easier for small companies and to “think small first”. The proposal includes making it easier to set and run a company, removing the requirement for a secretary codifying directors duties and introducing mechanisms to give shareholders a greater opportunity to play a more informed role.

The consultation closes on 10 June 2005; thereafter its progress will be determined by the will of Parliament.

Incorporating a UK Company Strictly speaking, companies can only be incorporated in either Scotland or England and Wales.

Having chosen to locate the registered office of the company in one of these jurisdictions, it is not possible to move the registered office to another jurisdiction. However, there is no restriction on the freedom to conduct business throughout the UK once the company has been incorporated in a particular part of the UK. There are two ways of establishing a company. The first is to present for registration certain documents. These are: • • • • •

the memorandum and articles of association; details of the first directors (including name, address, date of birth, nationality and other directorships) and company secretary; location of the registered office; a statutory declaration of compliance with certain UK company law requirements; and a fee, currently £20.00 sterling as at April 2005

It is also possible to incorporate a company in one day for a higher fee, currently £50.00 sterling as at April 2005, or to incorporate electronically for a £15.00 sterling fee.

Rather than incorporate a new company, many people choose to purchase a convenience (or “shelf”) company (i.e. one that has already been incorporated) from solicitors or company registration agents. Such companies are readily available without the delay involved in incorporating a new company, though certain changes (such as the company name, officers and shareholders) will need to be made.

The Company Name The name chosen for a company must not be too similar to that of a company already registered and care should be taken to avoid “passing off” a company as associated with an existing brand, product or company. The Registrar of Companies has discretion as to whether or not to accept a proposed company name (it may, for example, be too similar to an existing company name) and can, on application from an interested party, require a company to change its name if, for example, it is too similar to an existing company name. There are also restrictions with regard to certain terms such as “Royal” or “British” or those that indicate a degree of national or international pre-eminence. Similarly, the Registrar of Companies requires that the use of terms such as “Group” or “Holdings” be justified.

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Other Types of Companies It is possible to form corporate structures other than the limited liability company. These include unlimited liability companies and companies limited by guarantee. Such companies are not common, although the procedures for incorporation are similar to those for limited liability companies (see below).

(or ten persons in the case of a partnership carrying on banking business). Care must be taken when registering a limited partnership as failure to register it in accordance with the relevant legislation may result in the partnership being deemed a general partnership and each of the partners deemed general partners. There are also stringent rules regulating how changes in the membership of the limited partnership are to be made.

4.2 Unlimited Liability Companies An unlimited liability company is a company with no limit on the liability of its members, although, with the exception of any amount unpaid on shares held in the company, this liability will arise only where the company is insolvent on winding up. For this reason unlimited liability companies are rarely used in the UK for conducting business. Subject to the foregoing, unlimited liability companies are broadly similar to limited liability companies and are regulated by the same core company legislation. An unlimited liability company can, subject to compliance with the relevant statute, be re-registered as a limited liability company.

4.5 Limited Liability Partnerships Limited liability partnerships (“LLPs”) are a new form of body corporate in UK law formed by persons “associated for carrying on a lawful business with a view to a profit”.

Despite the title, and a number of similarities to both companies and traditional partnerships, LLPs are very distinct from both.

Following the formalities of registration and incorporation, an LLP has a separate legal personality and, like companies, an unlimited capacity to act. Thus, an LLP is able to hold real property in its own name, rather than through trustees, it is able to sue and be sued and can enter into other business ventures as a partner in a partnership, shareholder, or member of another LLP. The statutory regime that applies to partnerships has been explicitly excluded from applying to LLPs. However, a number of default principles do apply to an LLP. These include a presumption that (1) members will be equally entitled to the profits of the business; (2) the LLP will indemnify members in the conduct of ordinary business activity; (3) each member is entitled to participate in management and that a simple majority is sufficient for decision making; (4) it is impossible to expel a member from the LLP without express provision; and (5) there is no automatic right to remuneration.

The members have a fiduciary duty towards the LLP but, in contrast to partnerships, no duty towards the other members. Similarly, each member is an agent of the LLP but not of their fellow members. Third parties are entitled to treat each member as having the authority to bind the LLP unless they actually know that the member does not have authority. With regard to ex-members, a third party can still rely on their dealings with that person unless notice has been given that the member has resigned.

There are no restrictions on those who may become a member of an LLP except for bankrupts and persons disqualified from acting as a director under UK law. The minimum number of members is two and there is no maximum. The membership of the LLP and any changes thereto must be notified to a registrar. Certain members of an LLP will be ‘designated members’ and will be responsible for ensuring that administrative requirements are met. The designated members do not constitute the management of the LLP. The LLP allows individuals and corporations to invest capital in a partnership without risk of further liability, unlike an ordinary or general partnership (see below) where the partners are jointly and severally liable for the debts of the business.

4.3 Companies Limited By Guarantee The liability of the members of a company limited by guarantee is limited to the amount(s) stated in the memorandum of association as being the amount(s) each of the members respectively undertake to contribute to the assets of the company, if necessary, on its winding up.

It is no longer possible to incorporate a company limited by guarantee and having a share capital or to re-register as one. In addition, company law provides that the memorandum and articles of association of a company limited by guarantee cannot give the members certain rights similar to those of shareholders, being in particular (1) a right to participate in the divisible profits of the company otherwise than as a member; and (2) the division of the company’s undertaking into shares or interests.

Companies limited by guarantee are rarely used for business purposes, but are commonly established by, for example, charities and professional associations.

4.4 Limited Partnerships It is possible in the UK to form a limited partnership, which is constituted by at least one general partner and at least one limited partner. A person cannot be a general partner and a limited partner of the same partnership at the same time. The general partner(s) are liable for all the debts and other liabilities of the firm, unlike the limited partner(s) whose liability is limited. The limited partner(s) must, however, contribute capital or property valued at a certain amount to the limited partnership, and are thereafter restricted from withdrawing this contribution from the partnership for as long as it exists.

Furthermore, a limited partner must not take part in the management of the limited partnership or be authorised to enter into obligations on its behalf. If the limited partner(s) do not comply with these restrictions they become liable for all the debts and liabilities of the limited partnership up to the amount withdrawn or incurred during the period of management (as is the case).

Subject to certain exceptions, a limited partnership cannot consist of more than twenty persons

4.6 Partnerships A partnership offers another possible structure for conducting business. There are several attractions to the partnership structure, including confidentiality (as there is no requirement to publicise

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accounts), equal involvement in the business and the fact that there are few formalities involved in the setting up of the partnership.

A partnership will generally arise where two or more people carry on a business together on the basis of an agreement between them to do so, although this agreement need not be in writing.

A key aspect of a partnership is that the partners carry on the business in common, each of them having the right to be involved in making business decisions, sharing the profits but also bearing joint and several responsibility for sharing any losses.

Partnerships can be tax efficient vehicles since partners can normally obtain tax relief on borrowings which are required for injection into the partnership. The partnership is not treated as an entity distinct from the partners themselves, so the partners are taxed on their individual share of the profits.

There is no registration requirement for a partnership (except for tax purposes), and as noted above there is no requirement that there be a formal written agreement. It is desirable, however, to have a partnership agreement as evidence of the relationship and its terms, as well as to set out a “constitution” to which the partners may refer.

If using a business name rather than the name of the partners, the Business Names Act 1985 may apply to regulate the use of certain words or expressions, and to prescribe information to appear on stationery and a notice at places of business.

In addition, there will be the usual statutory obligations concerning income tax, VAT and National Insurance. The partnership will also be required to notify HM Customs and Excise and the Inland Revenue of the identity of the partners.

Every partner is jointly liable for all debts and obligations of the firm incurred while he is partner, and is jointly and severally liable for the wrongful acts or omissions of the other partners if done in the ordinary course of the firm’s business or with the authority of his co-partners.

Scottish Partnerships In general, partnerships are subject to the same laws in Scotland as in England and Wales: in particular, partners have unlimited liability for the debts of the firm. The principal difference is that a Scottish partnership has legal personality, whereas an English partnership is merely a collection of the individual partners. Therefore, the Scottish firm can sue and be sued in its own name, and is subject to different rules on ranking in bankruptcy. A Scottish partnership can hold property in the firm’s name.

4.7 Sole Proprietorships A person may choose to trade on his own account as a sole trader rather than using any of the structures outlined above. This has the advantage of avoiding most of the formalities (other than the primary ones concerning tax such as registering for VAT, if necessary), retaining overall control and keeping finances confidential. However, with these advantages there are risks involved as a sole trader will: •

be personally responsible for all the debts of the business;

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• •

hold all contracts in his own name (whether or not a trading name is used); and have to take particular care if having employees to comply with tax, National Insurance requirements and employee protection laws.

A sole trader is taxed personally on the income and capital profits of the business. Income profit is calculated as the trade receipts less recurring business expenditure. Various reliefs are available for the business’ trading losses.

4.8 Other Methods Of Establishing A UK Business Agency In some circumstances, an agency agreement can be a way of carrying on business in the UK without creating a permanent establishment there, reducing expense, tax liability, and negating the need to comply with any provisions of the companies legislation.

If the agent is involved in the sale and purchase of goods, then the relationship between the agent (a “commercial agent”) and the principal is governed by a protective European law, based on French and German law of agency. This provides certain mandatory rules, including the requirement that both parties act in good faith. European law imposes a minimum notice period for termination: one month in the first year, two months in the second year, and three months in the third year. Unlike some jurisdictions in Europe the UK implementation ceases at 3 months as a minimum. If the principal terminates the contract for reasons other than material breach, he may be liable to pay various sums to the agent even though there may be no contractual or other right to damages, expenses the agent has incurred but not yet recouped, for commission on ongoing business and for commission on contracts concluded after termination but largely obtained by the agent’s efforts. The agent may also be entitled to an “indemnity” or to “compensation”. These two concepts have been common in various countries in Continental Europe. Essentially, they give the agent a right to a payment taking account of the contribution he has made to building up the customer base and the ongoing benefits which the principal will enjoy. Indemnity and compensation do differ, most obviously in that indemnity payments are capped at 12 months commission averaged over the last 5 years. In the UK principals and agents can agree to choose either, but if no choice is made the compensation concept applies. Making a choice at the outset can be important. A restrictive covenant in an agency agreement is only valid if (1) it is valid by national law; (2) it is limited to the geographical area, group of customers and type of goods covered by the agency contract; and (3) it lasts no longer than two years after the termination of the contract. In the UK a covenant would have to be reasonable as between the parties and in the public interest. The existence of a covenant will increase the amount payable by way of compensation or indemnity.

Despite these mandatory rules, it is still important to set out the rights of both parties in an agency agreement: European law allows either party to demand a written agreement. The agreement should stipulate, for example, the authority and remuneration of the agent, and whether the principal is obliged to furnish the agent with work.

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It is important to ensure that third parties have notice of any unusual limits on the agent’s authority. If this does not happen, then the principal will be bound by acts of the agent which are outside his actual authority but within his ostensible authority. For example, an agent who is entrusted with possession of goods has ostensible authority to sell the goods without having to obtain the principal’s consent.

Distribution Distributors (purchasers and resellers of goods) do not enjoy special protection in UK law beyond contractual rights, express and implied by law. It is generally a simpler matter to terminate a distribution relationship in the UK than in many continental countries where pitfalls abound.

Distribution arrangements should comply with EU rules on the application of the competition laws to vertical supply arrangements. Care must be taken over territorial restraints and pricing restraints.

Resale price maintenance is penalised and the “Colgate” doctrine is not part of EU/UK law.

Franchising Franchising is a flexible means of conducting a business that is to be carried out through many outlets – such as shops or fast-food restaurants – but which depends on the value of a brand and on the standards and business methods associated with it.

If an overseas company is seeking to address a new national market, this is usually done by means of a master licence agreement. In this, the licensee is given the exclusive right to operate the franchise system within that national market and grant sub-licences to further franchises, subject to controls by the licensor. In return, the licensor is paid a royalty which is usually expressed as a percentage of gross franchise fees. It is common for the licence to provide for a minimum royalty payment each year. As the licensee can be expected to know the national market better than the licensor, this is usually cheaper and more effective than directly granting many individual franchises in an overseas market.

Commercial practice has led to a set of standard terms for master licences. If the agreement departs from these terms, care must be taken to ensure that the terms do not create a sufficiently close relationship between the parties to make the franchise a partnership or joint venture.

European Competition law will place limits on certain excessively restrictive provisions in franchising agreements but most agreements will benefit from the exemption regulations available for vertical agreements.

Subsidiaries If a foreign business wishes to carry on business in the UK, one option is to incorporate a subsidiary company in the UK. If the parent company exercises a majority of the voting rights, or appoints a majority of the directors, then the UK company is a subsidiary and governed by UK company law.

The principal advantage of a subsidiary over a branch office (see below) is that, because British courts assiduously enforce the doctrine of corporate personality, the main overseas business can be shielded from the risks incurred by the UK business. It is possible that the subsidiary could be found

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

to be the agent of the parent company (which would then be liable for the acts of the subsidiary), but in practice this is considered to be unlikely and would require the parent company to exercise control over all the minutiae of the subsidiary’s business.

There are, however, some instances in which special rules apply for subsidiaries, most importantly in connection with accounting rules. In addition, a subsidiary cannot hold shares in its parent company and cannot provide financial assistance to a person acquiring shares in the parent company.

Branches and Places of Business A foreign company can conduct business in the UK without setting up a legal entity here, thus avoiding most UK company law. A company can be incorporated abroad and then carry out all of its business through a branch office in the UK. If a company is setting up a permanent place of business in the UK, which can directly carry out business, this creates a branch office and certain rules must be followed under the overseas companies provisions of UK company legislation, which are based on European law.

The company must register as an overseas company, and must register its constitution and accounts together with a statement of the authority of the directors and the company’s UK representatives to bind the company. The company is then under a continuing obligation to disclose any changes to these particulars, and to publish its annual accounts in the UK. If the place of business is purely ancillary to operations abroad – for example, warehousing or data processing offices – then it is subject to the less onerous requirements of a “place of business” under UK companies legislation. There is no requirement to disclose the authority of directors or UK representatives, and accounts need not be audited.

The distinction between a branch and a place of business can be unclear and a Company Law Review recommended abolishing the distinction and applying a unitary regime (based on the current rules for branches) to all overseas companies but this recommendation has not yet been implemented.

4.9 Joint Ventures Are Joint Ventures permitted?

The term ‘joint venture’ has no precise legal definition but, for the purposes of this document, ‘joint venture’ is taken to mean a commercial venture between two or more economically separate legal entities who pool their resources and carry on a business activity with the joint aim of achieving profit.

There are several different legal forms for a joint venture, and which one the parties decide upon will clearly impact procedure, costs, liability, and tax implications.

The legal form typically created for the joint venture is an ordinary limited liability company. The other main legal forms for a joint venture are: limited liability partnership, ordinary partnership (or possibly limited partnership) or a purely contractual co-operation agreement.

It is possible to establish a European Economic Interest Grouping (“EEIG”) in most EU countries,

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including the United Kingdom. There are various restrictions relating to the formation and operation of EEIG’s that require to be considered carefully before deciding whether such a grouping may be suitable. These include the fact that an EEIG cannot have the object of making a profit and must have members from at least two EU Member States.

What is the Registration or Incorporation Procedure?

Please refer to the relevant sections in this guide for the registration or incorporation procedure for each of the possible legal forms for the joint venture.

How long do these procedures take?

The time involved in establishing a joint venture will depend primarily on how long the parties take to negotiate and agree the terms for the necessary documentation accompanying the joint venture, rather than the registration or incorporation procedure of the legal structure.

With a typical joint venture involving two parties taking a share interest in a new limited liability company, the key documentation to be agreed is likely to include: • • • • •

• • • •

shareholders’ agreement; memorandum & articles of association of the joint venture company; asset / business purchase agreements for the assets / business to be transferred by one or both parties into the joint venture company (if any); secondment agreements for any employees to be seconded; contracts of service for any employees to be employed by the joint venture company; service agreements in relation to any services to be provided by one or both parties to the joint venture company; intellectual property assignments and/or licences; distribution agreements; guarantees, which may be provided by one or both parties; and management agreement – where one of the joint venture shareholders is responsible for the management of the business, a management agreement with the joint venture company may be appropriate.

In addition, the overseas party(ies) will need to involve lawyers in their own jurisdiction to obtain advice on appropriate tax structures and the corporate status of the joint venture.

Where assets, including intangibles, are to be transferred to the joint venture company there will be tax implications which will have to be considered.

The establishment of the joint venture company itself can be effected almost immediately with a company being purchased “off the shelf”. The various company law registration requirements (such as the appointment of directors, increase of authorised share capital, and allotment of shares) can also be carried out very quickly. In addition the parties will need to consider all the other issues that may arise in relation to starting a business and which advice may be required in relation to, for example:

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Employee related issues including • preparation of contracts of employment; • disciplinary and grievance procedures; • where unions are involved, the impact of collective agreements; • company working practices; and • registration for “Pay As You Earn” income tax and national insurance deductions.

• registration for Value Added Tax. Financing • the establishment of funding facilities for the new venture and any related securities to be given.

Insurance • effecting appropriate public liability and employers’ liability insurances and any other necessary insurances. Notably, a company now has the ability to indemnify its directors against liability following the change in law introduced by the Companies (Audit, Investigations and Community Enterprise) Act 2004 which became effective on 6 April 2005. This has allowed companies to grant their directors wider indemnities against personal liability and meet their directors’ ongoing defence costs in proceedings against them.

Property • securing property and dealing with property law formalities, such as the purchase or leasing of property, planning applications etc.

Data Protection • registration under the Data Protection legislation for records held, including registration of CCTV devices.

Pensions • issues include the requirement that those employing five people or more must offer their employees access to a stakeholder pension scheme. This has the effect that such employers have to designate a stakeholder pension scheme so that their employees can join if they want to.

There are certain exemptions to this requirement where other pension schemes which satisfy the statutory requirements are available to employees instead.

Health & Safety • compliance with any relevant health and safety regulation.

Intellectual Property • intellectual property protection such as new trade mark registrations, internet name registrations and patent applications.

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If the parties are simply relying on a co-operation agreement it is likely that fewer issues will need to be considered.

Costs & Fees As indicated in the last section, unless the proposed joint venture is very straightforward there will generally be a wide range of issues and documentation to be attended to from a legal viewpoint over and above the basic establishment of the joint venture structure.

The fees and costs to establish the joint venture structure itself may not be more than a few hundred pounds, but there is likely in most cases to be a significant amount of legal advice and support in the negotiation and preparation of the necessary documentation, and in addressing the other related business start-up considerations such as tax structuring. As a result, the fees that a London firm is likely to charge for the work involved are estimated to be at least £5,000 and in many cases will be significantly more.

Must a National of the Country or a related State be a participant, manager or director?

