It hasn’t taken the unscrupulous long to realise that using Internet discussion groups and blogs to ‘plant’ favourable comments about their products (and unfavourable ones about those of their competitors) can be an effective way of duping readers for commercial advantage.

In some cases, bloggers get paid to leave favourable comments. Similarly, some apparently ‘independent’ comparison sites are not independent at all.

The European Commission wishes to ban these practices using the Unfair Commercial Practices Directive, which can be found at http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/ucp_en.pdf.

Landlord’s Intention Must Be Long Term
When a tenant’s lease is governed by the Landlord and Tenant Act 1954, the landlord has limited grounds for refusing to renew the lease. One possible ground is that the landlord wishes to make use of the premises for its own purposes.

In a recent case, a tenant who had applied for a new lease had the application opposed. The landlord argued that he wished to use the premises in order to run a retail news agency. He offered to give an undertaking that he would not use the premises for any other business purpose for a period of two years.

The tenant believed that the landlord wished to have possession of the premises so that he could sell them, even though the property was not on the market and no prospective buyer was in place.

The legislation does not specify for how long a landlord must intend to occupy premises for the purposes of his business in order to be able to oppose the renewal of a lease. However, the Court of Appeal considered that if the landlord’s intention was to sell the property within five years, he did not intend to occupy it for a long enough period to satisfy the ‘for the purposes of his own business’ condition.

The undertaking offered merely prevented the landlord from running any other type of business and was limited to two years. It did not require the landlord to trade and the landlord had closed an adjacent business he owned.

On the balance of the facts before it, the Court ruled that there was sufficient ground for doubting the landlord’s intention to use the property for his own business purposes and the application to refuse a new lease to the tenant therefore failed.

Landlords who wish to obtain possession of leases covered by the Act can expect the courts to adopt the five-year time period referred to above as a rule of thumb for determining whether or not they have successfully made out the case that they require the premises for the purposes of their own business.

Virtual Assignment is not Assignment
A ‘virtual assignment’ is a device by which a tenant effectively appoints another organisation to deal with the practical aspects of its tenancy, in effect acting as attorney for the tenant.

Since most leases contain a clause which prohibits the tenant from parting with possession of the let property without the landlord’s consent, it was inevitable that eventually a case would come before the courts to consider whether a virtual assignment breached a lease.

Last year, a case on this issue came before the High Court, which ruled that the virtual assignment was in breach of the covenant in the lease not to share or part with possession of the property.

The Court of Appeal has now overruled that decision, considering that the virtual assignment in this case was in effect an agency agreement and the tenant had not parted with possession of the property or been sharing possession of it.

Time to Think About Tax Losses
With the end of the tax year approaching and trading conditions having been tough, there will no doubt be many businesses thinking about how to deal with their tax losses (trading losses as adjusted for tax purposes).

This is by no means an easy question in many cases.

Losses may be used in many ways, but in most cases, trading losses incurred by an individual may be:

• carried back to set against profits of an earlier period;
• set off against other income in the same tax year; or
• carried forward without limit to be set off against future profits arising from the same trade.

When choosing how to make use of tax losses, the following should be borne in mind:

• Your level of taxable income in the year in which the loss is to be offset – a carry-forward to 2010/2011 may look attractive if you will be a higher-rate taxpayer then;
• Whether or not you pay Class 4 National Insurance Contributions (C4NICs) – a set-off against other income which does not carry C4NICs may cost you 8 per cent of the loss;
• Whether future taxable income is certain – if a bird in the hand is worth two in the bush, getting sure tax relief now as opposed to probable (but not certain) tax relief in the future may be sensible; and
• Your cash-flow. Carrying forward losses means no boost to your cash-flow until the loss is relieved in the future.

There are further complications because losses can be added to by capital allowances and some elections are ‘all or nothing’ ones, which may mean that the losses are not used efficiently – for example, a claim may ‘waste’ personal allowances (i.e. take taxable income after the loss is relieved to below that at which any tax is paid, wasting tax relief on the difference between the residual taxable income and the level at which tax becomes payable).

If you have tax losses, take professional advice on what to do.

Open Market Considerations Determine Tax Liability
Although there has, over the years, been a plethora of employee share schemes, with varying tax benefits and treatments accruing to them, disputes over the tax treatment on the disposal of such shares are comparatively rare.

