Bulletin - Corporate and Technology - December 2011

Welcome to our latest Corporate and Technology Bulletin

Welcome to the December 2011 issue of our Corporate & Technology Bulletin. If you would like to discuss any of the issues covered, please get in touch with a member of our team.

This issue covers:

Life Assurance for Company Owners/Directors
Joining a franchise
Making Intellectual Property Law fit for the Digital Age
Useful Links

Life Assurance for Company Owners/Directors

The Problem
Many company directors – both old and young – will have personal life assurance policies in place to cover their personal debts or just to provide for their families in the event of their death.

Premiums on these policies are met out of after tax income and given the sums assured involved, these can be quite expensive. Insurance is always a “grudge purchase” – everyone knows that they need it but they begrudge paying for it as they hope never to need it.

Therefore, anything that can be done to reduce the cost of the insurance should be a real benefit to the individual.

The Solution (Part One)
A Relevant Life Policy is an individual “death in service” policy put in place by the company on the employee’s life and written under a similar trust to larger company life assurance schemes.

The primary advantage is that the company can pay the premiums and not have the cost deemed a benefit in kind for the employee. The payment should qualify for a for a higher rate taxpayer as there is no national insurance to pay for either the employer or the employee.

The policy needs to be for life cover only (no critical illness benefit) and must cease before the 75th birthday. The sum assured has to be connected to the employee’s remuneration but can be at a high multiple – this is a death in service benefit so the link is important. It is also only applicable for employees – it cannot be used for partners or the self-employed.

The Solution (Part Two)
Small company life assurance policies are now possible through a number of insurance companies with a minimum membership of only two or three people.

In terms of cost this has the same advantage as the “Relevant Life Policy” in that the premiums are deductible for corporation tax and not assessed on the individual. The scheme is HM Revenue and Customs approved under pensions legislation and should therefore qualify for the same deductions for the company.

However, the further advantage over the Relevant Life Policy is that a scheme will have a “free cover level” which applies to all members. This allows individuals to benefit from a certain level of cover without having to go through the underwriting process.

The disadvantage of both of the above schemes is the link to the company; the premiums are paid by the company and the cover is linked to service. Therefore they are unlikely to be suitable for highly mobile employees and are more appropriate for owner-directors and long term staff.

The information provided above should not be considered financial advice and if you have any questions, please contact Ewan Pitcairn of Lindsays Financial Planning on 0131 656 5745 or ewanpitcairn@lindsays.co.uk.

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Joining a franchise? - Food for thought

According to the British Franchising Association, around 90% of all franchisees in the UK traded profitably over the last 12 months. Franchising has an industry annual turnover of £12.4 billion, so it is obvious that franchising continues to be a popular way to trade. After all, you can set up your own business under an established brand which is likely to attract already loyal customers. Access to the franchisor’s well established business model and on-going franchisor guidance and support can help any such business succeed, even in the current economic climate.

Choosing the right franchise is essential and, in making this important decision, the terms on which the franchise opportunity is being offered should be carefully considered. Any Franchise Agreement will contain obligations to pay a variety of fees and to comply with obligations throughout the term of the franchise.

It is unlikely that there will be any scope for negotiation of the Franchise Agreement. However, it is worthwhile having the Franchise Agreement reviewed on your behalf before signing on the dotted line. As they say, “forewarned is forearmed”.

Here are some of the key commercial and legal points to consider when deciding if franchising is right for you:

Start-up costs
Consider what outlays you will incur before your business starts trading. For example, if you are to rent your business premises, there could be legal fees, survey costs, rent deposits and, potentially, even personal guarantees to a landlord. In terms of the Franchise Agreement, you will most likely be required to make an upfront payment to the franchisor. The level of this fee will vary from franchise to franchise but is likely to be a significant pre-trading expense.

The Franchise Agreement
Some key points to look out for are:

• Length of the initial term – you will be tied in and potentially be granting a personal guarantee to the franchisor for the period of the franchise. Is the initial term long enough when considering the investment you will be making and your expected timescales to your financial return? Conversely, what if trading is not as strong as expected? You need to be comfortable that you will be able to meet all your financial obligations during the initial term.
  
• Renewal – given the investment you will be making in setting up the franchise and the efforts that you will make in gaining local goodwill in the brand, and attracting and maintaining customers, do you have the option to extend or renew your franchise if all goes well?
  
• Fees – are the fees and other related costs set at a realistic level?
  
• Sale provisions – what is the process contained in the Franchise Agreement if you want to sell your business or the company that owns it? Can you sell to a third party? What are the franchisor’s rights to reject incoming franchisees? Is the franchisor provided with a right of first refusal to buy the business? If so, on what terms?
  