There is no requirement that a national of the country or a related State must be a participant, manager or director. However, where the joint venture structure is a company or a limited liability partnership, UK companies legislation provides that the company or limited liability partnership must have a registered office in England and Wales or Scotland.

In the case of an ordinary partnership having a place of business in the UK, the partnership will generally need to state on all business communications the name of the partners and an address in the UK for service of documents, and to display those details on a prominent notice at any premises where it carries on business.

An EEIG must have members based in at least two countries within the EU or the wider European Economic Area, but it must be designed to pursue activities that each of its members have in common, and making profits should not be the main purpose of its activity (which should be to develop the economic interests of its members).

What is the investor’s potential liability?

The investors’ potential liability under the joint venture will depend upon the legal structure chosen.

Where the joint venture structure is a limited company, the liability of the investor will be generally limited to the amount of its investment in the share capital of the company, though the investor will also risk any sums loaned to the joint venture company and the possible loss or diminution in value of any assets or business transferred.

Where the joint venture structure used is a limited liability partnership (“LLP”), every member is the agent of the LLP and the partnership is bound by anything done by a member on its behalf, unless the member had no authority to act and the third party knew that the member had no such authority. Unlike the situation with an ordinary partnership under English Law (but not Scots Law, which recognises partnerships as having separate legal personality from the constituent partners), the LLP has a separate legal identity and transactions concerning the business of the LLP with third

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

parties will be between the LLP and the third party. The liability of the members is limited on a winding up, as with a limited company, to the amount of their contribution to the capital of the LLP (including the payment of any unpaid contribution) and the risk regarding any loans and the value of the business or assets contributed.

Where the joint venture structure is an ordinary partnership, each investing partner will generally be liable jointly on an unlimited basis together with the other partners for the debts and obligations of the partnership incurred while it is a partner. In addition, the partners will be jointly and severally liable where loss or injury has been caused by wrongful act or omission of any partner in the ordinary course of the business of the firm or money or property has been misapplied. The parties to such a joint venture vehicle will no doubt wish to consider appropriate insurance protection in respect of such potential liability.

As discussed, a further partnership structure called the limited partnership is available, but this would not suit the vast majority of joint ventures since the limited partner(s) are unable to take part in the management of the business; only the general partner(s) are able to run the business. Those general partner(s) are also liable for all the debts and obligations of the firm, as with a normal partnership.

If the parties decide not to establish a particular legal structure and instead rely just on a cooperation agreement, the liability of the parties should be determined by the performance of their respective duties and obligations under the agreement. This type of agreement is perhaps best suited where the parties are involved in the carrying out of a specific project rather than establishing an ongoing and developing joint venture structure. However, the parties to such a co-operation agreement will need to agree terms very carefully to avoid being deemed to be a partnership as persons “carrying on a business in common with a view to profit”. A joint venture that constitutes a partnership is likely to result in the parties being liable to the full extent for the actions of the other party(ies), despite the intention to limit their liability to just their obligations as an independent contractor under the co-operation agreement.

If forming an EEIG, the members have unlimited liability towards third parties for the debts of the EEIG. For this reason the EEIG is not a commonly chosen joint venture vehicle.

Are there restrictions on capitalisation?

There are no direct restrictions on capitalisation, and in most cases the level of capitalisation will be driven by the commercial requirements for the operations of the joint venture. The tax consequences will also be a vital factor to be taken into consideration.

Where the parties form a joint venture limited company, the company will have a share capital which can theoretically be as little as the parties wish to contribute by way of equity but please note the issue of “thin capitalisation” which can restrict tax relief for interest paid if a loan on similar terms or for a similar amount would not be available from an independent third party (see below). The consideration for the issue of shares by the company may also be non-cash consideration, for example, the transfer of assets or businesses to the company by the parties, or an agreement to provide some form of service, assistance or licence.

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As previously noted a private limited company will be unable to offer its shares to the public.

If a public limited company (“PLC”) is to be established please note the minimum share capitalisation requirement of £50,000 (of which at least 25% must be paid up) as discussed in paragraph 2.1, above. Certain restrictions apply to the operation of a PLC, for instance a requirement that a contribution in the form of non-cash consideration for the allotment of shares be independently valued.

If forming a limited liability partnership, the capital contributions of the partners will be set out in the agreement between them.

What are the investor’s tax consequences?

As indicated above, the investors will need to consult professional advisors in their own jurisdiction.

When choosing the vehicle for the joint venture, it may be that the establishment of a joint venture company may be less tax efficient for an international joint venture than other structures such as partnerships or contractual arrangements. For example, losses realised in one jurisdiction may not be capable of being offset against profits of an associated company in another. On the contribution of assets to the joint venture, there may be capital taxes and duties which arise.

Since losses realised by a joint venture company would rarely be capable of being offset against profits of parties to the joint venture in another jurisdiction, if it is anticipated that significant losses will be made for a period of time, the parties may wish to consider establishing a transparent vehicle (such as a co-operation agreement) where income and expenses can be passed directly back to the joint venture parties.

Regarding debt finance, it is important to establish whether interest paid on loans to the joint venture will be tax deductible, and whether withholding tax applies on interest payments received from the joint venture. The joint venture may wish to make royalty or licence payments to the parties to the joint venture, and again the questions of whether the payments would be tax deductible and whether there is withholding tax will need to be established.

The parties will need to consider the effect of transfer pricing and thin capitalisation rules. These are anti-avoidance provisions which allow the tax authorities to re-assess the level of income or expenses between connected parties where it appears that the transaction was not at arm’s length.

In the UK where the joint venture company is not a subsidiary of another company, interest which is paid at a normal commercial rate to an affiliated company is generally not treated as a distribution and is generally deductible in commuting the taxable profits of the joint venture company. Where the joint venture company is a subsidiary of another company, interest may be treated as a distribution and so be non-deductible if payable to an affiliated company outside the charge to UK Corporation Tax and the joint venture company is thinly capitalised.

Since 1 July 1999, where a joint venture company is controlled by two parties each having an interest of at least 40%, “excessive” interest paid by the joint venture company to a non-UK party to the joint venture may not be deductible for tax purposes. This will include not only interest paid other than at an arm’s length rate, but also interest on loans which would not have been made by someone who was an independent third party, that is, where the UK joint venture company is thinly capitalised.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Thin capitalisation may also affect claims by the joint venture company for relief under tax treaties for UK withholding tax on interest paid.

Generally, the rate of Corporation Tax in the United Kingdom is 30% with a credit being given for foreign withholding and (under certain conditions) foreign underlying tax. The UK does not impose withholding tax on outgoing dividends irrespective of the location of the shareholders. In addition, the UK has an extensive double taxation treaty network which can reduce or eliminate withholding taxes on interest and royalties. There is no capital duty or other tax cost arising from establishing or capitalising a UK company. Corporation tax is chargeable at 30% on disposal of assets by UK resident companies although in some circumstances this is subject to relief for reinvestment. Careful planning is required in order to secure effective offset of funding costs and use of foreign tax credits.

Where the joint venture is carried on through a corporate partnership, rather than paying dividends, the profits and losses accrue directly to the partners, and the corporate partners will be subject to corporation tax. The partnership’s trading profit or loss is initially computed as if the partnership were itself a separate company, and the result is then divided between the corporate partners according to their interests in the partnership. Similarly in the case of capital gains and losses, each partner is treated for the purposes of corporation tax on chargeable gains as owning a share of each of the capital assets of the partnership according to its interest in the partnership.

In the case of contractual joint ventures involving a co-operation agreement, the agreement itself will set out the rights and duties of the joint venture parties. The parties will need to ensure that they do not carry on any business “in common” to avoid being considered to be a partnership. The legal and beneficial ownership and control of the different businesses used in the joint venture must be kept separate. It will usually follow that the net profits and losses of the contractual joint venture will not be shared but rather will accrue separately to the parties. On this basis, there is a no merger of businesses, so each party remains liable to make its own return of profits in respect of its own separate business, and each party will submit its own returns to the appropriate tax authority.

In addition, the parties will need to consider, the possible liability of a joint venture company or partnership to stamp duty on the contribution of assets. The joint venture entity will also need to register for value added tax which will be payable on the provision of its goods and services subject to the various exemptions. In the case of a contractual joint venture, the liability of the parties to register for VAT would depend upon the circumstances of their own business.

A joint venture may be examined by the Office of Fair Trading mergers secretariat or indeed, if it has a Community dimension, the EU Mergers Task Force.

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5 requirements for the establishment of a business in the uk 5.1 Alien Business Law There is no single piece of legislation which regulates foreign investment in the UK. Instead, a foreign investor must identify and comply with all relevant UK legislation. There is no general requirement for foreign investment in the UK to be registered. The registration and reporting requirements which will apply will depend upon what form of entity is used as a vehicle for the investment, and the nature of the business it carries on.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

2002 Act the position of Director General has been abolished and those functions have been transferred to the OFT. Furthermore, since 1 May 20047, the OFT, as a National Competition Authority (NCA), has had the power, alongside the European Commission, to apply and enforce Articles 81 and 82 of the EC Treaty when national competition law is applied to agreements which may affect trade between Member States of the European Union.

The Chapter I Prohibition catches agreements between undertakings that have the object or effect of preventing, restricting or distorting competition in the United Kingdom and which may affect trade within the United Kingdom, or a part thereof. The Prohibition gives a non-exhaustive list of the types of agreement that will be caught, namely those which:

The main provisions of UK competition law are as follows:

• • • •

The Competition Act 1998 (“the 1998 Act”)5.

•

5.2 Anti-Trust Law

The Enterprise Act 2002 (“the 2002 Act”)6.

directly or indirectly fix purchase or selling prices or any other trading conditions; limit or control production, markets, technical development or investment; share markets or sources of supply; apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; and/or make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contract.

The 1998 Act introduced two prohibitions into UK law. The Chapter I Prohibition (modelled on Article 81 of the EC Treaty) prohibits agreements which prevent, restrict or distort competition and which may affect trade within the UK. The Chapter II Prohibition (modelled on Article 82 of the EC Treaty) prohibits conduct by undertakings amounting to abuse of a dominant position. The two Prohibitions came into force on 1 March 2000.

The 1998 Act contains principles which aim to ensure that competition issues covered by the Act are treated in a way consistent with European Community jurisprudence. The UK competition authorities are therefore obliged to ensure that there is no inconsistency with the principles laid down by the EC Treaty or decisions of the European Court. They are also obliged to have regard to the approach of the European Commission in competition cases.

The provisions of the 2002 Act are largely complementary to the 1998 Act. As a result, the substantive Chapter I and II prohibitions remain in place and the general 1998 Act procedures for investigation and enforcement continue to apply. However, the structure, procedure and activities of the Office of Fair Trading (OFT) have changed under the 2002 Act. Previously, the OFT existed on a non-statutory basis as the administrative support for the Director General of Fair Trading. Under the

An agreement will only infringe the Chapter I Prohibition if it has an appreciable effect on competition in the United Kingdom. The UK Competition Authorities will follow the European Commission’s Notice in Agreements of minor importance in interpreting what is or is not an appreciable restriction of competition. The Commission’s Notice sets out that there is no appreciable restriction on competition if the aggregate market share of the parties does not exceed 10 per cent on any relevant market affected by the agreement where the agreement is between competing undertakings, or the market share of each of the parties does not exceed 15 per cent on any relevant market affected by the agreement where the agreement is between non-competing undertakings. The thresholds are reduced to 5 per cent where competition in the relevant market is restricted by the cumulative foreclosure effect of parallel networks of agreements having similar effects on the market.

However, the above will not apply in the case of agreements between competitors containing provisions which fix prices, share markets or limit production and will not apply to agreements between non-competitors that limit a buyer’s ability to determine its resale price, restrict a buyer from operating at retail level or engaging in passive selling or restrict active or passive selling by authorised distributors in a selective distribution network.

5

The 1998 Act is available at www.hmso.gov.uk/acts/acts1998/19980041.htm

7

6

The 2002 Act is available at www.hmso.gov.uk/acts/acts2002/20020040.htm

EC Regulation 1/2003 (the Modernisation Regulation) (Regulation 1/2003 is available at http://europa.eu.int/eurlex/pri/en/oj/dat/2003/l_001/l_00120030104en00010025.pdf)

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Alongside the 1998 Act regime, which applies to undertakings, the 2002 Act8 introduces a criminal offence for individuals who dishonestly engage in certain types of cartel agreements9. In addition, the 2002 Act gives the OFT the power to apply to the courts for a “Competition Disqualification Order” (CDO). The court must grant a CDO to disqualify a director of an undertaking which commits a breach of any of the prohibitions set out in Chapter I and II or Articles 81 or 82 of the EC Treaty where the court considers that as a result of his/her conduct the person concerned is unfit to be a director.

The Chapter II Prohibition – Abuse of a Dominant Position The Chapter II Prohibition is aimed at conduct by one or more undertakings amounting to an abuse of a dominant position on a market in the UK or a part thereof. Again, as with Chapter I, nonexhaustive examples are given of offending conduct: • • • •

directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; and/or making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.

The issues of establishing dominance and market definition will be approached in a like manner to that used by the European Commission under Article 82. The so-called ‘United Brands’ test will be applied which states that an undertaking will be dominant if it can act to an appreciable extent independently of its competitors and customers when making decisions as to its behaviour on the relevant market. The relevant market will be assessed through taking into account the product market, geographic market and, if applicable, the temporal market.

Exemptions and Exclusions Not all agreements are caught by Chapters I and II. In addition to the ‘appreciable effect’ threshold, the Chapter I and II prohibitions have been specifically disapplied from some agreements and conduct. These exclusions apply where the agreement/conduct falls to be analysed under either UK or EU merger control legislation, where the agreement/conduct is made/engaged in to comply with a

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

legal requirement and, in certain circumstances, where the Secretary of State has made an order relating to public policy or international obligations. Agreements or conduct of an undertaking which is entrusted by the state with services of a general economic interest or which is a revenue producing monopoly are also excluded10.

The 1998 Act also provides for some agreements to be excluded completely from the scope of Chapter I. These include agreements that are subject to competition scrutiny under other pieces of UK legislation, agreements necessary to comply with planning obligations, agreements that had been exempted under previous competition legislation11, agreements relating to production of or trade in agricultural products12, certain agreements relating to land13 and agreements for the constitution of a European Economic Area for trading. The vertical agreements exclusion that previously existed no longer applies. Similarly, the exclusion that previously existed in relation to certain agreements relating to professional rules no longer applies.

In addition, both the UK and EU systems provide for a structure of exemptions for agreements that might otherwise be regarded as anti-competitive. These exemptions deal with matters such as various forms of horizontal co-operation agreements and agreements with an insignificant impact on competition. Agreements can be exempted from Chapter I in three ways: •

• •

An agreement can be exempt if it is regarded as generally beneficial as measured against a list of factors given in the 1998 Act. These are that the agreement contributes to improving production or distribution, or promotes technical or economic progress. Consumers must be permitted a fair share of the resulting benefits and any restrictions in the agreement must be indispensable to the attainment of these objectives. Further the agreement should not lead to the elimination or the possibility thereof in a substantial part of the products concerned.

A block exemption can be granted in respect of a particular category of agreement.

Agreements falling within the scope of any of the European Commission’s block exemptions under Article 81(3) will also be exempt from Chapter I. This also extends to agreements which fall within the terms of the Commission’s block exemptions, but fall completely outside the scope of Article 81 because they do not affect trade between Member States.

10 The exclusion for undertakings entrusted with services of a general economic interest or having the character of a revenue producing monopoly mirrors Article 86(2) of the EC Treaty. The OFT has indicated that due to the extent of deregulation and liberalisation of the economy that has occurred in the UK compared to other parts of the EC, it is unlikely that previous European Commission decisions will be relevant when considering how this

8

Section 188

9

The cartel offence is triable in England & Wales in a magistrates’ court – maximum of 6 months imprisonment

exclusion should apply in the UK. With this in mind, the OFT has published a guideline entitled ‘Services of general economic interest exception’ (OFT 421).

and/or a fine up to the statutory maximum; or before a jury in the Crown Court – a maximum of 5 years

11 This exclusion will be repealed with effect from 1 May 2007.

imprisonment and/or an unlimited fine. In Scotland, the cartel offence is triable in a sheriff court or before a jury

12 As defined in the EC Treaty and in Council Regulation (EEC) 26/62

in the High Court – a maxiumum of 5 years and/or an unlimited fine.

13 The Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 (SI 2004/1260)

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Are there Filing Requirements?

It used to be possible, under both UK and EU competition law, to notify an agreement to apply for an individual exemption. However, to ensure consistency with the EU regime, the notification system has been abolished. Therefore, an agreement shall not be prohibited if it falls within the scope of the Chapter I prohibition but satisfies the conditions for exemption, no prior decision by the OFT to that effect being required. The OFT can no longer accept notifications for decisions or guidance under the 1998 Act. However, the OFT does offer informal advice and may provide published guidance in the form of Opinions where a case presents novel or unresolved questions about the application of the Chapter I and II prohibitions or Articles 81 and 82 of the EC Treaty.

Complaints and Investigation Complaints alleging a breach of either of the 1998 Act’s prohibitions can be made to the OFT. In some circumstances, the appropriate authority will be one of the sectoral regulators who enjoy concurrent jurisdiction with the OFT under the 1998 Act. On the basis of the information supplied (often the OFT will return to the complainant for clarification/further information) an assessment will be made as to whether a breach of the 1998 Act has been disclosed.

The 1998 Act grants the OFT extensive powers to investigate suspected infringements of the prohibitions. This includes the power to carry out ‘dawn raids’ along the lines of those carried out by the European Commission. The 2002 Act gives the OFT the power, when it obtains a warrant in connection with a 1998 Act investigation, to take authorised, non-OFT, staff on company visits to assist in collecting and assessing evidence stored in computers on site. Criminal liability can arise through obstructing investigations or supplying false information.

Enforcement If the OFT considers that a breach of the prohibitions has occurred then it will send the parties a statement outlining its concerns and the action it intends taking. The recipients are then allowed an opportunity to put their case to the OFT. Once the OFT takes a decision it may instruct the parties to bring the conduct/agreement to an end. If during the course of an investigation the OFT considers that a continuing breach of one of the prohibitions risks serious, irreparable damage to a person or category of persons, then it may make interim orders.

For breach of either of the prohibitions, the OFT can impose a financial penalty. However, the penalty may not exceed the maximum penalty of 10% of the world-wide turnover of the undertaking14.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

appeals on matters relating to competition law. In addition to taking over the functions of the former appeals body, the Competition Commission Appeal Tribunal, the CAT can: • •

hear damages claims where an infringement of the Chapter I or Chapter II prohibitions or Articles 81 and 82 of the EC Treaty has been established by the OFT; hear representative claims for damages, brought by specified consumer bodies on behalf of named individuals for established breaches of competition law.

