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Key 2018 legal changes every SME should know about

Employers are being urged to ensure their businesses are prepared for forthcoming legal changes before the New Year kicks in – or risk falling foul of the law.

Employment law and corporate and commercial solicitors at Kirwans law firm have issued a warning prior to a raft of new legislation taking effect next year, reminding business owners of the dangers of ignoring the legal updates.

Lindsey Knowles, employment solicitor at Kirwans said:

“We know that 2018 is going to be a key year for businesses, and it’s vital that owner/managers are prepared.

“While large companies will have their own HR and legal teams which will have been planning for these changes for many months, smaller enterprises may not have had the opportunity to prepare.

“That’s why we’re calling for business owners to take stock now, and ensure that they’re well-equipped to deal with the new legislation and regulations that 2018 will bring.”

Here, Lindsey and her colleague, corporate and commercial solicitor James Pressley, run through the key changes expected in 2018.

Publication of gender pay reports

Under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, all private and voluntary sector employers in England, Wales and Scotland with at least 250 employees will be required to publish information about the differences in pay between men and women in their workforce by April 4, 2018. The information shared will be based on a pay bill ‘snapshot’ date of April 5, 2017.

It is believed that the Equality and Human Rights Commission could investigate employers who fail to publish the data.

The Government Equalities Office and ACAS have produced joint guidance on pay gap reporting and the Gender Pay Gap reporting website can be found here – www.gov.uk/report-gender-pay-gap-data

Changes in the Tax Treatment of Termination Payments

Under existing rules, the first £30,000 of a genuine termination payment for loss of employment can be paid free of income tax, with the balance being subject to income tax but free of employer and employee NICs.

From April 2018, a termination payment that falls within the income tax exemption will, after it hits the £30,000 limit, be liable for both income tax and employer NICs. There will, however, continue to be an unlimited employee NICs exemption for payments relating directly to the termination of employment.

All payments in lieu of notice (PILONs) will also be subject to income tax and employer and employee NICs from April 2018. The new rules will apply whether the payment is contractual or whether it is made on a purely compensatory basis due to an employer’s failure to serve proper notice.

The changes mean that any payments which would have been treated as earnings if the employee had worked their notice period, including other salary-related payments, benefits and expected bonuses, will also be subject to income tax and employer and employee NICs.

In addition, payments on termination for ‘injury to feelings’ in relation to death, disability or injury will, from next April, no longer be eligible for exemption from tax and NICs. The exemption will only apply where there is an injury or disability of a physical or psychological nature that is sufficient to cause the employee to be unable to perform his or her job properly.

A payment made for injury to feelings for discriminatory acts which take place prior to termination of employment remains outside these reforms and can continue to be paid free of income tax and NICs.

Restriction of employment allowance for illegal workers

Since April 2014, businesses have been able to claim a reduction of up to £3,000 a year on their employers’ NICs. From April 2018, however, employers will be excluded from claiming the allowance for one year if they have:

• Employed a worker who was subject to immigration control;
• Been penalised by the Home Office;
• Have exhausted all appeal rights against the penalty.

Tax- Free Childcare

Tax-Free Childcare was introduced on April 21 2017, and has been gradually rolled out this year, with parents of children aged under four (as of August 31 2017), and parents of disabled children aged under 17 able to enter the scheme first. The scheme is also available to eligible parents of all children under the age of 12.

Tax-Free Childcare doesn’t rely on employers offering the scheme, unlike the current scheme Employer-Supported Childcare, and any working family can use Tax-Free Childcare, provided they meet the eligibility requirements.

However, employees are not required to switch to Tax-Free Childcare if they don’t wish to. Employer-Supported Childcare will continue to accept new entrants until April 2018, and parents registered by this date can continue to order vouchers beyond 2018 for as long as their employer continues to run the scheme or until their child is 15-years-old, or 16 if disabled – whichever is sooner.

Changes to the National Living Wage

The recommendations of the Low Pay Commission have been accepted by the Government, which means that from April 2018 the National Living Wage will increase from £7.50 to £7.83 per hour. The National Minimum Wage, which applies at varying rates to employees aged under 25, will also rise as follows:

• Age 21 to 24 – from £7.05 to £7.38 per hour
• Age 18 to 20 – from £5.60 to £5.90 per hour
• Age 16 to 17 – from £4.05 to £4.20 per hour
• Apprentice rate – from £3.50 to £3.70 per hour

General Data Protection Regulation (GDPR)

The GDPR is an EU law which applies to the UK from May 25, 2018, and even though the UK is leaving the EU, the regulation will still be implemented.