Recently, however, such a dispute reached the Supreme Court. It involved a director of a timber company who was allocated a 6 per cent shareholding in the company. The company was later sold to the Jewson group. As a result of the director’s subscription agreement, the director became entitled to a payment of more than £1.4 million, when a 6 per cent shareholding was worth, on a proportionate basis, more than £1 million less.

HM Revenue and Customs argued that in circumstances such as these, the difference between the two sums was a taxable benefit in kind and thus subject to Income Tax (IT), not Capital Gains Tax (CGT). This made a massive difference to the tax liability of the director: not only did the sale not qualify for the annual relief for CGT, but it was also subject to National Insurance Contributions (NICs). The NICs would be mainly a liability of the company which had been sold, but the directors had entered into an agreement with Jewson to meet tax liabilities arising on the company as a result of the sale, so, in effect, the liability fell on them.

The question turned on the definition of market value in the relevant legislation. Should the shares be valued as the other shares were (i.e. ignoring the director’s special rights)? If not, then if the special rights of the shares held by the director were to be considered, should the rights attaching to the shares be regarded as worthless to a purchaser and thus ignored in the valuation?

In the view of the Supreme Court, Jewson did not have any interest in the relative rights of the different shareholders of the company when it purchased it and thus those rights could not affect the open market value of the shares. The director’s rights were not assignable and were therefore personal rights of no value to the purchaser. When valuing shares for such purposes, the ‘open market’ valuation is to be based on a hypothetical purchaser’s position immediately after the completion of the notional transaction.
Accordingly, the difference was taxable under the IT rules, not the CGT rules.

When disposing of shares in a company, the impact of taxation and the guarantees given to the purchasers of the shares need to be carefully considered.

Taking Time to Pay Taxes – Warning
During the recession, HM Revenue and Customs (HMRC) have been willing to make ‘time to pay’ agreements with businesses struggling to meet their tax liabilities as they fall due.

However, this should not be taken to mean that HMRC are taking a casual attitude to non-payment of taxes without such an agreement. A recent report indicates that more than half of all winding-up proceedings are brought by HMRC. It is best not to delay starting negotiations with HMRC either, as a recent report by the National Audit Office indicates that a staggering 43 per cent of all telephone calls to HMRC are unanswered.

Tax Dispensations – Good News for One-Person Companies
Paying expenses for employees is often a problem area and employee expenses are routinely one of the first items looked at by PAYE inspectors, since it is so easy to get the paperwork wrong.

For that reason, as well as the saving of what is for many smaller firms a considerable administrative burden, HM Revenue and Customs (HMRC) will allow companies to claim a ‘dispensation’ from having to carry out the normal PAYE reporting of employees’ expenses if they are satisfied that the business has sufficient procedures in place to ensure that only legitimate business expenses are reimbursed to employees.

Recently, HMRC issued guidance on dispensations for one-person companies. The guidance states that ‘you must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than the employee claiming the expenses check that:

• the amount claimed isn’t excessive
• the claim doesn’t include disallowable items

However, the Institute of Chartered Accountants in England and Wales has recently reported that HMRC have confirmed that it is sufficient for a company to use its external accountant to compile or check the accounts and complete forms P35 and P11D, and to ensure that such expenses and other benefits in kind are shown correctly in the accounts and are returned correctly on the required forms, for this to be ‘an independent system for checking’.

Know and Ought to Know
The difference between someone who has knowledge of a thing and someone who ought to have knowledge of it can be crucial in a court of law and nowhere is this more true than in fraud cases.

In a recent case, HM Revenue and Customs (HMRC) sought to show that the conduct of a company that was involved in a ‘missing trader’ VAT fraud was dishonest and therefore tax evasion which resulted was fraudulent. However, HMRC failed to show that this was the case, the court deciding that the conduct of the company was negligent, not fraudulent. The company ought to have known, but did not know.

The difference in penalties between fraudulent conduct and negligent conduct can be severe.

VAT on Business Assets With Private Use
On 22 January, HM Revenue and Customs issued a new brief covering the common situation in which assets are bought which are used for both business and private use.