In such cases the CAT is bound by decisions of the OFT or the European Commission finding that there has been a breach of those provisions, provided that the time for appealing the decision in question has elapsed.

Merger Control The merger control provisions of the Fair Trading Act 1973 have been replaced by Part III of the 2002 Act. The 2002 Act gives merger control powers to the OFT and the Competition Commission (CC).

Apart from cases of public interest15, the Secretary of State is not involved in the decision-making process.

A transaction only qualifies for investigation (i.e. so that the OFT has jurisdiction to consider it) if the OFT can determine whether a relevant merger situation has been or will be created. Mergers falling within the criteria and thresholds laid out in the European Merger Control Regulation must be notified to the European Commission. Essentially, the OFT must be satisfied that: • • •

two or more enterprises have ceased to be distinct; the merger did not take place more than four months prior to the date of the decision on reference; and; the merger meets either the share of supply or the turnover test.

Appeals The 2002 Act established the Competition Appeal Tribunal (CAT) as a specialist independent body for

The share of supply test is satisfied if the transaction creates or enhances a 25% share of supply or purchases in the UK (or a substantial part of it). Where one business already has a 25% share of supply and the other has no share, the test is not met.

The turnover test is met if the business being acquired has a UK turnover in excess of £70 million in the previous business year.

Companies can seek clearance from the OFT under the voluntary filing regime with an informal submission or a statutory merger notice. A merger notice may only be used for anticipated mergers which have already been made public. An informal submission can be used for both publicly

14 Calculated in accordance with the Competition Act 1998 (Determination of Turnover for Penalties) Order 2000

15 Section 42 and 58 of the 2002 Act, e.g. national security, plurality of the media

(SI 2000/309) (as amended by the Competition Act 1998 (Determination of Turnover for penalties) (Amendment) Order 2004 (SI 2004/1259))

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announced mergers and those which have yet to be announced. There are also informal procedures for obtaining early guidance on what the OFT expects the likely outcome of the investigation to be.

Following notification, the OFT has 20 working days, which it can extend to 30, to make its initial assessment after which it can either clear the merger or refer it to the CC for further investigation. The OFT must refer a transaction to the CC where it believes there will be a “substantial lessening of competition” (SLC). If a merger is referred to the CC, the CC must decide, within 24 weeks (which can be extended by 8 weeks), whether the merger would result in a SLC within any market in the UK, after which time it has to either clear the transaction (unconditionally or subject to changes) or prohibit it.

Subject to some limited exceptions, any merger which qualifies for reference to the CC is subject to a fee irrespective of whether a reference is actually made.

Under the 2002 Act, the OFT and, in certain circumstances, the Secretary of State, have powers to make a market investigation reference to the Competition Commission where there are reasonable grounds for suspecting that any feature, or combination of features, of a market in the UK for goods and services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or part of it.

Useful information on UK competition law is available on the following websites: www.oft.gov.uk, www.catribunal.org.uk, www.competition-commission.org.uk.

5.3 Environmental Regulations Is the Business subject to Environmental Regulation?

Environmental Regulation in the UK (generally Environmental Law is similar in Scotland and England) is becoming increasingly detailed as a result of the continuous flow of new Directives from the European Institutions based in Brussels. Political pressure to be “green” has also resulted in more UK Environmental Regulation. This trend is set to continue in the foreseeable future.

There are consequently a considerable amount of Environmental Legislation which cover a very broad range of subjects. The key areas are waste management, water pollution, air pollution, noise,

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

hazardous substances, contaminated land and the Integrated Pollution Control/Integrated Pollution Prevention and Control Regimes (these are systems of control over industrial environmental emissions which consider the impact of emissions to land, air and water under one licence). There are a number of other more unusual areas, for example, radioactive materials and habitat conservation.

There is also Environmental “Common Law” which consists of the laws which have been declared by judges in their decisions in cases, for example the Law of Nuisance. Pursuing a Common Law action is often time consuming, expensive and fraught with legal technicalities.

A significant amount of Environmental Law is contained in non-statutory guidance, practice and technical notes which often support the primary legislation (for example the IPC or IPPC guidance notes). Although the majority of these notes have no legally binding effect, they are the interpretative and practical guides used by the Regulators, industry and the courts. There are some Codes of Practice which similarly do not have direct legal effect, for example The Code of Practice on the Waste Management Duty of Care, issued by the Department of Environment, food and Rural Affairs.

Breach of Environmental Law will generally result in criminal proceedings – the ultimate penalty for breach of most Environmental Laws is an unlimited fine and/or a jail sentence, however most breaches of Environmental Laws will result in a fine of up to £20,000. There is increasing pressure on the Regulators to prosecute breaches of Environmental Law. In specific circumstances the Directors and Senior Officers of a company can be held personally liable for Environmental offences. Similarly shareholders can be held liable if they are the directing mind of the company. Breach of Environmental Law can also result in bad publicity for a company.

A further Environmental Law concern for a company is being forced by a Regulator to remediate contaminated land or buildings. Remediation of pollution can be very expensive. Furthermore, if a piece of land is determined to be polluted it can significantly adversely effect the value of the land.

The development of the area of Environmental Law has resulted in the growth of Environmental Law as a specialist area of practice for lawyers. An Environmental Lawyer would therefore be the best person to determine whether a Business is subject to Environmental Regulation – such advice would be subject to normal client confidentiality principles. Alternatively, advice could be sought from the Regulators: – the Environment Agency (“EA”) in England (General Enquiry Line 0845 9333 111) or the Scottish Environment Protection Agency (“SEPA”) in Scotland (01786 457 700).

16 The exclusion for undertakings entrusted with services of a general economic interest or having the character of a revenue producing monopoly mirrors Article 86(2) of the Treaty of Rome. The DGFT has indicated that due to the extent of deregulation and liberalisation of the economy that has occurred in the UK compared to other

What are the Additional Costs of Environmental Compliance?

Environmental Compliance can result in costs in the form of:

parts of the EC, it is unlikely that previous European Commission decisions will be relevant when considering how this exclusion should apply in the UK. With this in mind, the DGFT published a draft guideline in July 2001 (OFT 421) and this is currently being consulted upon.

• •

17 This approach goes somewhat further than the approach of the Commission under Article 82, who do not formally exclude vertical agreements from Article 82, but rather exempt many vertical agreements through a system of various block exemptions under Article 82(3), the primary such instrument being Regulation 2790/1999.

•

investment in requisite infrastructure, plant or machinery to comply with UK Environmental Law; annual charges payable to the EA or SEPA for permits/authorisations/ consents/licences which are required to carry out processes in accordance with UK Environmental Law; and advisors’ fees – detailed processes or activities may mean that the company must seek advice from experts in specific fields, for example, Environmental Consultants, Waste Disposal Contractors or Environmental Lawyers.

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Investment in Environmental Management can however bring financial benefits – it can result in an enhanced investment profile, increased profitability and competitiveness and/or reduced insurance premiums. A good relationship with the Regulator can also be beneficial for a company.

5.4 Government Approvals The establishment of a business in the UK will generally only require a government approval if there is a particular competition law aspect to the transaction, or if the business is of a special type. See paragraph 6 below (“Licences and Permits”) which gives brief details of some of the types of business which require specific licences.

5.5 Insurance In the UK only two types of insurance are compulsory: (1) employer’s liability insurance and (2) insurances covering certain risks relating to motor vehicles. However, it is usual for businesses voluntarily to insure against a large number of additional risks.

Employers’ Liability Insurance Every employer carrying on business in Great Britain is obliged to insure against liability for bodily injury or disease sustained by its employees arising out of and in the course of their employment in Great Britain in that business. This is to ensure that an employer will be able to meet its liabilities to employees injured during the course of their employment.

The premium on the policy is usually related to the amount paid in wages during the period of insurance.

An employer can be fined for any day on which he is without suitable insurance. The employer can also be fined if he does not make details of the insurance available to health and safety inspectors on request.

It is worth noting in this context that although there is no requirement to insure against this risk an employer may be held liable (under agency law principles) for injuries caused by its employees to third parties during the course of their employment.

Motor Vehicles Businesses will generally have a motor fleet insurance policy and procedures in place to cover employees at work. It is ultimately the responsibility of the driver of a motor vehicle that is used on a road in Great Britain to insure against all legal liability to third parties in respect of injury, death and damage to property caused by the use of that vehicle on a road in Great Britain.

Where the vehicle is normally based in the territory of a member state of the European Union in certain circumstances the policy must be more widely drawn to provide insurance in respect of any civil liability which may be incurred by the person or person insured as a result of an event related to the use of the vehicle in Great Britain.

A person who is guilty of driving without insurance will be subject to a fine, currently £5,000. He could in addition be disqualified from driving and have penalty points endorsed on his licence.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

5.6 Licences / Permits Whether licences or permits will be required for the anticipated activity will depend on the type of business and how that business is operated.

Most businesses now hold records containing personal data relating to their staff and customers and will therefore require a Data Protection licence.

In certain circumstances, an entity may also require a consumer credit licence (see below).

In addition, certain specialist businesses require specific licences. Examples are: air traffic organisers, travel organisers, cinemas, gaming clubs, dealers in securities, mines, nursing agencies, and telecommunication systems.

Consumer Credit Licences The Consumer Credit Act 1974 (“the Act”) states that subject to Section 21 of the Act, a licence is required to carry on a consumer credit business or consumer hire business. Applications are made to the Director General of the Office of Fair Trading (“OFT”). The businesses which require a licence under Section 21 are any businesses so far as they relate to the provision of credit under “regulated agreements” or to the hiring of goods under “regulated hire agreements”. Licences are therefore not required by businesses which (a) provide credit only in excess of £25,000 or hire goods where the hirer must pay in excess of £25,000, (b) provide credit or hire only to companies, (c) are exempt by virtue of legislation such as local authorities. Consumer credit licences are split into various business categories which are applied for individually. When an application is made, it is safer to include all categories. The specific categories of business include, credit reference agencies, debt-counselling, debt-adjusting, debt-collecting, consumer credit, consumer hire and credit brokerage.

Requirements for a Licence Under Section 22 of the Act, applications can be made for either a standard licence or a group licence. A standard licence is issued to a person named in the licence and a group licence is issued to such persons and for such activities as are described in the licence. Group licences are less common due to restrictions contained in Section 22(5) of the Act although they have been granted in the past..... An example is the group licence obtained by the Law Society of England and Wales for solicitors practising in England and Wales to undertake regulated activities arising in the course of practice as a solicitor.

In terms of Section 25 of the Act, a standard licence shall be granted, “on the application of any person if he satisfies the Director that (a) he is a fit person and (b) the names which he applies to be licensed are not misleading or undesirable”.

Fitness Test Section 25(2) of the Act outlines the fitness test which the Director General applies in relation to each application.

Principally the Director General has regard to any circumstances appearing to him to be relevant.

More particularly this involves consideration of any evidence showing the applicant or associates

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have (a) committed any crime involving dishonesty, fraud or violence, (b) contravened any provision of the Act, (c) practised any form of discrimination, or (d) conducted any deceitful, oppressive or otherwise unfair or improper business practices.

Penalties In terms of Section 39 of the Act, it is a criminal offence to engage in any activities for which a licence is required without the appropriate licence. It is also a criminal offence in terms of Section 7 of the Act to provide the OFT with any information which may be false or misleading. Indeed, Section 7 of the Act states that it is a criminal offence to “knowingly or recklessly” give information to the Director General which, in a “material particular”, is “false or misleading”.

Variation of Licence A licence can be varied by either application of the individual, or on compulsion of the Director General.

If the licence holder wishes to change the nature or category covered by his licence then the licence holder must apply to the Director General to vary the licence. Licence holders must not carry out any business covered by the variation until the variation to the licence has been approved.

Compulsory variations are regulated by Section 31 of the Act. They occur when, during the term of the licence, the Director General is of the opinion that if the licence had expired at that time, he would on an application for its renewal have been minded to grant the application but on different terms.

The Register The Director is required under Section 35 of the Act to establish and maintain a register. The register contains details of: • all pending applications to the Director General; • all licences in force or which have been suspended, and any variations thereto; • decisions given by him under the Act; and • such other matters as he sees fit.

The Director General must be notified of any changes relating to details held in the Register within twenty-one working days after the date of change. For example, this applies to changes of address, partners or directors. Failure to notify the Director General will result in criminal penalties.

Transfer A licence cannot be transferred or assigned to any other person or business.

Environmental Licences In general terms the system of Environmental Licensing in the UK works by the criminalisation of certain conduct except insofar as permitted by certain environmental licences, for example; the

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

discharge of treated trade effluent into a river must be in accordance with a Discharge Consent.

There are systems and procedures for applying for, considering, granting, varying and suspending or revoking the licences. It can take a considerable period of time to obtain or transfer certain licences, e.g, Waste Management Licences take four months to obtain.

The following are the most common Environmental Licences: • • • • •

Waste Management Licences; Water Discharge Consents; Trade Effluent Consents; Integrated Pollution Control Authorisations; Integrated Pollution Prevention and Control Permits.

These Environmental Licences will include detailed conditions which will specify the permitted levels/nature of the discharge/emission/deposit/process/operation. Breach of a condition of an Environmental Licence is a criminal offence. Environmental Licences are obtained from the EA, SEPA, local authorities and the Water Authorities.

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6 operation of the business 6.1 Advertising There are wide-ranging restrictions on advertising in the UK. Specific rules apply to adverts issued for certain products and services such as foods, medicines and the provision of credit. Additional regulations may apply depending on the medium used for advertising.

Principally, an advertiser must ensure that the advert does not contain any libellous or misleading material, and is not discriminatory.

Voluntary codes of practice also apply. The British Code of Advertising and Sales Promotion applies to non-broadcast adverts (including those on the internet). It requires adverts to be “legal, decent, honest and truthful”.

The Independent Television Commission licences and regulates commercial television in the UK and sets and maintains standards for programmes and advertising.

6.2 Attorneys There is no general requirement to appoint local counsel.

Due to the registration requirements applicable to places of business, branches and companies, whatever vehicle the investment is made through, the overseas investor will effectively have an address for service of legal proceedings in the UK.

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Accounting Records Every company must keep accounting records which are sufficient to show and explain the company’s transactions, (1) to disclose with reasonable accuracy, at any time, the financial position of the company at that time; and (2) to enable the directors to ensure that the accounts comply with the legal requirements.

In particular, the records must contain entries from day to day of all sums of money received and expended by the company, the matters which they relate to, and a record of the assets and liabilities of the company. (Companies Act, 1985, s221).

If accounting records are kept at a place outside Great Britain, accounts and returns with respect to the business dealt with in the accounting records must be sent to, and kept at, a place in Great Britain, and must at all times be open to inspection. The accounts and returns to be sent to Great Britain must be disclosed with reasonable accuracy the financial position of the business in question at intervals of not more than six months, and enable the directors to ensure that the company’s balance sheet and profit and loss account comply with the requirements of the Companies Act 1985.

The taxes legislation requires that accounting records supporting a tax return must be kept for six years.

How much are Attorneys’ Fees?

UK lawyers generally charge according to the number of hours spent on dealing with a matter and the seniority of the solicitor advising. Rates vary, and it is difficult to generalise.

It is unlikely that the rate of a qualified solicitor will be less than £100 per hour in England and £80 per hour in Scotland (plus VAT and disbursements). Partner rates of the largest firms in England are probably in the region of £500 per hour, compared with rates in the largest Scottish firms which are probably in the region of £270 per hour.

Preparation and Disclosure of Company Accounts The directors of a company must prepare a balance sheet and a profit and loss account for each financial year (Section 226(1) CA 1985). The accounts must also include a directors’ report. Where at the end of a financial year a company is a group company the directors must also prepare group accounts (Section 227 CA 1985).

The accounts are subject to an overriding requirement that they must show a “true and fair view” (Section 226(2) CA 1985).

The accounts must comply with the detailed rules as to the form and content of the balance sheet and profit and loss account and the additional information to be provided by way of notes set out in Schedule 4 to the Companies Act. If any document included in the accounts is not in English the directors must annex a translation of it into English, certified to be a correct translation, to the accounts.

A private company must file its accounts with the Registrar of Companies within ten months of the end of the relevant period.

If the accounts are not filed within the relevant time limit the directors and the company can be fined.

6.3 Book Keeping Requirements

Accounting Principles, Rules and Standards

Book Keeping Requirements applicable to Companies UK law imposes requirements on private and public limited companies to keep accounting records and to prepare and disclose accounts.

Policies / Principles Schedule 4 to the Companies Act sets out the accounting policies which must be followed in preparing a company’s accounts.

The amounts to be included in respect of items shown in a company’s accounts must be

Finding Local Counsel It is always best to choose solicitors through personal recommendation. It is not currently possible directly to engage a barrister (or, in Scotland, an advocate) – this must be done through a solicitor.

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determined in accordance with the “historical cost accounting rules”, although “alternative accounting rules” (both set of rules are contained in the Companies Act) can be used in certain instances, provided this is disclosed in the notes to the accounts.

Standards The directors of a company are required to state in the notes to their accounts whether those accounts comply with the “applicable accounting standards” and to give particulars of any material departure from those standards and the reasons for it.

The term “accounting standards”18 is defined as the statements of standard accounting practice (SSAP’s) issued by Accounting Standards Board.19 The “applicable” accounting standards are, rather unhelpfully, defined as “such standards as are, in accordance with their terms, relevant to the company’s circumstances and to the accounts”.

The Councils of the Consultative Committee of Accountancy Bodies expect their members who assume responsibility for the preparation and audit of financial statements to observe accounting standards and UITF Abstracts.

6.4 UK GAAP There is no statutory definition of UK Generally Accepted Accounting Practices (“UK GAAP”) and no statutory requirement for company accounts to comply with UK GAAP. Accordingly there is some debate about the exact meaning of the term UK GAAP. It has been argued that it means “accounting practices which are regarded as permissible by the accounting profession as a whole”.

Interaction of Accounting Standards and the “True and Fair” Requirement The Companies Act requires disclosure of applicable accounting standards but it does not stipulate that they must be applied. This follows from the requirement of the directors to produce financial statements which show a true and fair view. Accounting Standards are an authoritative source of accounting practice and, in consequence, it is now the norm for financial statements to comply with them. The courts are, therefore, likely to take accounting standards into account when forming a view as to whether the financial statements give a true and fair view.

Small Companies A small company can in certain circumstances file “abbreviated accounts” with the Registrar of Companies.

These accounts do not need to include a directors’ report or a profit and loss account, and the

18 Section 256 Companies Act 19 The Secretary of State pursuant to S 256 CA made the Accounting Standards (Prescribed Body) Regulations 1990 prescribing the Accounting Standards Board for the purposes of the CA 1985.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

balance sheet and notes contain less information than the balance sheet and notes found in full accounts.