• Termination rights – before entering into a Franchise Agreement, make sure that you are clear on all minimum standards, payment dates and the level of training that you will be required to maintain. It is likely that a failure to meet any minimum standards over a prescribed period of time could lead to termination of the Franchise Agreement by the franchisor.

If you would like any further information on franchising, or you would like to take advantage of our flat rate £500 plus VAT fee for a Franchise Agreement review and report to you as a prospective franchisee, please contact David Lindgren.

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Making Intellectual Property Law Fit for the Digital Age

In November 2010, David Cameron announced that the UK’s IP laws should be reviewed to ensure that they are “fit for the internet age”. Consequently, a six month review was carried out by an independent panel, chaired by Professor Ian Hargreaves. The resulting report “Digital Opportunity: A review of intellectual property and growth” (the “Report”) was published in May 2011 and makes a number of recommendations for the modernisation of the UK’s IP framework.

This article examines some of the most significant recommendations made by the Report and explains how they could affect UK businesses, if implemented.

All Change on the Digital Front
The recommendations made by the review will come as no surprise to the Government, particularly Business Secretary, Vince Cable, who has previously campaigned for reform of the UK’s IP framework. For some time now, there have been concerns that our current IP laws, particularly in relation to copyright, are outdated and impede research, innovation and growth. In particular, there are real fears that current IP laws make the UK an unattractive option when setting up a business as compared with other jurisdictions, such as the USA, where copyright laws are far more user friendly and more conducive to innovation.

Recommendations for Reform
All ten recommendations featured in the Report have been accepted by the Government. These include the following initiatives:

• Digital Copyright Exchange: The Report recommends the creation of a Digital Copyright Exchange by the end of 2012. This would effectively establish an online copyright shop where rights owners could sell licences for their works and users could purchase them. It is hoped that this will make the sale and purchase of licences of copyright material easier, quicker and cheaper for all parties. It is also hoped that in making copyright licences widely accessible, more people will be encouraged to purchase them legitimately rather than make use of copyright material illegally. The Digital Copyright Exchange will also serve a purpose as a useful search facility providing free and transparent information about IP rights. Users will be able to search the exchange to find out if their work or idea has already been developed by someone else. In practice, the workability of such an exchange will depend on the willingness of rights holders to participate, and with a desired creation date of end 2012, this may prove to be an over-ambitious timeframe in which to get enough rights holders “on board”. Nonetheless the Government has taken the first step towards this goal by the recent appointment of former Ofcom Deputy Chairman, Richard Hooper, who will lead a feasibility study on developing a Digital Copyright Exchange in the UK!
  
• Permission to allow “Format shifting”: Format shifting occurs when copies of copyright material are made to use on different devices. A classic example is when music is transferred from a computer to an iPod or mp3. The reality is that people do this all the time, however the vast majority will have no idea that although they may have paid to download music to their computer, it is illegal to then transfer it onto another device, even if just for personal use. Of course, this current position is entirely at odds with modern technology usage and desperately in need of reform. However, it is, as yet, unclear as to how wide this right to copy will be and this is something which the Government will have to clarify in due course.
  
• Exceptions to allow parody: The Report recommends that IP laws surrounding parody, which are considerably more restrictive in the UK than other jurisdictions, be relaxed. The aim of this recommendation is to allow performing artists to make use of a copyright holder’s work without seeking permission. This will, in turn, also benefit production companies and broadcasters. A much cited example is the spoof online hit “Newport State of Mind” which YouTube was forced to remove from its site. However, some commentators have remarked that this could be the start of a slippery slope from parody to plagiarism, which could allow increased opportunities for abuse. The parameters of any “right to parody” will have to be clearly and strictly defined.
  
• Exceptions to allow search and analysis techniques: The Report recommends an exception be made to the current prohibition on text and data mining for the purposes of non-commercial research and library archiving. At present, some researchers are unable to work on data because it would be illegal to copy it without the right holder’s permission. Clearly, this raises the very legitimate concern that this prohibition is preventing valuable scientific and medical research from being carried out and hindering potential advances being made in these vital fields.
  
• Orphan Works Scheme: The Report recommends that the Government should legislate to provide for how copyright material should be treated in instances where the original copyright holder cannot be traced. The Report advises that there is a “vast treasure trove” of work which is effectively “locked up” because the original rights holders cannot be located or have passed away. Equally frustrating is the position in relation to works owned jointly – as the law currently stands, if even one of a hundred joint rights holders cannot be located, then they are all prevented from making use of the work. Indeed, the Government is keen to find a legislative solution to this long-running problem as the release of such “orphan works” will be valuable to businesses and individuals alike.
  