Traditionally, this could be dealt with either by claiming only the percentage of the input VAT which corresponded to the percentage of business use or by claiming all the input VAT and then making a VAT charge (i.e. adding to the output VAT payable) for the private use on an ‘as you go’ basis. This latter method is called ‘Lennartz accounting’, after the VAT case that established the principle.

Following a Dutch VAT case, however, the use of Lennartz accounting has been considerably restricted. If this affects your business, see http://www.hmrc.gov.uk/briefs/vat/brief0210.htm.

What Will the Tax on My Company Car Be Next Year?
HM Revenue and Customs have updated their car benefit calculator, so you can see what your benefit in kind for having a company car will cost you. We doubt you’ll like the answer!

The calculator can be found at http://www.hmrc.gov.uk/practitioners/tools-more.shtml.

Share Manoeuvres Cause Lease Breach
A company that was part of a group recently found that it had breached its lease when a reorganisation was carried out. The problem arose because the lease on the company’s premises contained a clause that the tenant company was allowed to share occupation of the premises as long as it remained a member of the same group of companies to which it belonged when the lease was executed.

In this case, the tenant’s holding company had pledged the tenant company shares to a bank as security for facilities provided by the bank. This led to the tenant ceasing to be a ‘member of the group’, as a result of which it no longer had the right to share occupation of the let premises.

Although this was a Scottish case, the principle would be the same under English law, with one crucial difference. In Scotland, in such circumstances the bank’s interest is recorded by an entry in the shareholders’ register. In England and Wales, signed share transfer forms would normally be held by the bank, but the shareholders’ register would be left alone until the bank wished to rely on its security. In that event, the group structure is undisturbed until the bank’s interest is recorded in the register of members.
The precise way this might affect a group depends on the shareholdings and their rights but, in principle, care should be taken, especially when a holding company has a majority of the shares but not voting rights in its subsidiary.

False Claims Cost IT Supplier Dear
British Sky Broadcasting Ltd. was less than pleased when problems with the integration of its customer relationship management system led it to cancel its contract with IT firm Electronic Data Systems Ltd. (EDS). That was as nothing, however, when it discovered that EDS had made false representations about the analysis it had done as part of the tender process under which it was awarded the work.

Mr Justice Ramsey ruled, after a six-year legal battle, that EDS had made dishonest representations during the tender process and had made further negligent misrepresentations during the course of the project itself.

The damages are expected to exceed £200 million. Although EDS had a limitation of damages clause in its contract with Sky, this will be void because of the fact that the representations on which Sky relied were dishonestly made.

The moral of the story is that when tendering or contracting for work, make sure the claims you make are honestly made – or be prepared for the consequences if things go wrong.

Misrepresentation Leaves Burgled Company Uninsured
Theft of goods by burglars from a secured cage in a warehouse may seem to be a straightforward matter as far as making an insurance claim goes, but a recent case shows otherwise.

The insured held goods including cigarettes and tobacco and had a standard commercial risks policy which covered losses due to theft. The high-value goods were stored in a cage inside the general warehouse on an upper floor.

When burglars stole them, the company claimed and the insurer refused to pay.

Firstly, the insurer claimed that the company had failed to carry out the necessary maintenance of the security equipment and alarm which was required under the policy.

In the view of the court, such a clause was only breached if the insured became aware of the defects and then failed to put them right or was reckless as to whether there were defects or not. Otherwise, the requirement that defects be rectified promptly would absolve the insurer from liability in almost all such cases.

However, the insurance policy also contained a stipulation that the theft of cigarettes and tobacco outside business hours would not be covered unless these were kept securely and on the ground floor. The stipulation had been lifted once the insurers had received assurances from the insured that necessary improvements to the security arrangements had been made. Here, however, the company had made a material misrepresentation. Accordingly, the insurers were entitled to rescind the variation to the original policy with the result that the theft was not insured.

Insurers are never keen to pay out on policies and it is important to have a thorough understanding of the terms of your policy.

Similar Names Likely to Confuse
An attempt to take out a Community Trade Mark (CTM) failed recently when the EU General Court agreed that the proposed mark (which was not a real word in Spanish) was too similar to an existing Spanish trade mark for a similar product.