If the directors propose to file abbreviated accounts they must obtain an auditors’ report stating that in the auditors’ opinion the company is entitled to claim the benefit of the relevant statutory exemptions (and that the accounts have been properly prepared).

Public limited companies cannot be “small companies”.

A company is a “small company” if it satisfies two or more of the following requirements:- (a) its turnover is not more than £2.8 million; (b) its balance sheet total is not more than £1.4 million; and (c) it has not more than 50 employees.

Book Keeping Requirements of other Business Entities Sole Proprietorships There is no specific legal requirement to keep accounting records. However, the Inland Revenue requires that persons must keep all records which are required to allow them to make and deliver a correct and complete tax return.

In the case of a person carrying on a trade, profession or business in partnership, the records required to be kept shall include records of the following: • •

all amounts received or expended in the course of the trade, profession or business and the matters in respect of which the receipts and expenditure take place; and in the case of a trade involving dealing in goods, all sales and purchases of goods made in the course of the trade.

The documents must be kept for six years.

Persons registered for VAT are required by Customs & Excise to retain business and accounting records for six years.

Places of Business There is no specific legal requirement to keep accounting records. In practice they must be kept because, in general, overseas companies with a place of business in the UK must file accounts with the Registrar of Companies. There are certain reporting exemptions when an auditors’ report and a directors’ report are not required.

Branches There is no specific legal requirement to keep accounting records. However, in practice they must be kept because in general, all UK branches of overseas companies must disclose accounts in the UK by filing them with the Registrar of Companies.

The content of the accounts depends upon whether the law of the home jurisdiction requires preparation and disclosure of accounts and where the branch is located.

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English and Scottish Partnerships There is no specific legal requirement to keep accounting records but the Inland Revenue requires that persons must keep all records which are required to allow them to make and deliver a correct and complete tax return.

In the case of a person carrying on a trade, profession or business in partnership, the records required to be kept shall include records of the following:

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

The main legislation governing trade unions and trade disputes is the Trade Union and Labour Regulations (Consolidation) Act 1992, as amended.

There are also numerous regulations covering a range of specific issues, such as the transfer of undertakings, collective consultation, working time, maternity and parental leave, and health and safety issues in the workplace.

Environmental Law

• •

all amounts received or expended in the course of the trade, profession or business and the matters in respect of which the receipts and expenditure take place; and in the case of a trade involving dealing in goods, all sales and purchases of goods made in the course of the trade.

The documents must be kept for six years.

Persons registered for VAT are required by Customs & Excise to retain business and accounting records.

6.5 Business Codes / Ethics A description of all relevant codes of practice is beyond the scope of this Guide. The issue of the extent to which codes of practice may apply will depend upon the nature of the business and its activities. However, some of the codes which are likely to be of general application are mentioned below.

Employment The main statutory employment rights are now to be found in the Employment Rights Act 1996, although there is additional primary and subordinate legislation covering a range of rights, duties and obligations which needs to be taken into account in particular circumstances. In addition there is considerable amount of anti-discrimination legislation affecting employment. The main domestic provisions are: • • • •

Equal Pay Act 1970, as amended.

Sex Discrimination Act 1975, as amended.

Race Relations Act 1976.

Disability Discrimination Act 1995.

The legislation is supported by various Codes of Practice, for example in relation to disability there is a Code of Practice which gives guidance on how to avoid discrimination and how to interpret the legislation.

The Government has produced regulations prohibiting discrimination against part-time workers, and it has announced plans to introduce legislation to tackle age discrimination. (See Employment section for more detail).

Environmental Management Systems An Environmental Management System (“EMS”) is the part of the overall management system of a company that includes organisational structure, planning activities, responsibilities, practices, procedures, processes and resources for developing, implementing, achieving, reviewing and maintaining the environmental policy of a company. An EMS aims to minimise environmental impacts and continually improve the overall environmental performance of a company.

There are two internationally recognised environmental management systems schemes – ISO 14001 and the EC’s Eco-Management and Audit Scheme (“EMAS”) – they are both valuable tools for organising and demonstrating competent environmental management.

Public Companies Companies whose securities are listed or traded on a recognised investment exchange, such as the Official List of the London Stock Exchange, the AIM market and OFEX, are generally subject to a higher degree of regulation than companies whose securities are not publicly traded. These regulations include the Listing Rules of the London Stock Exchange, which regulate the listing of new securities on that market and the conduct of companies whose shares are listed on it, the Public Offers of Securities Regulations 1995 which regulate the issuing of unlisted securities by public companies until the Prospectus Directive comes into force, the AIM rules, which regulate the admission to trading of shares on that market and the conduct of companies whose shares are traded on it, and the City Code on Takeovers and Mergers, which regulates the parties’ conduct on takeovers of public companies. A recently approved EU Regulation also requires all European listed companies to use International Accounting Standards in their accounts for periods starting in or after January 2005. These are just some of the rules applicable to companies whose securities are publicly traded. Detailed consideration of the rules falls outside the remit of this guide and it is always advisable to take appropriate legal and financial advice as to the regulatory regime applicable to UK public companies.

6.6 Consumer Protection Laws There is a range of UK law which regulates transactions with consumers and which would apply in relation to the investor’s operations involving consumers, whether directly or indirectly through contracts entered into with consumers, or as a manufacturer or supplier.

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Consumer Protection in Contracts

Non-Contract Based Consumer Protection

Sale of Goods The Sale of Goods Act 1979 refers to various conditions and warranties which are to be implied into contracts for the sale of goods in certain situations, for example; that the seller has a right to sell the goods, that the goods will correspond with the description given of them, that they are fit for their intended purpose and, if they are sold in the course of a business, that they are of satisfactory quality.

Negligence A person suffering some form of physical damage as a result of the negligence of a manufacturer or supplier may be able to sue under the common law tort of negligence in England or delict in Scotland despite there being no contractual relationship between the two parties. Unless there is a very close relationship between the manufacturer or supplier and the consumer, it is unlikely that the consumer would be able to recover for any economic loss suffered, and the consumer still has to establish that the manufacturer or supplier is negligent in the sense that he has failed to exercise reasonable care and skill.

Supply of Services The Supply of Goods and Services Act 1982 (SGSA) operates to protect consumers in relation to contracts for services, and contracts for services where the transfer of goods are also part of such a contract. In relation to the goods, similar terms to those under the Sale of Goods Act are implied. In relation to the services, the SGSA implies the term that the supplier will carry out the service with reasonable care and skills. The SGSA does not extend to Scotland. The common law offers broadly the same protection as offered under the SGA. Suppliers must display the level of knowledge and skill reasonably to be expected from an average member of his profession. In addition there are implied terms which apply in the absence of express agreement as to the time of performance and the charge to be paid.

Hire Purchase The Supply of Goods (Implied Terms) Act 1973 implies terms into a hire purchase agreement (that is a contract where there is an option to purchase the goods which may or may not be exercised), which are virtually identical to those applying to the sale of goods as discussed above.

Statutory Control of Exclusion/Limitation of Liability Clauses The Unfair Contract Terms Act 1977 (UCTA) seeks to control the use of contractual terms excluding or restricting liability.

It is designed to protect consumers. A consumer is defined as a legal person dealing other than in the normal course of their business, and buying or hiring goods of a type ordinarily supplied for private use.

Liability cannot be excluded for death or personal injury arising from breach of duty arising in the course of business. The term “course of business” incorporates the performance of contracts.

Liability cannot be excluded for defective goods, nor for breach of obligations arising from the implied terms as to title, conformity with description and quality or fitness for purpose.

In all other clauses seeking to limit liability, the “reasonableness test” will apply. UCTA and case law give guidance as to what is meant by this term. This test applies to the sale of goods, hire purchase and the supply of services. This means that consumers are protected from unreasonable contract terms seeking to exclude or limit liability for breach of contract, or attempts to render performance substantially different from what is expected.

Rights of Third Parties A consumer without a contractual relationship with a supplier or manufacturer may also be able to establish a right to claim for defective goods or services under The Contracts (Rights of Third Parties) Act 1999 (“the CRTPA”). The consumer will generally only be able to do so if he has been expressly identified in the relevant contract by name, and the parties to the actual contract must have intended that the relevant term of the contract should be enforceable by the third party. The CRTPA does not apply in Scotland. The Scottish equivalent is the common law ius quaesitum tertio. As with the CRPTA, it will generally only operate where the contracting parties have directly conferred a right upon someone who is not a party to the contract.

The Consumer Protection Act 1987 (CPA) The Consumer Protection Act 1987 protects the consumer in certain circumstances without the need for a contract or having to show negligence. Where damage has been caused wholly or partly by a defect in a product, the producer of that product, and any person who has held himself out to be the producer of the product by putting his name on the product or using a trademark or other distinguishing mark in relation to the product, or any person who has imported the product into the country in the course of his business, will be liable for the damage. Damage here means death, personal injury or any loss of or damage to any property (though claims for £275 or less are excluded). It should be noted that producing includes not just the goods themselves but also a product which is comprised within the goods, whether by virtue of being a component, raw material or otherwise. The Act provides that there is a defect in the product if the safety of the product is not that which persons are generally entitled to expect.

It is not possible to contract out of or limit liability under the CPA. Accordingly, a person with a contractual claim under the SGA may also have a claim under the CPA. The main practical importance of the CPA lies in the fact that a buyer may now sometimes be able to sue parties other than the seller without having to prove fault, and a non-buyer will also be able to sue a producer without the need to prove fault.

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Guarantees Many manufacturers provide guarantees when supplying their products, and although there is little case law in this area, it appears that the guarantees are likely to be enforceable by buyers against manufacturers as collateral contracts.

Statutory Duties Various statutes provide further consumer protection. Regulations have been made covering a wide range of goods including toys, children’s clothes, electrical appliances, and upholstered furniture.

There are provisions concerning quality and fitness of goods. The following gives a brief overview.

The Weights and Measures Act 1985 is designed to ensure that the consumer is not supplied with a wrong measure, by standardising weights and measures.

The Trade Descriptions Act 1968 (TDA) prohibits a person applying a false trade description to goods, or supplying or offering to supply goods to which a false trade description has been applied.

A trade description, for the purposes of the TDA, is an indication with respect to the goods or part of the goods as listed in the Act. The TDA also includes provisions concerning false or misleading statements concerning provision of services, accommodation or facilities.

The Consumer Protection Act, Part 2, provides that a person will be guilty of an offence if he supplies a consumer with goods which are not reasonably safe having regard to all the circumstances, or offers or agrees to supply such goods or exposes or possesses such goods for supply. The CPA authorises the Secretary of State to issue regulations to ensure the safety of goods, or to restrict the availability of goods which are unsafe, or to ensure that appropriate information is provided in relation to goods. Under the CPA a person who has been affected by contravention of an obligation set out in any of the safety regulations may bring a civil action for breach of these.

The CPA makes it a criminal offence to give consumers a misleading price indication about goods, services, accommodation (including the sale of new homes) or facilities. This offence applies regardless of how the price indication is given: whether in a TV or press advertisement, in a catalogue or leaflet, on notices, price tickets or shelf edge marketing in stores, or even if given orally, for example on the telephone. In addition, the Consumer Protection (Code of Practice for Traders on Price Indications) Approval Order 1988 sets a code of practice which offers practical advice and seeks to promote desirable practices in this area.

The European Union’s Directive on General Product Safety (92/59) aims to standardise safety requirements across the single market. This was implemented in the UK by the General Product Safety Regulations 1994. The Regulations provide that no producer shall place a product on the market unless the product is safe. Product means any product intended for consumers or likely to be used by consumers which is supplied in the course of a commercial activity and whether new, used or reconditioned. The Regulations also require the producer to provide customers with relevant information to enable them to assess the risks in a product. Distributors must act with due care in order to help ensure compliance with the general safety requirements. There are criminal sanctions for breach of these obligations. The Regulations include a defence on the basis that the producer or distributor took all reasonable steps and exercised all due diligence to avoid committing the offence.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Consumer Credit The Consumer Credit Act 1974 (CCA) established a system for the protection of consumers in relation to credit transactions. The Act applies when one person provides an individual with credit not exceeding £25,000, although this figure has been under review for some time and the £25,000 ceiling is likely to be removed..... “Individual” includes a partnership or other unincorporated body of persons not consisting entirely of bodies corporate. The creditor can be an individual or a body corporate.

Various credit agreements are exempt. These are to be found in Section 16 of the Act and in the Consumer Credit (Exempt Agreements) Order 1989 (as amended). These exemptions generally relate to agreements for the purchase of land by virtue of the categorisation of the lender or the number of repayments. The Act provides protection for the debtor at various stages of the transaction. If the agreement is a cancellable agreement, the CCA gives the debtor an opportunity to withdraw from the transaction for a short period before it becomes binding. There is also a formula provided under the Act which apportions the interest payable when there is an early settlement. If the debtor defaults then the creditor is required to serve a default notice in terms of Section 87 of the Act. This allows the debtor time to remedy any default before enforcement action is permitted. Where there is a default in a hire purchase or conditional sale agreement, the Act dictates that if more than one third of the total price has been paid then the goods cannot be repossessed without a Court order. In Scotland, the goods can never be repossessed without a Court order.

If a party wishes to carry on a consumer credit or consumer hire business, he must obtain a licence from the Director General of Fair Trading. Additionally, the Consumer Credits (Advertisement) Regulations 1989 contained detailed provisions on the content of any advertisements relating to the provision of credit.

Debtors may apply to the Court to declare credit agreements unenforceable on the basis that they are an “extortionate credit bargain”. In deciding if the agreement is an extortionate credit bargain, it will have regard to all the circumstances of the case, including the actual interest rates, the risk involved and the relative bargaining powers of the parties. There is no ceiling on the amount of credit offered in relation to these provisions, and no agreement is exempt.

6.7 Construction If considering carrying out construction in the UK you will need to be aware of the statutory background to such construction, the structure of the construction industry including construction professionals, the types of construction contract normally required and if you are operating in different parts of the UK the differences between Scottish and English provisions. It is not possible in this short introduction to go into any detail and therefore the following brief notes can only act as a checklist of the areas where further research and investigation may be required.

Statutory Background Construction in the UK, in addition to planning and environmental controls discussed elsewhere, is subject to building regulations. Within the UK there are two main statutory regimes one for England & Wales and one for Scotland (in addition Northern Ireland, Isle of Man and Channel Islands all have their own separate systems).

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In England and Wales the control of the construction of buildings is covered under the Building Act 1984. Under that Act regulations are made setting out in general statements the required performance of buildings mainly dealing with health & safety but also with energy conservation and access for the disabled. These general statements are amplified and explained in a series of approved documents which set out one, but not the only, way to comply with the regulations. Regulations apply to most buildings. However the regulations list constructions which are not subject to the regulations and not all the regulations apply to all building. These regulations are administered by the local authorities.

Where the regulations apply you are obliged by law to get building regulation approval. There are four ways to get approval: • • • •

submit full details of proposals to local authority for full plan approval; use a private approved inspector (approved by the Secretary of State or an approved certifying body) for approval and notify the local authority of such use; send a building notice to the local authority notifying them of the proposed work (for small works where you are confident of compliance); where work subject to regulations is carried out without approval, you will need to ask the local authority for a regularisation certificate to regularise work carried out.

There are in addition provisions regarding relaxation from the regulations, appeal against refusal, and enforcement by the local authority should you carry out work contravening the regulations.

Scotland The control of construction of buildings in Scotland is covered by the Building (Scotland) Acts 1959 and 1970. Building standards regulations are issued under those Acts to control the manner in which buildings are constructed in Scotland. There are similar exemptions from the operation of these regulations as in England and similar standards set out in the regulations relating to health & safety, conservation of energy and access for the disabled. Compliance with the standards regulations is by compliance with the technical standards. The Scottish regulations also have provisions for relaxation of regulations and enforcement against non-complying work equivalent to the English provisions. It is, however, an offence in Scotland to commence building works subject to the regulations without building warrant approval or to occupy a building subject to building warrant approval without a completion certificate from the local authority or consent from them for temporary occupation.

However there are provisions for stage warrants allowing you to start on site with only, for example, the foundations approved provided the remainder of the structure obtains approval before work commences on that part of the development.

Other Legislation Relevant To Construction Industry The two main pieces of legislation which are likely to affect a developer in the carrying out of construction work are the Construction (Design and Management) Regulations 1994 as amended and the Housing Grants Construction and Regeneration Act 1996. The regulations are issued under

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the Health & Safety at Work etc Act 1974, pursuant to an EU Directive, and place obligations upon clients in relation to health and safety on construction sites. These obligations include appointing, in appropriate circumstances, a competent and adequately resourced planning supervisor and principal contractor to produce a health and safety plan (for the safe carrying out of the construction works) and a health and safety file (with health & safety information for any future work on the building). In addition if the client appoints any designers he has to consider their competence and the allocation of resources for health and safety. The client has a number of other duties under the regulations but any designer appointed by him is obliged to make him aware of such duties. It is also possible to delegate the client’s responsibilities under the regulations to an agent as long as a declaration to that effect is made by the agent to the Health & Safety Executive.

The other piece of legislation affecting developers in relation to construction is the Housing Grants Construction and Regeneration Act 1996. This Act provides that in relation to construction contracts (agreements for carrying out, arranging for, or providing labour for construction operations and providing advice in relation to such operations (mainly building contracts and construction professionals’ appointments)) provided they are in writing (widely defined) and subject to certain exemptions (principally in relation to dwellings occupied by one of the contracting parties) the contract is required to include provisions for adjudication and for payment. In the event that these provisions are not included regulations setting out a scheme for construction contracts (two separate schemes one for England and Wales and the other for Scotland) set out the provisions which will be implied into the construction contract. There are in addition exclusion orders in relation to England and Wales and in relation to Scotland which exclude certain contracts which would otherwise be construction contracts from the operation of the Act. In general terms the contracts excluded are agreements made under particular statutes, private finance initiative contracts (but not the subcontracts made thereunder), finance agreements (including contracts of insurance and bonds) and development agreements (including forward purchase agreements and agreements for lease). Where a contract is a construction contract there is a right for either party to refer any dispute or difference to adjudication with a decision given in 28 days subject to certain rights to extend that period. Such a decision is to be binding on the parties until the dispute if finally determined by legal proceedings, arbitration or agreement. The payment provisions require payment by instalments (except where the contract period is short) with a due date and final due date for payment set out in the contract. There are further provisions regarding notices of payment of the due sum and for withholding sums from the due sum. In addition pay when paid clauses are prohibited and there is a right to suspend performance, where a due sum is not paid by the final date for payment, until it is paid. If you use a contract with none of the above provisions such provisions will be implied into your contract.

Finally, where a developer is carrying out more than minor works in the UK the Income Tax (SubContractors in the Construction Industry) Regulations 1993 as amended may affect them. These regulations were introduced to reduce tax avoidance by sub-contractors (which under the regulations can include contractors). Where the regulations apply no payment should be made to a contractor until his tax status under the regulations is established. Failure to do so could render the developer liable to Inland Revenue for any tax not properly paid by the contractor.