• Role of the Intellectual Property Office: With a view to ensuring that the UK’s IP laws remain current, the Report suggested that the IPO be charged with evaluating IP policy at national and European level. It also suggested that the IPO be given authority to issue statutory opinions to clarify questions of copyright law. Whilst the former suggestion has been warmly received, the latter has raised some concerns that the role of interpreting IP legislation, properly a duty of the courts, could be diverted to a non-judicial body.

Enforcement
Against a backdrop of recommendations to promote greater IP freedoms, the Report also considers how to better protect rights holders. The cost and complexity of enforcing IP rights can impact their value as assets and can dissuade some rights holders from taking action in relation to some infringements. It is proposed that a small claims procedure for cases of infringement worth £5,000 or less be introduced to assist individuals and small businesses who would otherwise struggle to raise or defend a claim for infringement.

Additionally, the Report recommends that the Government’s IP Crime Strategy, which has not been updated since 2006, should also be reviewed to give increased powers to prosecutors to pursue IP criminals.

Conclusion
In general, it would appear that the public response to the Report, and to the Government’s acceptance of it, has been largely positive. Whilst some challenges remain and which will have to be addressed as part of any reform of the UK’s IP laws – e.g. clarification of the extent of copyright freedoms, incentives to encourage participation in the Digital Copyright Exchange etc. – none of these appear to be insurmountable. However, the real issue may lie not in legislating for the current proposals, but in keeping apace with continued digital developments to ensure that the UK’s IP laws remain on a level playing field with those of other jurisdictions. In this fast-moving technological age, where innovation and creativity are key to surviving the harsh economic climate, the UK’s IP laws must be kept up to speed in order to attract much-needed investment and growth.

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Useful Links

Business Link – Find out what records you should be keeping
Business Link has created a tool which helps new and existing businesses to assess what records they must keep and their compliance with these legal requirements. The tool takes the form of a questionnaire which only takes a matter of minutes to complete. It generates a tailored advisory report based on the answers provided as well as useful links with more detailed information on areas where you may not be fully compliant.

In a world of “red tape”, this is a very useful tool as all businesses should ensure that they have a proper record keeping system in place. A good system will save time and accountancy costs, will help you avoid penalties by reducing the likelihood of mistakes, will assist you to devise a future strategy for your business and keep track of your cash flow. For further information please see: http://tinyurl.com/3m4laey

Companies House – New Policy on Company Names
As from 1 September 2011, Companies House will no longer accept company names on documents submitted to them which contain minor variations or typographical errors. This change of policy seeks to ensure that documents are entered onto the correct company record.

However, Companies House has issued a listed of accepted abbreviations and derogations. It is hoped that this new guidance will assist users and ultimately reduce the current level of rejections. For full details of the policy please see: http://tinyurl.com/44ksneg

Corporate Governance – First Conviction under the Bribery Act 2010
Mr Munir Patel, an administrative clerk at Redbridge Magistrates’ Court, has been found guilty of an offence under Section 2(1) of the Bribery Act 2010 after admitting that he accepted a £500 bribe for omitting to record a speeding charge. Mr Patel is the first person to be prosecuted under the Act, which came into force in July this year, and he has been sentenced to three years’ imprisonment under the Bribery Act and six years for misconduct in public office. The sentences will run concurrently.

Whilst most commentators have expressed concern regarding the Act’s robust approach to commercial bribery, and the ramifications for company directors and employees, the Act also applies to individuals. The prosecution of this case not only provides useful guidance on corporate prosecutions arising under the Act but and also illustrates the tough approach we can expect the Courts to take across the whole range of bribery cases. For further information please see: http://tinyurl.com/87492fj

HMRC - New Penalties for Late Filing and Late Payment of Self-Assessment Returns
HMRC are changing how they deal with individuals who default on their self-assessment returns. The new penalties will apply to those who are late sending back their tax return and/or in paying the tax owed. The new rules mean that “the more you delay the more you pay”.

Business Gateway has produced a guide detailing all the key information and dates an individual will need for submitting a timeous self-assessment return for 2011 and beyond. For further details please see: http://tinyurl.com/69scah9

If you would like to discuss any of the issues raised in this Bulletin please contact a member of our team.

This newsletter has been issued by Lindsays on the basis of publicly available information, internally developed data and other sources. Whilst all reasonable care has been taken to ensure the facts stated and the opinions given are correct, Lindsays does not accept any responsibility for its content and advise that specific advice should be sought regarding the topics covered.
© Lindsays 2012