The application to create a CTM for the word ‘CITRACAL’ was opposed by the owner of the Spanish trade mark ‘CICATRAL’. As well as the visual and phonetic similarity of the two names, the uses of the products were similar: sufficiently similar, ruled the Court, for there to be a danger of confusion between the two on the part of the Spanish public.

Successful trade mark applications are best preceded by thorough investigation.

Software – IP Protection May Be On the Way
If you are a writer of innovative software, you are probably acutely aware of the fact that in the UK, patents for software will not generally be granted, even if the software is innovative. The US, which has a different approach to the problem, does allow patents to be more easily granted for software.

However, the European Patent Office has announced that it is giving consideration to the redefinition of the applicable criteria for patenting software. If there is a significant relaxation, a truly innovative software development may become patentable (and hence more valuable).

Watch this space.

If You Have a Choice, It is R and D
Small businesses are reminded that 175 per cent tax relief is available on qualifying research and development (R and D) expenditure, so if expenditure can properly be classified as R and D, then it is important to identify it as such.

The Government announced in the Pre-Budget Report 2009 that the requirement that the intellectual property derived from R and D must be owned by the company making the claim will be abolished. In addition, it intends to introduce a ‘patent box’, a reduced rate of Corporation Tax applying to income from patents, from April 2013. There will be consultation with business on the detailed design of the patent box in time for the Finance Bill 2011. It will apply to patents granted after the legislation is passed. The proposed 10 per cent rate may make it advantageous to retain the ownership of such rights in the UK rather than having the patent right held abroad.

Use of Premises Makes Rent an Administration Expense
Insolvencies have been running at a high rate for some time now, presenting problems for landlords and tenants alike.

It should be remembered that the expenses of the administration of an insolvent company rank for payment before debts due to unsecured creditors. Therefore, if a landlord can show that rent is an administration expense, there is a better chance of it being received from the insolvent tenant.

A recent High Court case provides guidance for landlords on this area.

Where the payment date for rent falls in a period during which the administrators are using the let property for the purposes of the administration, the rent due will be an administration expense. This applies even if the administrators are using only part of the property and/or do so for only part of the time for which rent is payable.
However, where the administrators believe the assets of the insolvent tenant will be insufficient to pay all of the administration expenses, they are entitled not to make the full rent payment.

This may at first sight appear to be good news for landlords, but it might well make administrators keen to vacate premises as soon as possible.

The provisions are subject to change, but are expected to come into force on 6 April 2010.

The new provisions ban irresponsible drinks promotions, including:

• games;
• unlimited drinks for a fixed fee;
• free drinks; and
• discounted drinks in connection with a sporting event

In October 2010, a further round of changes is expected, including a requirement for small measures of drinks (e.g. half pints of beer and 125ml glasses of wine) to be available and for customers to be made aware of their availability. In addition, managers of licensed premises are to be required to have an age verification policy.

Bill Contains New Powers for Councils
The Crime and Security Bill, currently before Parliament, is set to give local authorities the power to impose blanket bans on the sale of alcohol, between 3am and 6am, in entire streets or city centres where these are affected by alcohol-related anti-social behaviour and disorder.

If enacted, the new measures will mean that, where disorder or public nuisance cannot be attributed to individual premises, local authorities will be able to limit late opening across an entire area.

The ban would operate in respect of all premises selling alcohol, including pubs, bars, clubs, supermarkets and convenience stores. It could apply throughout the week or only on particular days. Councils would need to demonstrate that the restriction was necessary in order to prevent crime and disorder or public nuisance, or to promote public safety.

When a local council proposes to use the new power, it would first invite views from everyone affected, including local residents, the police and licence holders. If necessary, it would hold a public hearing before making a final decision.

ICO Consults on the Assessment Notices Code of Practice
From April 2010, extended data protection audit powers will be available to the Information Commissioner’s Office (ICO) under the Coroners and Justice Act 2009.

The auditing process allows the ICO to assess whether organisations are processing personal information in line with the Data Protection Act 1998 (DPA). Where it has been identified that personal data is at risk, the ICO will continue to request consent to carry out an audit. However, where an organisation refuses to cooperate with the auditing team and there is a significant risk of compromising personal information, the ICO will have the power to serve a compulsory audit notice or an Assessment Notice.