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UK Construction Industry Most construction in the UK is carried out by general contractors who employ a number of different specialist sub-contractors to carry out different aspects of the work. As a developer you will therefore normally only need to contract with one main contractor who will in turn arrange for all the different parts of the works to be carried out by different sub-contractors. The main construction professionals in the UK are similar to those operating in other parts of the world except for quantity surveyors. The role of the quantity surveyor is to take a design produced by the different construction designers (architects, engineers etc) and measure the quantity of the work and materials involved using a standard method of measurement (the current standard method is the seventh edition) and produce a bill of quantities which lists, in a schedule, all the different materials and work required for the construction of the development. The main use of such a schedule is to value interim payments as the works proceed and to value variations to the originally contracted works. Quantity Surveyors in the UK now fulfil a more general cost control and financial advice role since with the development of CAD a lot of the measurement of design work and production of bills of quantities can be automated.

The main professional bodies in the UK for construction professionals are:

owed to those funding, purchasing or occupying the premises which they had designed and/or constructed. However recent case law has meant that the non-contractual route for liability is no longer available. This has meant that the practice has developed in the UK of requiring collateral warranties from the contractors and designers in favour of those third parties who may suffer loss due to their negligence. These collateral warranties primarily create a contractual link between the development team and the interested third parties so that the development team owe those third parties a duty of care equivalent to that which they owe to the developer. It is now possible under English law (Contracts (Rights Of Third Parties) Act 1999) to give such third parties direct rights under separate contracts between the developer and the development team (there has always, theoretically, been such a right under Scottish common law). However, so far few have taken advantage of this opportunity preferring to rely upon the direct contractual rights in a collateral warranty.

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English Law The origins of English contract law are firmly rooted in the philosophy that parties should be free to contract as they choose. There has, however, been a steady movement away from this philosophy in the late twentieth century and this general principle is now subject to many exceptions.

The main areas where statute regulates the contents of the contract which are likely to affect a foreign investor are employment contracts, contracts with consumers, contracts with commercial agents and contracts between a landlord and tenant.

Competition law will also have an effect on parties’ ability to enter into contracts on any terms that they wish.

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Royal Institution of Chartered Surveyors for both building surveyors and quantity surveyors (RICS); Royal Institute of British Architects (RIBA) (in Scotland the Royal Incorporation of Architects in Scotland (RIAS)); Institution of Civil Engineers (ICE); Institution of Mechanical Engineers and the Institution of Electrical Engineers.

The RIBA/RIAS and the RICS both produce standard forms for the appointment of the relevant professionals and the Association of Consulting Engineers produce standard forms of appointment for structural and services engineers.

Contracts The main contracts for non engineering construction work are produced by the Joint Contracts Tribunal (JCT). These contracts are for use in England and Wales and the Scottish Building Contract Committee (SBCC) produce Scottish Building Contracts which incorporate the JCT conditions and amend them for use in Scotland. The ICE produce a standard engineering contract which is now in its seventh edition. Both the JCT forms of contract and the ICE forms of contract include non design and design and build versions. There are a number of other different forms of JCT and ICE contracts and also some other more specialised contracts in relation to process and chemical engineering.

There is also a new engineering contract which contains a suite of different documents to cover a number of different contracting requirements.

The nature of property development means that a number of parties involved in development (purchasers of the development, funders of a development and tenants of a development) are not normally parties to the building contracts and the professional appointments. Until a decade ago such parties could rely upon the non-contractual duty of care that the contractors and professionals

6.8 Contracts Can the Investor Freely Enter into Local Contracts?

Differences Between English and Scottish Law on Contracts Under English law, the doctrine of consideration has evolved in order to distinguish contracts from informal gratuitous promises. The doctrine requires that the contracting parties to the contract provide “something of value in the eye of the law” (this is very widely defined) to the other. In contrast, Scots law does not require that consideration be given by the parties in order to create a contract.

Historically English law has only allowed the parties to a contract to enforce the obligations of the other party to that contract. However, this rule was changed by the Contracts (Rights of Third Parties) Act 1999 which allows third parties to enforce contractual obligations where that third party is expressly named in the contract as a party entitled to benefit from the obligations in the contract.

Can Contracts be Governed by the Law of Another Country?

Contracts formed in the UK can be governed by the laws of a foreign jurisdiction.

The relevant law is the “Rome Convention” which was given the force of law in the UK by the Contracts (Applicable Law) Act 1990.

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Where there is a “foreign element” to the contract (for example, the overseas investor is a direct contracting party or the relevant goods come from outside the UK) the express reference to foreign law excludes all UK law. The contract can thereby exclude the protections otherwise granted by UK law, for example, relating to consumer protection.20 Where there is no foreign element, despite express reference to a foreign jurisdiction, the “mandatory” rules of UK law will still apply to the contract. This situation may arise, for example, where the overseas investor is operating in the UK through a company or a Scottish partnership (i.e. a business entity which has separate legal identity) and the goods / services are produced / provided in the UK by the company or partnership. Currently it is not entirely clear which rules of UK law are “mandatory”.

6.9 Price Controls With the exception of certain essential utilities, there are no directly imposed price controls operated in the UK. Essential utilities such as water, telecoms and to some degree the rail service have regulatory authorities which are able to impose restrictions on prices charged to system and end users. Price controls on sales to electricity and gas end users were lifted in 2001 although system use charges remain regulated.

Competition law provisions relating to matters such as resale price maintenance and predatory pricing can also have an effect on a company’s pricing policy.

6.10 Cessation Or Termination Of Business A registered company can be extinguished by winding-up, or in certain cases, by being dissolved or struck-off the register without the necessity for commencing winding-up proceedings.

Companies Declared Defunct If a private company is solvent and wishes to cease trading it can apply to the Registrar of Companies to have the company struck-off the private companies register. The directors can apply to the Registrar on behalf of the company as long as the company has not traded or carried on business for a period of three months.

An application need not, however, be made by the directors on behalf of the company. If the Registrar has reason to believe that a company has ceased trading (e.g. the company has failed to make mandatory filings within the requisite time period), then he can independently strike the company from the register. The Registrar must first serve notice of his intentions and the company and give it sufficient time to respond.

The Registrar must, in both examples above, publish his intention to strike-off a company in the

20 Chitty on Contracts 30-638.

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London Gazette or Edinburgh Gazette (if in Scotland) and leave a period of three months in order to allow for any aggrieved parties to object. A member or creditor who may be prejudiced by the company being struck from the register may, for up to twenty years after the publication of the notice in the London Gazette or the Edinburgh Gazette, apply to have the company restored to the Register.

If the company is restored to the register it is restored to its original status, thereby reviving the directors’ responsibilities towards the company. Striking a company from the register is a relatively quick process and enables companies to avoid the costs and lengthy procedures of formal liquidation.

Voluntary Liquidation There are three methods by which a company may be voluntarily wound-up: (a) The members of a solvent company may resolve that it is wound-up voluntarily; (b) The members and creditors of an insolvent company may resolve to wind up the company voluntarily as it is unable, for reason of its liabilities, to continue to operate; or (c) A director, member or creditor may petition the court to grant an order for compulsory liquidation.

Members’ Voluntary Winding-up A solvent company can voluntarily wind-up in circumstances where the articles of association of the company provide that after a fixed period has expired or an event has occurred the company should be dissolved, or, the winding-up of the company’s affairs and the distribution or realisation of its assets is desired by the members.

The directors, after meeting and discussing voluntarily winding-up the company, are obliged to make a statutory declaration of the company’s solvency. This declaration is made after a full inquiry into the company’s affairs and is based on the directors’ belief that, on the strength of this inquiry, the company will be able to pay its debts in full together with interest within such a period not exceeding twelve months from commencement of winding-up. This declaration will only be considered valid by the Registrar of Companies if it was made within five weeks of the resolution to wind the company up being passed and it embodies a statement of the company’s assets and liabilities at the date of making the declaration.

The members, at a general meeting of the company, appoint a liquidator of their choice thereby terminating the directors’ powers to act unless the liquidator sanctions those powers to continue.

Notice of the special resolution appointing the liquidator must be published in the London Gazette or the Edinburgh Gazette (if in Scotland) within fourteen days of being passed. In addition, the notice of appointment of the liquidator must be filed with the Registrar of Companies. Failure to comply with these notification requirements can result in a fine. The company ceases to carry on business as from the commencement of the voluntary winding-up (which is deemed to be at the time of the passing of the relevant resolution). The legislation does not prevent the company from carrying on with business that facilitates its winding-up.

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Creditors’ Voluntary Winding-up This method of voluntary winding-up can be brought on by the members of a company passing a resolution to the effect that the company cannot continue to trade because of its liabilities and that it is advisable to wind up. The resolution is then advertised in the London or Edinburgh Gazette (as appropriate).

Separate creditors’ and members’ meetings are called in order to appoint a liquidator. Notice of the creditors’ meeting is sent out by post to the creditors of the company and is advertised in the relevant Gazette and two local newspapers. The directors of the company lay a statement of affairs of the company before the creditors at their meeting. The statement of affairs is verified by affidavit of some or all of the directors and details the financial particulars of the company. The members and creditors meetings are to be called within fourteen days of each other and result in either one liquidator being agreed upon by both the creditors and the members or two liquidators appointed to act jointly and severally by sanction of a court order. The liquidator contacts the Registrar of Companies to advertise his appointment. From this point onwards, the liquidator will then assume the powers of the management of the company and the powers of the directors terminate.

Once the liquidator has details of all the company’s debts he must, prior to the dissolution, prepare an account of the winding up showing how it has been conducted and how the company’s property has been disposed of. Thereafter, the liquidator calls a general meeting of the company and a meeting of the creditors for the purpose of laying the accounts before them. Each meeting is advertised in the relevant Gazette at least one month before their calling. The liquidator, within one week of the meetings, sends a copy of the account to the Registrar of Companies.

Where the company is insolvent, the employees of the company will automatically be dismissed upon the appointment of the liquidator. In a situation where the company is solvent the liquidator will usually take action to dismiss the employees.

Compulsory Liquidation Compulsory liquidation of a company is imposed by the court on the petition of a competent third party, (usually a creditor) and the winding up is deemed to have commenced on the date on which the petition was presented to the court. A company may be wound up by the court for reasons such as the failure to commence business within a year of its incorporation, the suspension of trading for a year or, simply, the company being unable to pay its debts. The court has complete discretion as to whether to make an order for winding-up. A provisional liquidator may be appointed by the court on application and his appointment terminated on the dismissal of the winding-up petition or when otherwise determined by the court.

The court, on hearing a petition for the winding-up of a company, may dismiss it or adjourn the hearing conditionally or unconditionally, or make an interim order or other order as it sees fit. Any disposal of the company’s property (other than by the liquidator) or transfer of company shares or alteration in the company’s membership made after the commencement of the winding-up will be void.

On the making of a winding-up order, a copy of the order must be forwarded to the Registrar of

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Companies. The court will appoint a liquidator (referred to as ‘the interim liquidator’) who continues in office until another person becomes liquidator in his place. The interim liquidator must advertise his appointment and, within twenty eight days of the order being made, he must call separate creditors’ and members’ meetings to appoint an official liquidator in his place (the interim liquidator can be appointed as the liquidator if desired by the creditors). If at the creditors’ meeting no liquidator is appointed, then the person nominated by the members at their meeting will be appointed.

When the court makes an order for compulsory liquidation most of the powers of the directors are withdrawn and are transferred to the liquidator. When in liquidation all company papers must state that the company is in liquidation. The directors are usually required to prepare a statement of affairs and, if asked, the report must be submitted to the liquidator within twenty one days of his request.

The liquidator collects in all the property of the company and subsequently distributes or realises the assets. After the distribution has been made, the liquidator is obliged to prepare a final report and to lay it before the creditors of the company at a final meeting. The liquidator is then granted a release from his office. The liquidator will then notify the Registrar of Companies who will dissolve the company three months later.

Liquidator’s Remuneration A liquidator will generally be paid either by reference to the time spent on the matter or by percentage of the value of the assets which are realised and distributed. This will be subject to a published approved scale.

Administration Order Administration orders have a number of aims. These are, depending on the circumstances, (1) to encourage the survival of the company and the whole or part of its undertaking as a going concern; (2) the approval of a creditor’s voluntary arrangement; (3) the sanctioning of a scheme of arrangement; and (4) a more advantageous realisation of the company’s assets than would be effected on a winding up. A director, member, creditor or supervisor of a voluntary arrangement may present a petition requesting an administration order to the court. The petition must be supported by an independent report (usually prepared by the proposed administrator). Notice will then be given to any person, debenture holder or charge holder who is entitled within five days to appoint an administrative receiver. If an administrative receiver is appointed at this stage then the petition for the administration order will be dismissed. However, if the court believes that there are no grounds upon which an administrative receiver has been appointed or is likely to be appointed then the court will make an administration order appointing an insolvency practitioner to act as an administrator of the company.

From the time of appointment of the administrator, there will be a moratorium preventing the company being put into liquidation, the enforcement of any security against the company’s property or any legal proceedings being commenced or continued without the court’s consent. This is intended to allow the administrator time to rescue the company from liquidation. The court will make the administration order if it thinks that any of the four aims stated above could be achieved.

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When the order is made, any outstanding winding-up petitions against the company will be dismissed and no administrative receivers may be appointed during this time. The directors of the company must submit a statement of affairs to the administrator who has three key functions (1) to secure control of the company’s assets; (2) to prepare proposals for approval of creditors; and (3) to carry out those proposals. The administrator has wide powers to manage business including: removal of director, the sale of assets subject to a floating charge without consent or a court order, to set aside transactions at an undervalue and to extortionate credit transactions.

The company must amend its stationery so that it states that the company is subject to an administration order and gives the name of the administrator. The administrator will then act in the company’s name as the company’s agent and is deemed to be an officer of the court. The administrator must send notice of his appointment to all creditors within twenty eight days. The administrator must within three months of the administration order, send a copy of his proposals to the Registrar and also lay a copy before the meeting of the company’s creditors. This meeting must be called on no less than fourteen days’ notice. A meeting of the company’s unsecured creditors must then approve the proposals by a majority of more than fifty per cent. If the Administrator then achieves the aims of the order or he realises that it is impossible he can then ask the court to discharge the order.

Administrative Receiver A charge holder who has not been paid outstanding sums can appoint an administrative receiver.

This is subject to the proviso that the charge holder has security for all or substantially the whole of the assets of the company. An administrative receiver must be an insolvency practitioner and although he will act as an agent of the company, he does not owe a duty of good faith to the company but instead to the charge holder who appointed him. The aim of the administrative receiver is to recover the charge holder’s debt, interest and his own costs. He has a duty to notify the company, the creditors of the company and the Registrar of Companies of his appointment. From the time of the appointment of the administrative receiver the company can no longer continue to deal with the assets which are subject to the charge. The administrative receiver effectively replaces the board of directors and has extensive powers of management. The directors are required to deliver to the administrative receiver a statement of affairs of the company. Within three months of his appointment, the administrative receiver must send a report to the Registrar of Companies and the creditors setting out the current financial state of the company. The creditors will then hold a meeting to consider the administrative receiver’s report. The administrative receiver will have powers of management and sale under the charge and can use those powers to ensure that the charge holder is paid in full (as preferential creditors must be paid first) or all of the company’s assets are sold and the proceeds distributed in the prescribed order. Following the lodging of a final report with the Registrar of Companies and the creditors the administrative receiver may resign from office. At that point, the company will either survive and continue to be managed by the directors or the company will be wound up.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

7 employer/employee relations 7.1 What laws govern employer/employee relations?

Employee or self-employed It should first be noted that the difference between an employee and a self-employed person is extremely important. The legal rights enjoyed by each differ in many ways. For example, an employee will enjoy many statutory employment protection rights if he or she meets the necessary qualifying requirements: in most cases, someone who is genuinely self-employed will not.

Essentially the distinction is between a contract of service and a contract for services. Many larger companies employ workers on temporary assignment through the mechanism of a third party.

This can, where the terms are drafted appropriately, allow employers to avoid the direct employeremployee relationship. However, it is important to note that traditional employment protections are increasingly being extended to “workers” – people who are neither strictly employees nor really running their own business. Many people who are self-employed are now covered by these extended rights. This move has been driven by European legislation.

What follows is a general summary of the main statutory provisions which govern the employment relationship. Whether these apply to “employees” or “workers” is noted in context.

Recruitment (a) Recruitment of offenders The Rehabilitation of Offenders Act 1974 provides that, after a set period of time, people who have been convicted of criminal offences and who have served their sentences are, with some exceptions, not obliged to disclose those convictions. In effect, they become spent. A spent conviction or failure to disclose such a conviction are not proper grounds for dismissing or excluding a person from any office, profession, occupation or employment or from prejudicing him or her in any way. (b) Discrimination legislation Employers must comply with discrimination legislation (see below). (c) Written statement of particulars Every employer is required to give each employee a written statement of particulars of certain terms of his or her employment contract not later than two months after the beginning of the employee’s employment. If the employer fails to comply with these provisions, the employee may seek a remedy by way of a reference to an employment tribunal. The tribunal does not have the power to award compensation, but rather to amend or substitute new particulars, as it determines appropriate. (d) Business transfers Transfer of Undertakings (Protection of Employment) Regulations 1981

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Far-reaching rules for the protection of employees’ rights and the transfer of an undertaking are contained in the TUPE Regulations. The Regulations apply where an “undertaking” is “transferred” from company A to company B. An undertaking could be anything from a whole business to, in some cases, a single employee.

These Regulations implement the terms of the Acquired Rights Directive 77/187. The aim of these Regulations is to ensure that, where there is a transfer of an undertaking: •

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the employment contracts of the employees employed in the undertaking, along with all the rights, powers, duties and liabilities of the transferor under or in connection with those contracts pass to the transferee; any dismissal connected with the transfer is rendered automatically unfair unless it is for an economic, technical, or organisational reason entailing changes in the workforce; a relevant transfer triggers obligations to inform and consult with employee representatives.

Therefore, individuals who are employed by company A “immediately before the transfer” automatically become the employees of company B from the time of the transfer on the terms and conditions they previously held with company A. In addition company B inherits company A’s rights and (perhaps more importantly) liabilities in relation to those individuals. This is a particularly complex area and warning bells should ring whenever any part, or indeed the whole of a business, changes hands.

A consolidated Acquired Rights Directive (2001/23/EC) was adopted at EU level in early 2001.

