Issue 7 Summer 2015
Back to basics
In this issue we look at your legal responsibilities when running your business. Legislation update
Your legal obligations
Getting paid on time
The cost of compliance
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pages 4–5
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Small businesses are beset by regulation, from employment law and health and safety to data protection and annual filing. In this issue we take a look at your legal responsibilities, from recent and upcoming law changes you need to be aware of to making sure you are on top of your annual returns and company registers at Companies House. With the perennial issue of late payment continuing to present big problems for members, we also offer some tips for credit control, including how to chase payments.
We want to hear from you...
Having your say...
This our magazine for you – our members, so we’d like to know what topics you’d like us to cover in future issues.
Giving us your views means we can lobby effectively on your behalf and also helps us to develop the products and services your business needs. Enclosed is our quarterly survey for members which this quarter is on the cost of doing business. Complete the survey and return it in the envelope provided or complete it online at fpb.org/referendum212 by 10th August.
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Or do you have an interesting story or top tips for other members? Drop us a line at editor@fpb.org.
Remember – we’re here to help and advise you whatever your business challenges. Call us on 0845 130 1722
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Legislation update In the wake of the election and the July Budget, we take a look at recent and upcoming changes to legislation. May’s general election result may have come as a surprise to the pollsters, but here at the Forum we like to ensure our members don’t get any nasty shocks when it comes to regulation changes. Some measures already in the pipeline before the election are still set to become law over the next few months, but with the new government still settling in, we’ll make sure to keep you up to speed on the latest announcements via our weekly eNewsletter or online at fpb.org.
Zero-hours contracts Since 26th May exclusivity clauses in zero-hours contracts have been unenforceable. This means it is no longer possible for the terms of a zero-hours contract to prevent the employee or worker from working for someone else. This applies not only if there is a term which seeks to prohibit the employee/worker from working elsewhere but also where there is a term which seeks to prohibit the employee/worker from doing so without the employer’s consent.
School leaving age rises to 18 From 26th June 2015 all young people in England will need to participate in education or training until the age of 18.
Holiday pay claim restrictions introduced On 1st July 2015 the government is introducing new regulations to prevent claims for holiday pay arrears going back more than two years.
‘Fit for Work’ service The new health and work assessment and advisory service is currently being rolled out and is intended to be available nationwide by the autumn. The aim of the service is to get employees back into work as soon as possible and offer free occupational health assistance to employers.
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Employees who have been off sick for four weeks may be referred by their GP or employer to an occupational health professional for an independent assessment. This system is entirely voluntary and the employee may decline any assessment and has the right of veto on any report.
Tribunal changes The Deregulation Act 2015 will come into force on 1st October 2015 and one of its clauses removes the power of employment tribunals to make wider recommendations in discrimination cases. The Small Business Enterprise and Employment Act 2015 also introduces a non-payment penalty for employers who fail to pay employment tribunal awards or sums due under a settlement agreement following Acas conciliation.
National Minimum Wage rate increase From 1st October the NMW will increase £6.70 per hour for those aged 21 and over, £5.30 for workers aged 18-20 and £3.87 for those aged 16-17. Apprentices under 19, or over 19 and in the first year of the apprenticeship will be entitled to £3.30 per hour. You should also remember that since 26th May any employer paying their employees less than the National Minimum Wage can now be fined up to £20,000 per worker. Remember that it is a good idea to seek advice ahead of taking any action. As well as providing regular updates, the Forum’s business advice team can give advice on all employment-related issues. For further information visit fpb.org or call 0845 130 1722.
Your business obligations
Next issue... we look at your legal responsibilities towards your employees.
As the director of a limited company, you have certain legal obligations to fulfil over and above the day-to-day management of your business. Failure to comply can result in criminal prosecutions and fines. In the first of a two-part series on your legal obligations, we look at the set up and running of your business.
Your company structure Under the Companies Act you must maintain important registers that record the company structure which are held at Companies House. That means any change of director, minutes of meetings, amendments to shareholders etc must be notified to Companies House. Directors have a personal responsibility to ensure that documents required by the Companies Act are accurate and filed on time.
Trading laws There are laws specifically to protect the consumer such as the Trades Description Act and the Sale of Goods Act. Trading laws exist for the protection of buyers and sellers and it is important to have an understanding of these laws and how they affect your business.
Business insurance Business insurance is a necessity for any business and is vital to have the right type and level of insurance. Some insurance such as employers’ liability (EL) is a legal requirement but you may also need public liability insurance, motor insurance, insurance demanded by any contracts you may have as a business, along with insurance for certain types of equipment.
so keeping accurate records is important. Professional advice from an accountant will ensure that your HMRC tax obligations are met.
Trademarks, copyrights & patents Trademarking your ‘brand’ – your logo or the name of your product or service – identifies your intellectual property as belonging to your business. A patent prevents others from making, using or selling something you have invented without your consent and must be applied for. Both give you the right to take legal action against anyone using your IP without permission. Copyright is automatic and protects original literary, dramatic, musical and artistic works – such as your website.