The ICO has published for consultation a draft Code of Practice for Assessment Notices, which sets out the framework for how audits will be conducted when an Assessment Notice has been served on an organisation.

Initially, the ICO will only be able to conduct compulsory audits on central government departments but will, where it can make a good case, seek to extend its powers to undertake compulsory data protection audits in the rest of the public and private sectors. The draft Code contains advice on the ICO’s auditing framework relevant to all public and private sector organisations and will apply whether an audit is carried out with consent or not.

The ICO does not intend that ‘consensual’ and ‘compulsory’ audits will lead to formal enforcement action. Follow up may be by way of obtaining written assurances from the data controller that remedial action has been taken, or a further audit. The Code states that the Information Commissioner will not impose a monetary penalty on a data controller where a breach of the DPA is discovered in the course of carrying out an audit. However, the Commissioner reserves the right to use any of his powers in the case of any identified major non-compliance where the data controller refuses to address a recommendation within an acceptable timescale.

The consultation closes on 24 March 2010 and can be found at http://www.ico.gov.uk/about_us/consultations/our_consultations.aspx.

Right to Request Training – Guidance Published
The Government has published guidance for employers on the new right of employees to request time off work for training, which is set to be introduced on 6 April 2010.

The right to request time to train was included in the Apprenticeships, Skills, Children and Learning Act, which received Royal Assent in November 2009. The introduction of the right will be phased. From April 2010, it will be made available to employees in organisations with 250 or more employees before being extended to all employees from April 2011. This will give smaller organisations and businesses more time to prepare for its introduction.

To make a request for time to train, an individual must be an employee and have worked continuously for their employer for at least 26 weeks on the date on which the request is made.

Employees' requests can be to undertake accredited training programmes that will lead to a qualification or for unaccredited training that will assist them to develop specific skills relevant to their job, workplace or business. Whilst employee requests may involve agreeing time away from their workplace duties, the primary focus of the new right is on agreeing relevant training with your staff.

Employers will be required to consider any requests and respond within a set timeframe. A request may be turned down if there is a good business reason for doing so, which includes where the employer does not believe the training will help improve business performance.

The way in which the new right will operate closely follows the model used for agreeing requests under the flexible working arrangements.

The guidance for employers is available through the Business Link website at http://www.businesslink.gov.uk/timetotrain.

Hair Length and Dress Codes
If you are formulating a dress code for employees, it is important not to treat one sex less favourably, if you are to avoid leaving yourself open to claims under the Sex Discrimination Act 1975. However, this does not mean that the provisions for men and women have to be identical.

In a recent case, a police trainee who was told to get his shoulder-length hair cut or face disciplinary action has lost his appeal against the decision of the Employment Tribunal (ET) that he had not been unlawfully discriminated against on the grounds of his sex (Dansie v The Commissioner of Police for the Metropolis).

Mr Dansie wore his hair in a bun when he reported at Hendon Police Training College to train for the Metropolitan Police Force. He complied with the demand that he have his hair cut in order to avoid disciplinary action and removal from the programme but then filed a claim that that he had been less favourably treated on account of his sex.
The Police Force’s Dress Code Policy stated that the standard of dress should be smart, fit for the purpose and give a favourable impression of the service. Guidance on the Policy stated that ‘for safety reasons, ponytails are not permitted and long hair must be neatly and securely fastened up and worn relatively close to the head’.

It was common ground that a female recruit would not, in similar circumstances, have been told to have her hair cut.

The Employment Appeal Tribunal (EAT) upheld the decision of the ET, which found that the Dress Code Policy was gender neutral. Earlier case law allows that a dress code ‘can be considered as a whole and can be gender specific as well as gender neutral provided it is fair-handed between the sexes and fits with the conventions of society and the needs of the profession in question’.

The EAT judged that the ET was entitled to conclude that a female comparator who failed to comply with a dress code that was equally balanced between the sexes and necessary for a disciplined service like the Police Force would have been treated in the same way as Mr Dansie if she had failed to comply with the Policy as it applied to women.

In this case, the dress code under scrutiny was found to take a fair approach to both sexes as a whole and the employer was able to establish a non-discriminatory reason for the difference in treatment. However, a code that applies different standards to men and women who do not work in public-facing roles may not be justifiable.