Regulations implementing the consolidated Directive are expected to be implemented in October 2005. Among other things the new Regulations will: 1. ensure more comprehensive coverage of “service provision changes”. The Government aims to ensure that, with only limited exceptions, all contracting–out exercises, changes of service provider and contracting-in exercises will be covered by the legislation; 2. clarify the circumstances in which a dismissal will be regarded as “transfer-related” and therefore unfair, and also as to when changes to terms and conditions can and cannot be made; 3. place a requirement on the old employer to notify the new employer of the identities of the employees, and of all the associated rights, liabilities, etc, that will transfer. Where the old employer breaches the requirements, they can be ordered to pay the new employer up to £75,000 as a result of the default; and 4. give greater flexibility in applying the Regulations to certain cases where the transferor is insolvent, in order to promote a rescue culture. This will involve the insolvent employer’s existing debts towards the affected employees being prevented from transferring to any new employer – payments will instead be met by the National Insurance Fund. And, employers and employee reps will be permitted to agree changes to terms and conditions if this is with a view to ensuring the survival of the business and the preservation of jobs.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Rights during employment (a) Working Time Regulations 1998 Under the Working Time Regulations workers are entitled to at least 4 weeks annual paid leave which accrues from day one of employment. Effectively, this means that during their first year of employment workers are entitled to one-twelfth of the annual holiday entitlement per month worked.

There is also an entitlement to receive compensation for any untaken leave at the end of the employment.

In addition, it should be noted that under the regulations the average working time (including overtime) in each 7 day period should not exceed 48 hours. Workers are entitled to a minimum daily rest period of 11 consecutive hours in each 24 hour period and minimum uninterrupted rest periods of 24 hours in every 7 day period (i.e. one day off per week minimum).

Where the working day is longer than 6 hours, workers are to be entitled to a rest break. In relation to night workers, the normal hours of work should not exceed an average of 8 hours in any 24 hour period. This also applies to those whose work involves special hazards, i.e. particularly heavy physical or mental strain, who should not be required to work more than 8 hours in any 24 hour period.

It is important to note that all of these limits apply from the first day of employment, and no qualifying period of service is required. (b) National Minimum Wage Act 1998 Whilst salary and benefits are mostly for agreement between employer or employee/worker, it should be noted that employers must now comply with the National Minimum Wage, which, from 1 October 2004, is £4.85 per hour for adult workers aged 22 years and over (in October 2005, this will rise to £5.05 and in October 2006 is likely to increase to £5.35), and £4.10 for those aged 18-21 (which will increase in October 2005 to £4.25 and in October 2006 is likely to increase to £4.45). In addition, workers aged 16-17 are also entitled to be paid at least £3.00 per hour. This figure will be kept under review and may increase in October 2005. (c) Part-Time Workers Employers need to ensure that they do not treat part-time workers any less favourably than full time workers who carry out the same sort of work at their establishment. The Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 have been in force since 1st July 2000 and they aim to prevent part time workers being less favourably treated in relation to contractual terms or by being subject to any other detriment. Treatment should be on a pro-rata basis (unless application of that principle would be inappropriate) although the employer can seek to justify any differential treatment by giving a sound business reason. (d) Fixed-Term Employees Fixed-term employees are afforded protection by the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 which came into force on 1 October 2002. As with the Part-

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Time Workers Regulations (above) they aim to prevent fixed-term employees being less favourably treated than permanent employees in relation to contractual terms or by being subject to any other detriment. The Regulations apply to employees (not “workers”) on contracts that last for a specified period of time or which will end when a specified task has been completed or when a specified event does or does not happen. Unless agreed otherwise through the conclusion of a collective or workforce agreement, the use of successive fixed-term contracts is limited to four years. This period of time may also be extended if justified on objective grounds. Unfair dismissal waivers have been invalid for some time and now so too is any redundancy waiver included in a fixed-term contract which has been agreed, extended or renewed after the coming into force of these Regulations.

Discrimination legislation (a) Equal Pay The Equal Pay Act 1970 governs the right of a worker to receive equal pay (and equality in respect of other contractual terms) to that received by a worker of the opposite sex doing like work; work rated as equivalent under an analytical job evaluation study; or work that is proved to be of equal value. An employer will have a defence if it can prove that the difference in pay or benefits is genuinely due to a reason other than one related to sex.

Although the Act is framed with reference to a woman making a claim for equal pay, a man may also make a claim.

Claims are brought in the employment tribunal. Claims can be brought at any time during employment and within six months of leaving employment.

If a claim is successful, the worker will be entitled to the same level of pay or benefits as his or her comparator for the future (if he/she is still in the same job) and back pay representing the difference in pay with interest.

The maximum sum of back pay that can be claimed is up to 6 years in England and Wales, and up to five years in Scotland. (b) Sex Discrimination The Sex Discrimination Act 1975 contains provisions which prohibit discrimination on the ground of sex (including gender reassignment) in employment. It also prohibits victimisation and discrimination on marital grounds. Job applicants and workers are protected in relation to recruitment, job offer terms, access to opportunities for promotion, transfer or training and access to benefits, facilities and services.

Dismissal or subjection to a detriment because of a person’s sex or martial status is also unlawful. (c) Race Discrimination The Race Relations Act 1976 contains provisions which prohibit discrimination on the ground of race, colour, nationality (including citizenship), or ethnic or national origin in employment. Job applicants and workers are protected in relation to recruitment, job offer terms, access to opportunities for promotion, transfer or training and access to benefits, facilities and services. Dismissal or subjection to a detriment because of a person’s race is also unlawful, as is victimisation.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

(d) Disability Discrimination The Disability Discrimination Act 1995 contains provisions which make it unlawful for an employer to treat a disabled person less favourably in relation to employment. The Act protects disabled job applicants and workers in respect of selection arrangements, recruitment, the terms on which employment is offered, terms and conditions of employment, opportunities for promotion, transfer or training, employment benefits, dismissal or any other detrimental treatment.

The Act makes it unlawful for an employer not to make reasonable adjustments to working conditions and environment to help overcome the practical effects of disability. (e) Sexual Orientation The Employment Equality (Sexual Orientation) Regulations 2003 outlaw discrimination in employment and vocational training on grounds of sexual orientation. Protection is extended to people whether they are orientated towards people of the same sex, the opposite sex, or both sexes. The law covers perception of sexual orientation as well, whether correctly or incorrectly held. Employees who are discriminated against because of the sexual orientation of their family and friends are also protected under the Regulations. (f) Religion or Belief The Employment Equality (Religion or Belief) Regulations 2003 outlaw discrimination on the grounds of religion or belief. (g) Remedies under the Sex, Race, Disability, Sexual Orientation, and Religion or Belief provisions Remedies available under the Acts are: • An order declaring the rights of the parties in relation to the act to which the complaint relates; • An order requiring the employer to pay compensation to the worker both for loss of earnings and for injury to feelings. There is no limit on the compensation which can be awarded; • A recommendation that the employer take certain action within a specified time with the purpose of reducing or removing the adverse effect on the employee of the discrimination in question. (h) Other Discrimination legislation Similar legislation to tackle age discrimination will be introduced by December 2006.

Family friendly rights (a) Maternity Rights Female employees who are pregnant enjoy a number of statutory rights. These include: paid time off to receive ante-natal care, maternity leave and protection from dismissal by reason of pregnancy or childbirth. All pregnant employees are currently entitled to 26 weeks ordinary maternity leave which cannot start until the eleventh week before the expected week of childbirth (“EWC”). During this leave a woman is entitled to all the benefits of her contract except the right to receive wages or salary.

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However, she will receive statutory maternity pay (SMP). Before a woman can qualify for SMP she must normally satisfy a number of conditions relating to length of service, level of earnings and reason for ceasing work. SMP is paid at the rate of 90% of salary for the first six weeks and £106 per week for the remainder of the period (for tax year 2005/06). Employers can either recover SMP, or they can offset the amount paid against sums owed to the Inland Revenue.

In addition to ordinary maternity leave, employees who have 6 month’s continuous service by the fourteenth week before the EWC are entitled to up to 26 weeks unpaid additional maternity leave.

They are entitled to return to work after maternity leave.

There are detailed rules about notification of leave and employees rights. As with all of the law mentioned here this is a complex area and advice should be taken in all cases. (b) Parental Leave The Employment Relations Act 1999 introduced a right to 13 weeks unpaid leave for employees who have one year’s continuous service and who have, or expect to have, responsibility for a child. (c) Time off for Dependents The 1999 Act also entitles employees to ‘reasonable’ time off to deal with emergencies involving dependents i.e. spouse, partner, child, parent, anyone living with an employee as part of their family, or others who rely solely on them for help in an emergency. The idea is that the leave should only be for the period necessary for the employee to deal with the immediate situation and make alternative arrangements. (d) Right to request flexible working The Employment Act 2002 introduced three new family friendly rights from 6 April 2003. The first of these is the right to request a flexible working pattern. It is not an automatic right to work flexibly as the employer can refuse such a request where there is a clear business reason for doing so. The right is available to employees who are parents with children under 6 or disabled children under 18 who have been continuously employed for 26 weeks. Employers are under a duty to consider any such applications seriously. (e) Paternity leave The second is the right to paternity leave for employees who satisfy certain qualifying conditions relating to length of service and relationship to the baby or the baby’s mother. The right is to take either one week or two consecutive weeks’ paternity leave (not odd days). As with statutory maternity pay, before a man can qualify for statutory paternity pay (SPP) he must normally satisfy a number of conditions relating to length of service, level of earnings and reason for ceasing work. SPP is paid at the rate of 90% of salary or £106 per week, whichever is the lower (for tax year 2005/2006). (f) Adoption leave The third of the new rights is to adoption leave. Adoption leave is available to individuals who adopt or

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

to one member of a couple where a couple adopt jointly (the couple must choose which partner takes adoption leave). Adopters are entitled to up to 26 weeks’ ordinary adoption leave followed immediately by up to 26 weeks’ additional adoption leave. As with statutory maternity and paternity pay, before an adopter can qualify for 26 weeks’ statutory adoption pay (SAP) he or she must normally satisfy a number of conditions relating to length of service, level of earnings and reason for ceasing work. SAP is paid at the rate of 90% of salary or £106 per week, whichever is the lower (for tax year 2005/2006).

Termination of employment A contract of employment may be terminated in several ways. The distinction between the different methods of termination may be important in working out whether the employee can bring a claim for unfair dismissal, wrongful dismissal, or redundancy. (a) Unfair Dismissal If an employee with more than one year’s continuous service is dismissed without good reason or without following a fair procedure, the employer may find themselves faced with a claim for unfair dismissal. When such a claim is brought, the employer has to establish the reason for the dismissal.

If the dismissal is held to be unfair, the employer can be ordered to re-engage, reinstate or to pay compensation to the ex-employee. This area is governed by the Employment Rights Act 1996.

In addition, an employee who is dismissed for an “automatically unfair” reason does not need a qualifying period of continuous service in order to claim unfair dismissal. The “automatically unfair” reasons include dismissal on the grounds of pregnancy, maternity, trade union recognition, for taking action on health and safety grounds and reasons relating to the national minimum wage. In addition, a dismissal will automatically be unfair if the employer has failed to comply with the statutory Disciplinary and Dismissal Procedure (‘DDP’) which was introduced in October 2004 (a statutory Grievance Procedure was also introduced).

In general terms, the three step DDP is as follows: the issues of concern should be set out in writing by the employer, a meeting should be held to discuss the issues, and the employee should be given an opportunity to appeal any decision taken.

In cases of alleged gross misconduct, a two-step procedure can be followed. This involves informing the employee in writing of the alleged misconduct that has lead to dismissal and the evidence for the decision, then the opportunity to appeal should be given.

The two-step procedure should only be relied upon in limited circumstances e.g. where the dismissal took place at the time the employer became aware of the gross misconduct, or immediately thereafter; where the employer was entitled to dismiss for gross misconduct without notice or payment in lieu; and it was reasonable to dismiss without investigating the circumstances.

The DDP will apply in cases of dismissal for conduct, capability, individual redundancy, nonrenewal of fixed term contracts and compulsory retirement cases.

In any unfair dismissal case the dismissed employee requires to bring a claim before the employment tribunal within 3 months of dismissal. Extensions to this time limit will only be allowed in very limited circumstances.

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Successful claimants are entitled to a basic award, calculated on the employee’s age, length of service and gross wage up to a maximum of £8,400 (from 1 February 2005), a compensatory award up to a maximum of £58,600 (from 1 February 2005), and, where an employer has failed to comply with a reinstatement or re-engagement order, an additional award. This additional award can amount to a maximum of £14,560 (from 1 February 2005). These limits are increased on 1 February annually. (b) Wrongful dismissal If an employer dismisses an employee in breach of their contractual or statutory obligations to give notice, it will be liable to pay damages for wrongful dismissal. This right comes from the common law relating to contract and is quite distinct from the employee’s statutory employment protection rights (e.g. to claim compensation for unfair dismissal). In order to bring such a claim the ex-employee must establish that he or she was dismissed in breach of contract or with less than the statutory minimum period of notice, and that he or she has suffered loss as a result.

Despite the provisions of a fixed term contract or of a contract terminable on giving notice, an employer may dismiss an employee summarily – without having to pay him damages for wrongful dismissal – if the employee has been guilty of gross misconduct. In addition an employee may be summarily dismissed if he or she is grossly incompetent in the performance of his or her contractual duties (note the effect of the DDP set out above). (c) Redundancy The Right to a Redundancy Payment The conditions which must be fulfilled for a person to be entitled to a redundancy payment are: • • • •

that he or she was an employee. that he or she had been continuously employed for two years. that he or she was dismissed. that the dismissal was as a result of redundancy.

The amount of the redundancy payment is based upon the employee’s age, length of continuous employment and gross average wage (subject to an upper limit of £280 per week (from 1 February 2005)). The maximum amount payable is 30 weeks’ pay (i.e. £8,400). The limit increases annually on 1 February.

Consultation and Notification Requirements Where an employer is proposing to dismiss as redundant at least 20 employees within a period of 90 days or less, it must consult about the dismissals with “appropriate representatives” of the employees concerned. There is a sliding scale relating to the number of employees and the length of consultation, where the number of employees exceeds 20. The appropriate representatives are the recognised unions or, if there is no recognised union in relation to some or all of the affected employees, representatives elected by those employees for the purpose on consulting with the employer.

MACLAY MURRAY & SPENS A GUIDE TO DOING BUSINESS IN THE UK

Notice must also be given to the Department of Trade & Industry on a similar timescale.

Data Protection There are detailed restrictions on the holding of data about individuals whether on computer or manual records. This is governed primarily by the Data Protection Act 1998. While there are exceptions, generally only data which is obtained fairly and which is reasonably required for the purpose of employing staff can be processed. The data must not be held longer than is reasonable and must not be exported beyond the EU unless suitable safeguards are in place. Employees have the right to see any data held about them. There are also particular rules in relation to sensitive personal data which includes, amongst other matters, data relating to an individual’s health, political or religious beliefs or the commission of an offence.

If the use of email and the internet by employees is to be monitored then this should be explained in a policy which must be clear and communicated to employees. In order to avoid breaching the Human Rights Act 1998 and the Telecommunications (Lawful Business Practice) (Interception of Communications) Regulations 2000 monitoring must be necessary and legitimate, for example, to ascertain standards in the business or to avoid legal liability.

Works Councils The European Works Councils (EWC) Directive sets out requirements for informing and consulting employees at the European level, in undertakings (which may include partnerships or other forms of organisation as well as companies) or groups with at least 1000 employees across the member states and at least 150 employees in each of two or more of those member states. The Transnational Information and Consultation of Employees Regulations 1999 set out the procedures for negotiating a European Works Council agreement (or other European-level information and consultation procedure), the enforcement mechanisms, provisions on confidential information, transitional provisions and exemptions, and statutory protections for employees.

Collective rights Trade unions and their members enjoy a number of rights. (a) Rights of trade unions • There is a statutory procedure under which trade unions can apply for recognition for collective bargaining purposes.

• Trade unions are afforded certain statutory protections from common law liability where acts are done in furtherance or contemplation of a trade dispute. (b) Rights of trade union members • It is unlawful to refuse a person employment because he or she is, or is not, a member of a trade union.

• Employees have the right not to be subjected to a detriment if an act, or failure to act, by an employer, prevents or deters him or her from becoming a trade union member or from taking part

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• • • •

in trade union activities; or if it compels him or her to become a trade union member.

Officials of recognised trade unions are entitled to take time off work during working hours for the purpose of carrying out certain trade union duties.

Members of recognised trade unions are permitted time off work to take part in certain trade union activities.

It is automatically unfair to dismiss on the ground of trade union membership or nonmembership, or for taking part in trade union activities.

There are also certain protections for employees taking part in industrial action.

Information and Consultation of Employees The Information and Consultation of Employees Regulations 2004 apply to undertakings with at least 150 employees in the UK from 6 April 2005. They will then be extended to undertakings with at least 100 employees from 6 April 2007 and at least 50 employees from 6 April 2008. The Regulations implement a European Directive, the purpose of which is to ensure employees in organisations over a certain size have the right to be informed and consulted about certain matters affecting their employment. Employers need only act if employees trigger a request for negotiations.

Training for employees?

Employees must be trained in health and safety procedures.

Employees aged 16 or 17 who have not achieved a certain standard in their education or training have the right to reasonable time off with pay to study or train for a relevant qualification. Certain employees aged 18 have the right to complete study or training which they have already begun. The study or training can be in the workplace, at college, with another employer or training provider, or elsewhere. There is no exemption for small firms, and no qualifying period of employment for the employee.

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8 employment regulations 8.1 Does the investor have to employ UK nationals?

An employer must first attempt to hire nationals from a European Economic Area country. Where this is not possible, a work permit must be obtained.

8.2 Minimum wage There is a minimum wage, which is as follows: Main (adult) rate for workers aged 22 and over = £4.85 per hour, increasing to £5.05 per hour in October 2005 and then to £5.35 in October 2006.

Development rate for workers aged 18 – 21 inclusive = £4.10 per hour, increasing to £4.25 per hour in October 2005 and then to £4.45 in October 2006. The development rate can also apply to workers aged 22 and above during their first 6 months in a new job with a new employer who are receiving “accredited training”. The meaning of accredited training differs in each of England and Wales; Scotland; and Northern Ireland. In addition, since October 2004, workers aged 16-17 are also entitled to be paid at least £3.00 per hour (this rate is to be kept under review and may increase in October 2005).

8.3 Working hours The European Working Time Directive was implemented via the Working Time Regulations. The Regulations impose a limit of an average of 48 hours a week which a worker can be required to work.

However, the UK currently allows workers to choose to work more if they want to by virtue of signing an opt-out. The ability to do this is currently being reviewed at European level.

Young workers i.e. those above the minimum school leaving age but below 18, cannot be required to work more than 40 hours a week.

In addition to these weekly limits, night workers can only be required to work an average of 8 hours work in 24; workers have the right to 11 hours rest a day (16 hours for young workers); they have the right to at least one day off each week and they have the right to an in-work rest break if the working day is longer than six hours.