VAT You must register for VAT with HMRC if your turnover goes over the current registration threshold in a rolling 12-month period. Registering for VAT can be completed online when you know you are going to reach the threshold – which is currently £82,000 in a 12-month period. Your VAT taxable turnover is the total value of everything you sell that isn’t exempt from VAT. The threshold is usually increased on 1st April every year and there are different thresholds for buying and selling from other EU countries which are available from: gov.uk/vat-registration-thresholds.
Tax liabilities Putting business expenses down against your gross profit reduces the amount of tax you will have to pay,
Forum company secretary service The Forum can help you complete all of the statutory paperwork involved in running a limited company, maintain it and monitor changes in requirements based on legislation and your individual business circumstances.
To find out more call 0845 130 1722.
12 months’ membership
£99+VAT (includes Companies House Annual Return filing fee). www.fpb.org
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Getting paid on time Late payment is an issue that refuses to go away. Most recent figures show more than 59% of SMEs are negatively affected by late payment*. A regular flow of cash is essential to the smooth day-to-day running of a business. The vast majority of small firms simply do not have the reserves to allow them to wait for payment of what they are owed without a severe impact on their bottom line.
Having a well-established credit control system means your business is in a much better position to minimise late payment and its effects.
Defining late payment
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confirm customers’ credit status
A late payment is defined by the legislation as where the agreed credit period given by the supplier to the purchaser has expired.
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process orders
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raise invoices/credit notes
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process payments
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chase debts
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identify and resolve queries/problems
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solve problems and monitor procedures
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continue to monitor ongoing relationship/changes to credit rating.
In theory, you can agree any credit period you want with customers. The agreement can be verbal, but should preferably be in writing. However remember that you can only hold your customers to your terms if they have been agreed at the order stage. If you have not specified a credit period, the legislation specifies a default period of 30 days, after which interest will accumulate.
Payment terms Consider how you communicate your payment terms: •
Ensure sales representatives and other relevant staff are made aware of them
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Add your terms to your website, catalogue or price list
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Stipulate your terms when you respond to an enquiry or supply a quotation.
Credit control procedures The longer a debt remains unpaid, the greater the chance it will never be paid so you would be wise to devote some time each day to monitoring your financial position and examine due invoices and outstanding payments. That way you will have a good idea of your financial status at all times and will be less likely to get caught out by bad debts.
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Whether electronic or manual, you should put in place a clear and simple system to:
Whenever you write your payment terms or invoices, include the words: “We will exercise our statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation if we are not paid according to our agreed credit terms.” Even if you don’t intend to do so, it can be a useful deterrent against late payment. *Bacs February 2015
Following a timetable for debt collection You should establish a detailed ‘step by step’ guide to receiving, processing and recording individual transactions in your system to ensure optimum operating efficiency. Keep records of action taken regarding each debtor. Some computer software packages allow for details to be entered of action taken. Although policies on debt will vary, you could use the following timetable as a model.
1. Delivery note Goods should always be accompanied by a delivery note listing the goods supplied. This will be vital should a customer try to claim the items were not received.
5. Telephone call Four or five days after sending the reminder letter, telephone the customer. Be assertive about what you expect and when you expect it, and make the consequences of non-payment clear. •
Speak directly to the person who has responsibility for clearing invoices (purchase ledger clerk or buyer in a large firm or the finance director in a small business).
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Have all relevant facts at your fingertips – dates of previous contact, dates and amounts of previous payments received, invoice numbers etc.
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Decide beforehand your policy on payment by instalments if the customer offers to pay this way.
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At the end of the telephone call, try to ensure that an agreement has been reached.
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Confirm the agreement in writing.
2. Invoice Submit your invoice immediately, or at least within 24 hours of supplying the goods. Invoices should be sent by first class post (or courier if it is a large transaction) and should include your payment terms. You should also send invoices to a named individual. If the invoice is large, call the customer before the due date to make sure it has been received and there are no issues. Try to get customers to pay by electronic transfer or Direct Debit to avoid waiting for a cheque to arrive. Hopefully, your customer will then forward payment on or before the date due. However if they do not, there are further steps you can take.
3. Statement Send a statement as soon as possible after the end of the stated payment period, stating the amount and the date it was due. Send statements to a named person or to a job title, such as credit controller, finance director or managing director. It is also advisable to re-state the terms and conditions.
4. First written reminder Seven days after sending the statement you should send a first reminder, drawing attention to the fact that the invoice remains outstanding and enquire whether there is a particular reason for the delay. Accompanying the letter with a further invoice for interest and late payment charges is an excellent way of gaining your customer’s attention and raising the profile of your outstanding invoices.