The GDPR will supersede current legislation to protect people’s personal information, introducing tougher fines for non-compliance, and giving people more control over how companies use their data.

GDPR will provide individuals with easier access to their own data, as well as a right to know when high risk personal information has been hacked, such as information about health, religious belief or genetic data. It will also mean that people have a right to be forgotten.

The new rules will mean that, rather than simply ticking a box to opt out of receiving marketing information, individuals will have to give explicit consent for their data to be processed. This can be seen in the cases of website visitors being asked to check a box agreeing with a specific statement such as ‘I DO want to receive marketing information’ or, ‘I DO NOT want to receive marketing information’.

Data controllers must then keep a record of how and when that consent was given. The individual can also withdraw that consent at any point.

The new regulations mean that any business that has been running a soft opt-in system will be unable to use that database of customers from May 25, 2018.

Penalties for failure to comply, or for breach of regulations will be tough, with the amount of fines being handed down reaching as high as 4% of turnover, or €20 million, whichever is greater.

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GKN rejects £7.4bn hostile takeover bid from Melrose

Engineering firm GKN has rejected a second unsolicited takeover offer from Melrose of £7.4bn.

The latest bid put forward by Melrose, a Birmingham-based investment house that specialises in improving other companies’ performances, values GKN at 430.1 pence a share, up from a previous offer announced last week of 405 pence, or £7bn.

GKN said that the new offer remains “effectively unchanged” from the initial offer made on 8 January but made public last week. That offer was rejected because GKN considered that it “fundamentally” undervalued the company.

“We have already stated that the terms of Melrose’s offer fundamentally undervalue the company and we are actively engaging with shareholders to explain how our transformation plan will provide value,” said chief executive Anne Stevens, who was appointed to the role last week having served as acting CEO since November.

Under the terms of the latest offer, GKN shareholders would get a cash payout of 81 pence per share and 57 per cent of the enlarged.

Melrose said the new proposal represents a premium of 29 per cent on GKN’s closing share price on 11 January, the day before its initial approach was made public.

“Since our approach was announced, the Melrose share price has risen as the market digests the attractive opportunity our proposal represents,” said Melrose chief executive Simon Peckham.

“However, the real value uplift will come from merging the interests of the two sets of shareholders and creating a business valued at approximately £11bn today, of which GKN holders will own the majority, including Nortek, our US business which is trading strongly,” he added.

Melrose said a takeover would “re-energise” GKN’s operations to deliver “significantly greater benefits to the shareholders of GKN than GKN could otherwise achieve on its own”.

GKN employs 58,000 people across 30 countries.

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Personal Injury sector stands by for reforms update from parliament

Justice minister Lord Keen of Elie is today expected to set out the government’s agenda for personal injury reforms. Richard Keen QC, Ministry of Justice spokesperson in the House of Lords, will be among experts giving evidence to the justice committee of the House of Commons in a one-off session dedicated to potential changes in the sector.

MPs on the committee want to analyse the government’s case for increasing the small claims limit to £5,000 for RTA claims and to £2,000 for all other personal injury claims.

The reform, which requires secondary legislation but which is expected to come in alongside the Civil Liability Bill, has been in the pipeline since November 2015, when then-chancellor of the exchequer George Osborne proposed change, but progress has since stalled.

As well as Lord Keen, the committee will also hear from a representatives of trade union Usdaw, a claims handling company, the former president of the Forum of Insurance Lawyers, High Court judge Mrs Justice Simler, His Honour Judge Nigel Bird and David Parkin, deputy director for civil justice and law at the Ministry of Justice.

There has been criticism that no personal injury solicitors are being quizzed as part of the evidence-gathering exercise, although they were given the opportunity to submit written statements in advance of the session.

Donna Scully, former chair of the Motor Accident Solicitors Society and director of north west firm Carpenters Law, said: ‘On such a crucial issue, it is deeply disappointing that there is no single claimant solicitor or representative. It is vitally important that the committee robustly cross-examine Lord Keen on the evidence base and rationale for this proposal. The £5,000 figure appears entirely arbitrary.’

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Singapore lawyers back national IT plan

A world-first initiative to drag an entire jurisdiction into the digital age is under way in Singapore. The Future Law Innovation Programme (FLIP), organised by the agency responsible for developing the country’s legal profession, will encourage firms to adopt new technology, bring lawyers and entrepreneurs together and help ‘lawtech’ startups.