8.4 Vacation and sick day requirements Vacation days Every worker – whether part-time or full-time – is entitled to a minimum of four weeks’ paid annual leave. A week’s leave should be the same amount of time as the working week i.e. if a worker does a 5-day week, he or she is entitled to 20 days’ leave; if he or she does a 3-day week, the entitlement is 12 days’ leave. These provisions are set out in the Working Time Regulations 1998 which implement the Working Time Directive. Any additional days leave are at the discretion of the employer.

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Sick days There is no legal obligation to give a minimum number of sick days. Employers often provide contractual rights to sick pay for specified periods. Even where the contract does not give such a right, employees have a right to Statutory Sick Pay (“SSP”). This is £66.15 per week for tax year 2005/2006. The statutory payments are usually offset against contractual payments.

The written particulars given to an employee setting out the terms and conditions of his employment must state whether or not the employer makes payment for periods of absence due to sickness and if so upon what terms.

Under the statutory scheme the maximum entitlement to sick pay is, generally, 28 weeks in a 3 year period.

In order to qualify the employee must have 4 or more consecutive days of sickness, must notify his absence to his employer, and supply evidence of incapacity. Certain categories of employee are excluded, for instance those over the age of 65 on the first day of sickness. In addition there is an average weekly earnings level which an employee has to reach before becoming entitled to SSP (this is £79 before tax and National Insurance deductions per week for tax year 2005/2006).

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9 hiring and firing requirements 9.1 Employing UK nationals The investor is not legally obliged to employ a minimum number of people, and there is not a minimum number of nationals who should be employed. Nationals need not hold certain positions in the company.

9.2 Hiring/dismissing personnel (e.g. notice) An employee whose contract is terminated has a number of rights. The law sets out minimum notice periods dependent on length of service. After an employee has completed one month’s continuous employment with an employer, the length of notice which he or she is entitled to receive is one week until they have been continuously employed for two years. Thereafter, notice entitlement will be one week for each year of continuous employment until they have completed 12 years of continuous employment after which time they will be entitled to 12 weeks’ notice. The new DDP rules will need to be followed and an employee may also be able to make claims of unfair dismissal and/or wrongful dismissal. See above under heading “Termination of Employment”.

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10 labour permits

11 safety standards

Are labour permits required?

Work permits are required for all non-EEA nationals. However, they will only be issued for senior managers and highly skilled professionals or employees with rare technical skills. Work permits will not be issued for low level or unskilled jobs i.e. manual craft, clerical, secretarial or similar levels, or for domestic work such as nannies or housekeepers. There must also be some evidence that the vacancy cannot be filled by an EEA national. The employment terms should allow the employee to maintain and accommodate himself and any dependants without recourse to public funds. Work permits are normally granted on the first occasion for 12 months. Thereafter a further period of 3 years may be granted following which, provided the individual remains employed, indefinite leave to remain may be granted.

Are there safety codes that must be followed?

An employer is under a common law duty to have regard for the safety of its employees. It is also liable at common law for accidents caused by acts of its employees where the employees were acting in the course of their employment. In addition, statutory obligations have been imposed upon employers in certain circumstances by legislation such as the Occupiers Liability Acts, the Factories Act and the Health & Safety at Work Act.

If so, how are they obtained?

Work Permits are part of the Home Office’s Immigration and Nationality Directorate which administers the work permit arrangements on behalf of the UK government. Guidance notes and application forms can be downloaded from their website at www.workpermits.gov.uk.

How long does the process take?

The Home Office’s Immigration and Nationality Directorate aims to decide 90% of complete applications containing the required information within one day of receipt and 90% of all applications within one week.

What fees are involved?

The charge for each type of work permit application is £153 from 2 July 2004.

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12 unions

13 tax on corporations

Are unions recognised?

The Government has introduced a statutory procedure under which trade unions can apply for recognition for collective bargaining purposes. Essentially a union must be recognised if 50% or more of the workforce in a designated bargaining unit are members or, in a ballot, a majority of that workforce support recognition and that majority is at least 40% of the bargaining unit.

13.1 Allowances The starting point in calculating a company’s chargeable profits is the profit shown in its statutory accounts. That profit must then be adjusted to reflect taxation principles and addbacks may arise in respect of various items including the following: • • • • •

Only expenditure incurred wholly and exclusively for the purpose of the trade can be deducted from taxable profits; Depreciation does not qualify for tax relief but capital allowances may be available for expenditure on fixed assets; Entertainment expenditure; Expenditure on capital items; Dividends received by a UK company from another UK company are not subject to corporation tax.

Not all capital expenditure qualifies for capital allowances. Allowances are normally given for capital expenditure on the following: • • • • • • • •

Plant and Machinery; Industrial Buildings; Qualifying Hotels; Agricultural Buildings; Mineral extraction; Research and development; Patents; Dredging.

Expenditure on plant and machinery is pooled for capital allowance purposes. Small or medium sized enterprises can obtain a first year allowance of 40% of the expenditure. Thereafter allowances are obtained at 25% per annum on a reducing balance basis. Companies which are not small or medium-sized do not qualify for first year allowances but obtain allowances at 25% per annum on a reducing balance basis.

Expenditure on industrial buildings may qualify for a writing down allowance of 4% per annum on a straight line basis. There are no first year allowances for industrial buildings. Allowances may be clawed back if the building is sold for proceeds in excess of its tax written down value.

13.2 Calculation of Taxes How is the taxable base determined?

UK resident companies are subject to UK corporation tax on their profits, wherever they arise. A

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company which is not resident in the UK but which carries on a trade in the UK through a branch or agency is subject to corporation tax on the profits of the branch or agency.

Companies which are incorporated in the UK are UK resident. Companies which are not incorporated in the UK but are managed and controlled in the UK may also be considered to be UK resident.

13.3 Capital Gains UK companies pay corporation tax on their capital gains at the effective rate of tax. There are no federal, regional or state taxes on capital gains.

Rollover relief is available to companies that re-invest the proceeds from disposals of certain types of capital assets into new capital assets. This allows any gains on such assets to be deferred until the new asset is sold.

UK companies within a capital gains tax group may transfer assets between them without triggering a capital gain.

A company which holds at least 10% of the share capital of another company may qualify for Substantial Shareholdings Relief on a disposal of those shares so that any gain arising on disposal is completely exempt.

13.4 Filing and Payment requirements The UK operates a self-assessment system of tax administration. Every UK resident company must file a return of its profits for each accounting period within 12 months of the end of the accounting period. The return must normally be supported by the corporation tax computation and the statutory accounts for the relevant accounting period.

If the return is filed late there is a fixed penalty of £100. If the return is submitted more than 18 months after the end of the accounting period there is an additional penalty of 10% of the unpaid tax, which becomes 20% if the return is more than two years late.

Companies which are not ‘large’ companies must pay their tax 9 months after the end of the accounting period. ‘Large’ companies (companies with profits for the accounting period of over £1.5m) must pay their corporation tax by quarterly instalments. The first payment is due 6 months and 4 days after the start of the accounting period. The second is due 9 months and 4 days after the start of the accounting period. The third is due 4 days after the end of the accounting period and the final payment is due 3 months and 14 days after the end of the accounting period.

13.5 Miscellaneous Taxes Due There is no tax on capital. There is no business licence tax, apprenticeship tax or training tax in the UK. The UK levies a stamp duty on the execution of some documents. Stamp duty land tax was introduced in December 2003 and it imposes a tax on land transactions involving any estate, interest, right or power in or over land in the UK.

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13.6 Registration Duties Nominal fees are due to Companies House on the incorporation of a company?

Stamp duty at 0.5% is charged on the transfer of shares in a UK company. The charge is based on the consideration for the shares. No duty is charged on a new issue of shares. Stamp duty land tax may also be due on land transfers at rates from 1%–4%.

It should be noted that stamp duty relief may be available on certain types of corporate reorganisation. Relief from stamp duty land tax may also be available for land transfers between members of a corporate group.

13.7 Sales Tax or Other Turnover Tax • What is the system of sales tax (e.g. VAT, cumulative)?

• Is input tax creditable against output tax?

• What are the tax rates?

• What are the filing and payment requirements?

Value Added Tax is charged on certain goods and services supplied in the course of business. If the customer is registered for VAT and uses the supplies for business purposes, he will receive credit for input tax suffered. The effect of this is that the tax is ultimately borne by the consumer. An exception to this general rule applies where the supply is of a type which is exempt from VAT. In that case the person making that exempt supply may suffer a restriction on the amount of VAT which they can recover. An example of a supply which can be exempt is the supply of land and buildings.

VAT is charged, generally, at a rate of 17.5%. There is a reduced rate of 5% for domestic fuel and power and a zero rate which is applicable to a wide range of basic goods and services including new housing, food, domestic water and sewerage, books, transport, children’s clothing, and exports of goods and services.

VAT is charged and payable on goods imported into the UK from outside the EC. Goods exported from the UK outside the EC are generally zero-rated.

Persons are obliged to register for VAT if they are in business and making taxable supplies and the value of their taxable turnover is greater than £58,000 or there are reasonable grounds for believing that the value of their taxable supplies in the next 30 days will exceed this limit. The person then becomes a taxable person and has to notify Customs & Excise of his liability to register for VAT. Persons may also voluntarily register for VAT. Customs & Excise can charge penalties if a person fails to notify them of their liability to register for VAT. Every taxable person must keep a VAT account summarising the output tax and input tax for each VAT period. A VAT period is normally three months. A one month period may be allowed in situations where input tax is likely to exceed output tax on a regular basis.

The information from the VAT account must be reported on a VAT return for each period and sent to Customs & Excise, together with the tax due, within one month of the end of the period. Some large payers of VAT may have to make monthly returns and payments. Customs & Excise can charge penalties and interest for late submission of returns and late payment of VAT.

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13.8 Social Security and Welfare System Contributions In the UK, National Insurance Contributions (NICs) are the way by which companies and individuals contribute to Social Security. Employers must pay a percentage of their employees’ gross earnings to the Inland Revenue. For 2004/05, employers must pay NICs at 12.8% of their employees’ gross earnings.

Employees must also pay NIC’s on their earnings and the employer is responsible for collecting the NICs from their earnings and remitting it to the Inland Revenue with the employer’s contributions.

See Taxation of Individuals below, for more information on employee contributions.

The NICs deducted from earnings must be paid to the Inland Revenue within 14 days of the end of the tax month that they relate to.

13.9 Special Tax Schemes Are there particular tax consequences of doing business in the country?

Research and Development Tax Credits may be available to companies who incur revenue expenditure on R&D. Small and medium sized companies can deduct 150% of their R&D expenditure from their taxable profits. This will either reduce the company’s tax liability or it will create or increase a loss. Losses may be surrendered to the Inland Revenue in exchange for a payable tax credit of 16% of the surrendered expenditure.

The Corporate Venturing Scheme offers corporation tax relief at 20% on amounts that trading companies subscribe for shares in minority holdings in smaller high-risk companies. Capital gains made on the disposal of the shares can be deferred if the company reinvests in similar qualifying companies.

13.10 Tax on Profits The rate at which a UK company pays corporation tax is dependent on its profits for the accounting period. The rates and profit bands are as follows:

*

Rate

Profits

Starting Rate 0% Marginal relief * Small Companies Rate 19% Marginal Relief** Main Rate 30%

0-10,000 10,001-50,000 50,001-300,000 300,001-1,500,000 1,500,001 or more

Marginal relief eases the transition from the starting rate to the small companies rate by applying a fraction to the difference between the company’s profits and the upper limit of the band it falls within. The fraction applied is 19/400. ** Marginal relief also applies to companies moving from the small companies rate to the main rate and a fraction of 11/400 is applied.

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The profit limits above will be reduced for a company which is part of a group or has associated companies, even if those other companies are not resident in the UK. There are no regional, state, municipal or local taxes on the profits of companies.

13.11 Tax Treaties The UK has an extensive network of treaties with all developed non-tax haven countries and most countries in the developing world.

Some of the UK’s double tax treaties contain provisions against treaty shopping.

13.12 Territoriality Rules A UK resident company is liable to corporation tax on its worldwide income and gains.

13.13 Treatment of Tax Losses A company’s trading losses can be used in the following ways: • • •

Relieved against taxable profits (of any source) including capital gains arising in the same year as the trading loss; Carried back to be used against total taxable profits arising in the previous 12 month period; Carried forward indefinitely to be offset against future profits from the same trade.

There may be restrictions on a company’s ability to carry forward losses where the ownership of the company has changed or where the nature of the company’s trade has changed.

Capital losses can be relieved against capital gains arising in the same year as the capital losses. They may also be carried forward indefinitely to be offset against future capital gains arising on disposals made by the same company. A company’s ability to carry forward capital losses may be restricted where the ownership of the company has changed.

13.14 Wealth Tax There is no wealth tax in the UK 13.15 Withholding Taxes There is no UK withholding tax on dividends.

Companies must withhold tax at 22% from certain types of royalties, including copyright and design royalties and from rents paid to non-residents. Tax must be withheld from payments of interest by a company to UK individuals or to non-UK resident companies or individuals. The withholding tax rate applying to interest is 20%.

Rates of withholding tax may be reduced by the UK’s double tax treaties.

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14 tax on individuals 14.1 Allowances The personal allowances for 2004/05 are: Personal allowance Personal allowance for those aged 65-74 Personal allowance for those aged 75+ Income limit for age-related allowances Blind persons allowance

£4,745 £6,830 £6,950 £18,900 £1,560

The UK also has a system of tax credits payable to working families, disabled persons and individuals caring for children. These credits are available to relevant individuals where their income is less than the permitted maximum.

14.2 Calculation of Taxes The UK income tax system works on a schedular basis and one must ascertain under which of the schedules any particular source of income arises as different rules apply depending on the type of income in question.

Schedule A – Property income Schedules B and C have been abolished.

Schedule D has six separate cases as follows: • • • • •

Case I Case II Case III Case IV and V Case VI

– – – – –

Profits from a trade Profits of a profession Interest and annual payments Overseas income Miscellaneous income

Schedule E – Income from employment Schedule F – Dividends from UK companies 14.3 Capital Gains Tax Profits arising from the disposal of assets are subject to capital gains tax. There is an annual exempt amount of £8,200 for 2004/05. The amount of chargeable capital gains is added to the individual’s income liable to income tax and is treated as the top part of that total. For 2004/05, capital gains below the starting rate limit will be charged at 10%, between the starting rate and basic rate limits at 20% and above the basic rate limit at 40%.

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14.4 Filing and Payment Requirements In the UK, the tax year runs to 5 April each year. Individuals must make their tax returns by 31 January following the end of the tax year and they must self-assess their liability to tax. If individuals do not wish to calculate their liability to tax, they can submit their return by 30 September and the Inland Revenue will calculate the tax due.

Individuals’ tax liabilities are settled by two payments to account and by a balancing payment. The first payment on account is due on 31 January during the tax year. The second is due on 31 July following the end of the tax year. The payments on account are based on the individual’s tax liability for the previous year. A final balancing payment (or repayment) is made on 31 January when the tax return is submitted.

The majority of UK individuals do not have to submit a tax return as their only source of income is from employment and tax is collected under the Pay As You Earn (“PAYE”) system.

14.5 Inheritance and Gift Tax Inheritance tax (“IHT”) is a tax on chargeable transfers made by an individual during his lifetime and on the value of his estate on death. UK domiciled individuals are subject to IHT on all of their assets whether or not the assets are situated in the UK. Individuals who are non-UK domiciled are only subject to IHT on assets situated in the UK. There is a special definition of domicile for IHT purposes and double tax relief may be available.

Some lifetime transfers are chargeable to IHT immediately, others are not chargeable to IHT unless the individual dies within seven years of making the transfer. The rate of tax is 40%. Transfers which are immediately chargeable to IHT are taxed at 20% but if the individual dies within seven years, the tax on the transfer is recalculated at 40% and tapered if the individual has survived for at least three years following the date of the transfer.

Transfers which were not immediately chargeable to IHT at the time they were made are subject to tax at up to 40% if the individual dies within seven years of the gift. The tax is tapered depending on how long the individual survived after the transfer was made.

An individual’s estate at death is subject to tax at 40%. There is a nil rate band of £263,000 for 2004/05. IHT is a self assessment tax and accounts must be filed to the Inland Revenue when lifetime transfers are made and on death.

Transfers between spouses are exempt from IHT. Certain other lifetime transfers are also exempt from IHT including: • gifts to charities; • gifts to housing associations; • gifts for national purposes; • gifts to political parties; • gifts for public benefit; • annual gifts up to a value of £3000; • gifts in consideration of marriage for various amounts depending on the familial relationship; • dispositions for maintenance of family;

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• •

normal expenditure out of income; transfers allowable for income tax or conferring retirement benefits.

14.6 Miscellaneous Taxes Due Stamp duty at 0.5% is payable on the consideration for shares. Stamp duty land tax is payable at rates of 1% – 4% on land transactions involving any estate, interest, right or power in or over land in the UK . The rate payable is dependent upon the value of the property transferred.

Stamp duty is payable 30 days from the date of execution of the document otherwise interest and penalties may be charged. Stamp duty land tax is payable 30 days from the effective date of the transaction. Penalties and interest may be charged as a result of late payment or late filing of the stamp duty land tax transaction return.

14.7 Real Estate/Habitation Tax On the purchase of real estate, stamp duty land tax must be paid at a rate varying from 1% to 4% depending on the value of the property in question.

14.8 Sales Tax Individuals pay value added tax on most goods and services. The rates vary from 0% to 17.5% 14.9 Social Security and Welfare System Contributions In the UK National Insurance Contributions (NICs) are the mechanism for contributions to social security.

Individuals in employment pay Class I NIC’s at a rate of 11% on weekly earnings between £91 and £610 and at 1% of weekly earnings in excess of £610. The employer is responsible for collecting these contributions from employees’ salaries and remitting them to the Inland Revenue.

Class 2 and Class 4 contributions are paid by self-employed individuals. Class 2 NIC’s are paid at a rate of £2.05 per week and Class 4 NIC’s are calculated as a percentage of profits from the individual’s trade.

Class 3 contributions are entirely voluntary.

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14.12 Taxes on Dividends In the UK, dividends are paid with a deemed 10% tax credit. Lower and basic rate taxpayers pay no further tax on dividends that they receive. Higher rate taxpayers pay tax on dividends at 32.5% and obtain relief for the 10% tax credit. This gives an effective rate of tax on dividends of 25%.

14.13 Tax on Income The tax rates and bands for tax year 2003/04 are as follows: Starting rate Basic Rate Higher rate

10% 22% 40%

£0-£2,020 £2,021-£31,400 over £31,400

There are no regional, state, municipal or local taxes on income.

14.15 Tax treaties The UK has over 100 treaties.

Some of the UK’s double tax treaties contain provisions against treaty shopping.