6. Letter of final demand Seven days after the first reminder letter send a final demand if your telephone call has been unsuccessful. Tell the customer what action you are going to take – for example, ceasing to supply goods on credit until the invoice is paid or issuing court proceedings or a statutory demand. Sending this letter by recorded delivery will help ensure you are certain it has been received and can find out later who signed for it if necessary. If a customer persistently pays you late, makes excuses, or tells you they are unilaterally going to take longer to pay, consider whether you’re prepared to continue supplying on credit terms. It may be better to lose an order – or even the customer – than supply goods, not get paid and suffer a bad debt.
External debt collection If all your internal procedures for collecting debt have been tried and the customer has still failed to pay the debt, it may be necessary to turn to external assistance. Members of the Forum of Private Business have access to our debt recovery service. For more information, call us on 0845 130 1722.
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News from our policy team
Changes from the election A conclusive general election result does at least mean an end to the uncertainty over who was going to be running the country, which did lead to projects in some industry sectors being put back a few months. We now have a new small business minister and this should mean a voice round the table that highlights the fact that smaller firms, even those with 250 employees can operate in a more efficient and responsive way that larger organisations can only dream of. The focus on radical deregulation is also welcome if it does lead to a reduction in the time businesses spend on unnecessary compliance and increases opportunities for UK businesses. That is not to say that there is nothing wrong with the way government services are run and we continue to voice our concerns over the revenue gathering enforcement agencies. The Fee for Intervention scheme is a great example where the potential gains from the Loftstedt and Underhill reviews have been eradicated by concerns over what may be acceptable to the enforcement agencies. Specific industry investigations (Ofsted etc) are also seen as highly subjective.
Forum changes to meet the needs of members We are currently reorganising our policy team to focus more on our members and their needs, giving them a competitive advantage over non-members. As a result we are now using our contacts in banks, HMRC and other key organisations to help our members to understand decisions that have been made and, where appropriate, advise that they should reassess their decision. Non-domestic Commercial Rates was the biggest barrier to business growth at the turn of the year and, despite some incentives that were popular with our members, we
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have reported back that the system is still unsustainable for businesses. The biggest barrier to reform of this tax (particularly in view of reduced support) is the dependency level within the government for the revenue it creates. We have argued for a more sensible level of taxation, regular revaluations and greater services for local firms (from virtual high streets to bin collections) as an interim measure.
Business growth One major element of focus over the next few years will be regulation. The cost of compliance responses – see opposite – indicate that the European Union has failed to “Think Small First”, while the new government needs to cut administration significantly to help businesses to grow. Another barrier to growth for our members is in recruiting and retaining good people, and as a result we will be highlighting the benefits of working for a small or mediumsized enterprise (SME) as employees tend to be happier and more fulfilled than those in large corporations.
Innovation Another element linked to productivity is innovation and we have found that there is a gap in terms of formalising and protecting innovation. Universities are now working with smaller firms (and us) to help them make the most of any inventions and we would encourage businesses to look at how the tax system can incentivise spending on intellectual property to allow them to protect innovations more formally rather than relying simply on not being noticed.
£20bn feels like
The cost of compliance
£41.3bn in terms of lost opportunities
In the last issue of in.form, we asked for your thoughts on the time and financial costs to your business of complying with legislation. Here’s what we found out about the cost of compliance and its impact on businesses in the UK. The cost of compliance has increased by £1.8bn in just 2 years
£6.5bn
External consultants
£18.2bn
£20bn
2013
2015
£13.5bn Internal costs
The main costs are:
£5.2bn
Employment law
As a result of this...
58% of firms have less time to spend on their business
43% of firms have less capital for business development
What does £20bn mean per business?
£5.7bn
Tax compliance
£4.2bn
Health & safety
£14,900 cost per business
What can the government do to help businesses?
31% of businesses are calling for simplified legislation on the statute book
27% of business want improvements to the regulation process
Have you been affected by the rising cost of compliance? Contact us now 0845 130 1722.
£1,900 cost per employee
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Key dates & events to be aware of in the small business calendar
Response deadline for Referendum 212
10th August
Auto enrolment for businesses with 30–40 employees
e commerce expo London
30th September–1st October
Common Commencement Date
Buying group membership
1st August–1st October
NEW
discounts on business travel
1st October
SAVE
£495
Forum members can take advantage of a free buying group membership to cut costs without compromising on supplier quality thanks to our partner’s collective buying power and competitive tendering approach. In addition to significant savings on cost areas such as utilities, telecoms, print services and business consumables like stationery, cleaning and catering supplies, our partner the BSA Buying Group has now introduced a travel booking service promising exclusive discounts off hotels, exclusive fares and specialist support for your business travel requirements, and access to an online booking tool* for all your travel needs. As part of the launch, our partner is running a prize draw for two return tickets on Eurostar to Brussels. The draw
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is open to all businesses who complete the five question survey before the end of July, so visit buyingsupport.co.uk/blog/travelbookinglaunch.php to find out more. Forum members can boost profits and save time by taking advantage of exclusive free BSA membership – saving you £495. Contact us on 0845 130 1722.
*Small fee payable
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