FLIP, launched last week by the Singapore Academy of Law, is part of the Legal Technology Vision, a five-year plan put together by representatives of the judiciary, the Ministry of Law, the attorney general’s chambers and private sector lawyers. The aim is to tackle the paradox that, in one of the world’s most digitally minded countries, much of the legal profession remains in the paper age.

Paul Neo, chief operating officer at the Singapore Academy of Law, said that a particular problem is the structure of the sector: ‘80% of legal practices have five fee earners or fewer,’ he said. Such practices have little time to adopt new ways of working.

Under FLIP, firms will receive up to 70% of the cost of new technology to re-engineer their working practices. The programme also includes a Legal Innovation Lab across the road from Singapore’s Supreme Court. A third component, south -east Asia’s first legal tech accelerator to groom promising legal tech start-ups, will be opened in April. The programme will be piloted for two years.

Neo said that 31 participants had signed up. These range from large firms such as Rajah & Tann Singapore LLP and Dentons Rodyk & Davidson to small practices as well as in-house counsel. ‘We are encouraged by the strong response from the legal community to the FLIP initiative,’ he said. ’Over three-quarters of the planned capacity for the pilot programme have been taken up in a short time and we have no doubt more will join as the programme gains momentum.’

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Litigation funder nears £1bn commitment to new investments

Growing global demand for litigation funding has been highlighted by a leading player reporting a massive increase in investment commitments. Burford Capital Limited said it made around £960m in new commitments in 2017. This was more than three times the £280m invested during 2016, which itself was up 83% on the previous year.

Burford says the latest figures show continued growth in demand for capital in its core litigation business, with just over half of its commitments attributed to portfolio finance.

Given the growth being experienced, the London stock exchange-listed company says it will hold meetings with fixed income investors to discuss a bond issue for raising extra funds.

Burford said in a stock exchange update that it was not yet in a position to provide guidance on its 2017 financial results, which are due to be released on 14 March.

Christopher Bogart, Burford’s chief executive, said: ‘The new commitments made during the year have the potential to generate significant future income in the years to come and reflect a robust legal finance market that Burford continues to lead.’

Investors responded positively, with the share price rising 5.4%.

Last year the company pledged an eight-figure sum to fund several cases brought by UK top-100 firm Shepherd & Wedderburn.

It is one of a number of litigation funders expanding in recent years and finding a more receptive audience among the previously-sceptical legal profession.

While markets in the US, UK and Australia are now well established, funders have also opened offices in South America and South East Asia in recent years. Burford opened a new Singapore office last year and appointed a former Allen & Overy lawyer to head operations there. This following the passage of new laws in the region that facilitated the litigation finance sector.

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Deloitte makes long-awaited assault on legal market

Big four accountancy firm Deloitte today confirmed it will join its fellow heavyweights with a move into legal services. The firm has previously rejected the option of expanding into the UK legal sector but has now announced plans to branch out.

As an alternative business structure, Deloitte will provide managed services such as automated document review and contract management, and will provide consulting services to help in-house legal departments to exploit new technology.

Deloitte will also extend its existing legal services in employment law, tax litigation and immigration.

Matt Ellis, managing partner for tax and legal at Deloitte, said the aim is not to replicate a traditional legal practice but instead to initiate a different approach.

‘We’re planning to use our technology and advisory skills to transform legal services and help address many of the challenges lawyers, whether in practice or in-house, are facing in today’s increasingly complex legal environment,’ said Ellis. ‘By automating repetitive processes and completing routine tasks in a fraction of the time, lawyers will be able to spend more time on specialist areas.’

New services will be on offer early this year and Deloitte will apply for an alternative business structure licence. The company says it is ‘investing in new staff’ but has not given a figure for how many lawyers will be recruited.

Deloitte Global will start a complementary legal management consulting business in 10 countries, comprising a team of more than 100 professionals.

The company’s 2016 survey of in-house legal departments found that 62% of legal counsel, general counsel and business leaders wanted to significantly review and transform the way in which their legal function operated.

Deloitte joins fellow big four competitors in trying to tap into the legal services market and potentially replace traditional law firms. PwC legal services has 17 partners, 31 directors and a 350-strong team in total, based in London, Belfast, Birmingham, Leeds and Manchester, with plans confirmed last year for further growth. KPMG and EY have also expanded into the legal market through alternative business structures.