14.15 Territoriality Rules The extent to which an individual will be liable to UK tax is determined by whether he is resident, ordinarily resident or domiciled in the UK. If an individual is resident, ordinarily resident and domiciled in the UK, he is liable to UK income tax and capital gains tax on his worldwide income and assets. If an individual is UK resident, but nondomiciled, he is liable to income tax and capital gains tax on income and gains arising in the UK. He is also subject to UK tax on income and gains arising outside the UK which are remitted to the UK. Individuals will become resident or ordinarily resident in the UK for a tax year if: • •

They have been in the UK for 183 days or more in the tax year, or They visit the UK regularly and after four years their visits average 91 days or more a tax year.

14.10 Stock Option, Profit Sharing and Savings Plans There are many different types of share and share option schemes operating in the UK and different tax treatments apply to each of them. Schemes which obtain Inland Revenue will attract favourable tax treatment.

An individual is domiciled in the country or state which can be regarded as ‘home’. Individuals acquire their domicile at birth from their father’s country of origin and it is retained until they reach the age of majority (16) at which time they may change it by severing ties with their domicile of origin and settling in another country with the intention of making it their permanent home.

14.11 Taxation of Benefits in Kind What is the rate of taxation on benefits in kind (e.g. automobile, housing and utilities, education, etc.)?

Benefits in kind are subject to income tax in the same way as monetary benefits under the normal income tax rules.

14.16 Wealth Tax There is no wealth tax in the UK 14.17 Withholding Tax Salary is subject to deduction of income tax at source under the Pay As You Earn (“PAYE”) system.

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Under PAYE, employers must deduct income tax from their employees’ salaries and remit it to the Inland Revenue. A non-resident employee who is employed by a UK or non-UK employer and who performs his duties wholly or partly in the UK, will be subject to UK income tax on those earnings and PAYE will be applied to those earnings.

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15 tax on other legal bodies Partnerships A partnership will generally arise where two or more people carry on a business together on the basis of an agreement between them to do so, although this agreement need not be in writing. A key aspect of a partnership is that the partners carry on the business in common, each of them having the right to be involved in making business decisions, sharing the profits but also bearing joint and several responsibility for sharing any losses.

A partnership is required to make a return of its taxable income under each Schedule to the Revenue. The division of the profits between the partners is shown on the partnership statement and it is treated as transparent for tax purposes. On disposal of any partnership assets, the partners must individually self-assess the tax on the gain they have made.

Unlimited companies Unlimited companies are generally treated in the same way as corporations. The tax treatment for corporations can be found above.

Trusts Trusts or settlements are an alternative form of gift to an outright, absolute gift. A donor or settlor creates the trust by giving property (the trust fund) to trustees who hold the legal estate on behalf of the beneficiaries of the trust.

VAT for both of these is dealt with in the same way as it is for corporations.

The following section deals mainly with trusts but partnerships are discussed where relevant.

15.1 Allowances Trustees and personal representatives are generally subject to the same rules as individuals in calculating the income from various Schedules or sources but are not entitled to any personal reliefs.

The trustees cannot deduct the expenses of administering the trust in arriving at their income assessable to tax.

15.2 Calculation of Taxes This is determined for trusts and estates on the same basis as for individuals, outlined above.

15.3 Capital Gains Trustees pay capital gains tax at 40% and have an annual exempt allowance of ÂŁ4,100 for 2004/05.

There are no federal, regional, state or local taxes on capital gains.

Individual partners in a partnership are assessed on the capital gains of the partnership.

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15.4 Filing and Payment Requirements The filing and payment requirements for trustees are the same as for individuals.

Trustees of ‘bare or ‘simple’ trusts are not required to deduct tax from payments to beneficiaries or complete self-assessment returns or make payment on account. The tax must be dealt with by the beneficiaries in their self-assessment returns.

Individual partners in a partnership are responsible for preparing and submitting their own tax returns by 31 January following the end of the tax year. The partnership must also submit a tax return by 31 January following the end of the tax year.

The information from the VAT account must be reported on a VAT return for each period and sent to Customs & Excise, together with the tax due, within one month of the end of the period. Some large payers of VAT may have to make monthly returns and payments. Customs & Excise can charge penalties and interest for late submission of returns and late payment of VAT.

15.5 Miscellaneous Taxes Stamp duty may be payable on the execution of certain documents.

15.9 Special Tax Schemes There are no particular tax consequences of doing business as a trust or partnership.

15.6 Registration Duties There is no registration duty on the creation of a trust. Stamp duty land tax may be payable on transfers of land into trust.

There is no registration duty on the creation of a partnership. The partnership may pay stamp duty or stamp duty land tax on transfers of assets into the partnership.

15.10 Tax on Profits Trustees of discretionary trusts and accumulation and maintenance trusts are subject to income tax at 40% on all income except dividend income. Dividend income is taxed at 32.5%.

Trustees of all other types of trust are subject to income tax at 22% on all non-savings income and at 20% on all savings income.

There are no regional, state, municipal or local taxes on the profits of the trustees.

15.7 Sales Tax or Other Turnover Tax Value Added Tax is charged on certain goods and services supplied in the course of business. If the customer is registered for VAT and uses the supplies for business purposes, he will receive credit for input tax suffered. The effect of this is that the tax is ultimately borne by the consumer. An exception to this general rule applies where the supply is of a type which is exempt from VAT. In that case the person making that exempt supply may suffer a restriction on the amount of VAT which they can recover. An example of a supply which can be exempt is the supply of land and buildings.

VAT is charged, generally, at a rate of 17.5%. There is a reduced rate of 5% for domestic fuel and power and a zero rate which is applicable to a wide range of basic goods and services including new housing, food, domestic water and sewerage, books, transport, children’s clothing, and exports of goods and services.

VAT is charged and payable on goods imported into the UK from outside the EC. Goods exported from the UK outside the EC are generally zero-rated.

Persons are obliged to register for VAT if they are in business and making taxable supplies and the value of their taxable turnover is greater than £58,000 or there are reasonable grounds for believing that the value of their taxable supplies in the next 30 days will exceed this limit. The person then becomes a taxable person and has to notify Customs & Excise of his liability to register for VAT. Persons may also voluntarily register for VAT. Customs & Excise can charge penalties if a person fails to notify them of their liability to register for VAT. Every taxable person must keep a VAT account summarising the output tax and input tax for each VAT period. A VAT period is normally three months. A one month period may be allowed in situations where input tax is likely to exceed output tax on a regular basis.

15.8 Social Security and Welfare System Contributions If trustees or partners in a partnership are employers, then they will be required to operate a PAYE scheme and will be liable to make National Insurance contributions.

15.11 Tax Treaties The UK has over 100 treaties. Some of the UK’s double tax treaties contain provisions against treaty shopping.

15.12 Territoriality Rules For income tax purposes, the trustees of a UK resident trust are subject to UK taxation on their worldwide income. Non-UK resident trusts are only subject to UK income tax to the extent that their income arises in the UK. For capital gains tax purposes, the trustees of a UK resident trust are subject to UK taxation on the disposal of chargeable assets, no matter where they are situated. Non-UK resident trusts are not subject to UK taxation on chargeable assets. There is substantial anti-avoidance surrounding the use of non-UK resident trusts by UK resident individuals.

15.13 Treatment of Tax Losses Trading losses incurred by the trustees may be relieved in the following ways: • • •

Relieved against chargeable profits (of any source) including capital gains arising in the same year as the trading loss; Carried back to be used against total chargeable profits arising in the previous 12 month period; Carried forward indefinitely to be offset against future profits from the same trade.

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Capital losses can be relieved against capital gains and losses of a property business can be relieved against future profits from the same business.

16 immigration requirements

15.14 Wealth Tax There is no wealth tax in the UK.

16.1 Are entry permits required? Must you apply for an entry permit before entering the UK? A form of entry permit (visa) is required for many nationalities coming to the UK and must be applied for before attempting to enter. The term used to describe the application process for Visa nationals who wish to travel to the United Kingdom is “entry clearance”. The entry clearance certificate, more commonly called a Visa, should be kept with the passport or other travel document. To check whether a visa is required please visit the IND visa website at www.ukvisas.gov.uk .

Individuals entering the United Kingdom must possess some form of identification. A passport or, for nationals of the European Economic Area (EEA), an identity card, satisfies this requirement.

In general, visitors entering the UK as tourists and to stay with family or friends are granted entry and permission to remain for up to six months. Visitors are strictly prohibited from taking employment, although they may transact business.

15.15 Withholding Taxes Trustees pay income to the trust’s beneficiaries net of income tax. The rate of withholding tax on interest is 20% and is 22% on royalties.

16.2 Are exit and / or re-entry permits required?

Generally, there is no requirement for an exit permit; Exit from the UK will require a valid passport. It is therefore important that anyone coming to the UK ensures that their passport will be valid on their proposed date of departure. The normal requirement within the EU is that a passport should be valid for at least 6 months after the proposed date of departure.

Persons charged with criminal activity and on bail clearly are not permitted to leave the UK. Re-entry permits are also not needed, as criteria for entry will place a requirement on a person to leave on a specified departure date. If in possession of a Visa, a person may enter, exit and re-enter the UK as often as they wish within the duration of their Visa.

Immigration officers’ at the ports of entry, have power to grant permission to enter or remain in the UK. Appellate authority is exercised by the courts and the Secretary of State.

16.3 What is a Visa?

A Visa (or “leave to enter” or ‘entry clearance’) is a document issued to a traveller coming to the UK which confirms that the holder is allowed to enter the UK for certain purposes and for a specified period of time. It is important to note that leave to enter issued in respect of one category (such as visitor) does not allow entry for any other purpose (such as employment). Falsifying answers, whether consciously or not, to questions asked by an immigration officer may result in the withdrawal of the visa and removal from the UK. Details of visa requirements can be found at www.ukvisas.gov.uk A person in possession of a valid UK visa will not normally be refused entry to the UK on arrival.

This is, of course, subject to their circumstances having remained the same since the date of issue. If any information has changed, or it is clear that false information was given or important information was omitted from the application to obtain the Visa then entry may be refused or delayed.

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16.4 Is a visa required for travel or stay in the UK? If so, how long is it valid?

Individuals travelling to the UK who are not British Citizens or a citizen of one the European Economic Area (EEA) countries may need a Visa before travelling to the UK. Nationals of certain countries, known as Visa nationals, need entry clearance to enter the UK regardless of their reason for entry.

See the visa requirements at www.ukvisas.gov.uk The period for which a visa is valid will always be shown on the face of the certificate. A standard visitor visa is usually valid for six months, but can be issued for 1, 2 or 5 years. All visitor Visas can be used for an unlimited number of entries to the UK. A Visa will show the date from which it is valid. This is usually the date that it is issued. However, if you do not plan to travel immediately, the start date may be deferred by up to three months. The entry clearance officer must be informed of this when the application is made.

applicant may require to attend an interview. Normally, this is arranged within 10 days of the application; however, this may be longer depending on where and when the application is made.

16.5 What is the process for applying for a Visa?

Visas for the UK can be issued only at UK entry clearance offices normally part of the UK Embassy or consulate. Details of the location of consulates can be obtained from the UK Visa’s website www.ukvisas.gov.uk.

You can either apply in person, or have a relative or someone else apply on your behalf. The application form must be signed personally to show that the information given on it is true and accurate. All information given in support of the application must be correct. Giving false or misleading information, or failing to provide important and/or relevant information may lead to an application being refused or may render the visa invalid.

16.9 Does the UK have immigration quotas?

The UK does not operate immigration quotas as such, i.e. there is no specified minimum or maximum number of immigrants that will be accepted into the UK every year. Furthermore, the UK does not implement any ‘type’ specific quotas whereby there would be any requirement to limit or encourage the number of certain groupings of people, for example, by nationality, sex, age, race or religion, from entering the UK. However, there have been occasions on which the UK government has deemed it appropriate to impose quota like measures. Currently, there are two areas where quotas are imposed. These are

16.6 What documents / evidence are required?

The principal document required for entry to the UK is the applicant’s passport. A passport is the minimum identification document which must be shown on entry.

Travel within the UK is not restricted by need for identification, however most airline operators do require sight of a passport or other ‘recognised’ form of identification before they will allow you to board a flight. Photographic driver’s licences and identity cards normally suffice.

Also, on arrival in the UK, an immigration officer may require evidence of the reasons for coming to the UK. This can include return travel tickets, evidence of funding, letters from a sponsor or businesses being visited, or institutions which the traveller intends to study at. All relevant documents should be carried whilst travelling in order that they can be shown to the entry clearance officer.

16.7 How long does it take to receive a Visa?

The UK Visa system is geared toward being quick and effective. The majority of straight forward applications, where the applicant is not applying to settle in the UK, can be usually dealt with within 24 hours and many applications are processed and settled the same day. In circumstances where an interview is required, officers work to a timetable of 10 working days, but this can increase during busy periods.

When an entry clearance officer cannot make a decision about issuing a Visa immediately, the

16.8 What fees are involved?

Fees are charged in local currency. The most common Visas applied for are visitor and student Visas, which cost a flat fee of £36.00. For all other circumstances amount of the fee will vary and is dependant on the circumstances of the applicant. A list of the current charges can be found on www.ukvisas.gov.uk.

All dependants, travelling with the principal applicant, to the UK must pay the required fee. In order to simplify matters, dependants of an applicant, which include spouses and children under 18, are charged the same fee as that paid by the main applicant.

•

The Seasonal Agricultural Workers Scheme The quota for the Seasonal Agricultural Workers Scheme from January 2005 will be reduced by 35% to 16,250.

•

The Sectors Based Scheme Beginning on 30 May 2003, the Sectors Based Scheme (SBS) allows UK employers in the food processing and hospitality sectors the opportunity to apply for work permits for foreign nationals.

From 1 June 2004 to 31 May 2005 the quota will be reduced by 25 per cent to 15,000 (9,000 for the hospitality sector and 6,000 for food processing. There is also a quota on the number of visas issued to nationals of any one country. At present no visas can be issued to nationals of Bangla Desh.

16.10 Are medical certificates or vaccinations required for someone coming to the UK? Medical Certificates are not generally required for entry to the UK. The Home Office appoints medical inspectors to give advice to people entering the UK and to assess whether or not that person is medically fit to be granted entry into the country. Particular medical concerns and health issues have and will continue to vary depending on current/topical world health risks e.g. SARS, Foot & Mouth etc.

There are cases in which it is preferable for a traveller to bring a medical certificate, for example,

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where there is history of poor health, or a clinically diagnosed illness, or where it is apparent that a person is suffering from a particular condition or general ill-health. On arrival in the UK medical inspectors may instruct an examination which can delay entry. It is therefore sensible for a person, in the interests of speedy entry, to be able to provide the information requested.

There is no general rule preventing entry of those suffering from AIDS or HIV. Again, as with all other cases it is advisable for someone suffering from a condition of this nature to be able to provide medical certificates.

Finally, vaccinations are not specifically required due to the UK’s environmental health regime and status as a ‘low-risk’ country within the World Health Organisation (WHO). However, evidence of vaccinations against common diseases found in the country from which the traveller is coming from, may be helpful if questioned by officers at the point of entry.

16.11 Is a residence permit required? Does it have to be applied for before entering the country?

A residence permit is required for any individual who wishes to remain in the UK beyond the visa expiry date. If it is the intention to remain in the UK for any length of time or to undertake any work the appropriate permission to remain must be obtained prior to entry to the UK. Under normal circumstances applications for “indefinite leave to remain” in the UK may only be made after the individual has been resident in the UK for 4 years. Applications for a visa or leave to remain prior to arrival in the UK should be made at the nearest Consulate or Embassy. Applications for indefinite leave to remain are made to the Immigration and Nationality Directorate, Lunar House, 40, Wellesley Road, Croydon, CR9 2BY Individuals who are granted Indefinite leave to Remain will generally be entitled to apply for “settled” status to settle permanently in the United Kingdom. Once granted “settled” status a UK passport will be issued and the holder will have the same right to live and work in the UK as a UK citizen. The rights granted are extended to all dependants who are in the United Kingdom when the status is granted to the main applicant.

Indefinite leave to remain will normally continue even during a period of absence so long as the individual returns to the United Kingdom for permanent settle-ment within 24 months after departure.

16.12 What information must be supplied to the immigration authorities?

The following is a list of the documents which may be required in support of an application for entry to the UK. • • • • • • •

birth certificates, marriage certificates, divorce documents, passport, drivers licence, evidence of earnings and assets, details of employment history,

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• • • •

details of dependants (i.e. children, spouse, parents), criminal record, details of religion, and membership of certain organisation

16.13 How long does it take to receive authorisation?

It is difficult to say exactly how long an application will take to process and authorise. The outcome will entirely depend on the circumstances of each case – factors affecting an application can include personal circumstances and status; current country of residence; family situation and relations already in the UK; employment and work commitments / history; education and health; and criminal history. It is also worthy of note that the Home Office cannot process an application without having the applicant’s passport. Therefore it is advisable to apply at a time when the applicant will not have to make any trips abroad.

A period of 13 weeks may be taken as a very general guideline for the minimum time which should be allowed for an application. The majority of cases are decided within 6 months with the remaining complicated cases taking up to 9 months.

16.14 Is a work permit required?

Nationals from countries other than EU member countries who intend to work as employees in the United Kingdom must possess a work permit issued by the Department of Employment. Permits are generally issued for an initial 12-month period and can be renewed for up to an additional 3 years. It is the responsibility of the proposed employer to make the application for a work permit. Applications should be made prior to the arrival of the proposed employee in the UK. Generally, an employer must establish that the position cannot be filled by a suitable individual in the United Kingdom or from another EU member state. However, where the post falls into a “shortage” category, or involves an inter company transfer, or is for a highly skilled post, the normally applicable criteria, such as advertisement, may not be required. Specific advice should be taken in each case.

In accordance with the principles of free movement of persons, EU and EEA nationals are entitled to enter the United Kingdom without prior consent to take up or search for employment, to establish a business or to engage in self--employment activities. However, they are still subject to rules on residence permits and must acquire a permit if the stay will exceed six months. The Home Office automatically issues residence permits to EU nationals who accept employment in the United Kingdom as a matter of course.

In certain situations, a work permit is not required, although other conditions must be satisfied.

Those wishing to work more than six months as self-employed individuals or through a partnership must obtain entry clearance by way of a letter of consent issued by a British Embassy, Consulate General or High Commission. Very specific requirements must be met, including having at least £250,000 available for investment in the business. Similarly, representatives of foreign companies which do not have a branch, subsidiary or other representative in the United Kingdom, diplomats, UN

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employees and employees of foreign newspapers or broadcasting networks on long-term assignment in the United Kingdom will require a letter of consent.

Other categories of employment-related permits include training permits, which are issued for 12 months with 12-month extensions, and career development permits, which can be issued for up to three years. Spouses and dependents of individuals who obtain a work permit or the entry clearance may stay in the United Kingdom for the duration of these documents and may accept employment.

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