Financial Monitor (February 2007)

Increase in holiday entitlement
The Government has announced proposals to increase the statutory paid minimum holiday entitlement from 20 days to 28 days.  These days include Bank Holidays.

The increase is from 20 days to 24 days on 1 October 2007 and then a further increase to 28 days on 1 October 2008.

Many employers provide four weeks holiday plus bank holidays and if that is the case no adjustment is required.  However, any employer providing less than this entitlement will need to make amendments.  In most cases the employer’s holiday year will not begin on 1 October 2007 and hence adjustment may need to be made to give a pro rata increase where the holiday year spans 1 October.

Enforcement of National Minimum Wage
The Department of Trade and Industry has announced that H M Revenue and Customs, who enforce the National Minimum Wage (NMW) legislation and the Department for the Environment, Food and Rural Affairs who enforce it for farmworkers will now routinely make use of their powers to impose penalties on employers who do not promptly make good any shortfall in payment of NMW.

The new policy will be to issue a penalty notice if the shortfall has not been paid by the end of the 28 day appeal period.  The penalty is twice the adult rate of NMW (currently 2 x £5.35 = £10.70) for each employee who has been underpaid for each day (after the seventh) the shortfall remains unpaid following issue of the enforcement notice.

Paying school fees in a tax efficient way
One of the problems with paying school fees is that they come out of taxed income.  In addition, if a parent provides a child with an income producing investment then, if the income exceeds £100, it will be taxed on the parent.  This means that in most cases a child's personal allowance (currently £5,035) is wasted.

However, if a relative other than a parent is able to give cash or other income producing assets to a child either directly or via a trust then the income generated through the Trust can be covered by the child's personal allowance and hence received tax free.  This tax free income can then be used to pay the school fees.

If consideration is being given to transferring assets such as property or stocks or shares directly to a child the capital gains tax issues must be considered.  In addition, inheritance tax issues need to be overcome but this can usually be achieved by ensuring that the value of the gift is less than the nil rate band, currently £285,000.

Flexible working
From 6 April 2007 the right for employees to request flexible working will be extended from the parents of young or disabled children to 'carers'.

A 'carer' is defined as someone who is providing care for another adult.  That adult can be a spouse, partner (including civil partner), a close relative or someone living at the same address as the carer.

'Care' includes preparing meals for or supervising someone who cannot be left alone.  There is no need for the employee to show that the person for whom they are caring has a particular level of incapacity or dependency.

If requested by the employee an employer must consider allowing them to work shorter or different hours or to work from home for part or all of the week.

Changes in HMRC approved fuel rates
H M Revenue and Customs have a list of approved rates for those employers who reimburse the cost of fuel incurred by employees for business travel in company cars or who seek reimbursement from employees for fuel provided by the employer which is used privately.  The rates have been reduced with effect from 1 February 2007 and are as follows:

The old rates are shown in brackets and can continue to be paid until 28 February 2007 because of the short notice given by H M Revenue and Customs for these changes.

VAT – Cash Accounting
The VAT Cash Accounting Scheme allows businesses to delay accounting for VAT until payment has been received from customers.  From 1 April 2007 the turnover limit for entry into the scheme will be doubled to £1,350,000.  Those within the scheme will not have to exit the scheme until turnover reaches almost £1,700,000.

Guidelines for retiring employees
When workers reach 65, or the organisation’s retirement age if higher, employers may dismiss them providing they follow these guidelines:

• advise the worker between six and 12 months before the intended retirement date
• tell the worker that they may request to continue working beyond retirement age up to three months prior to the intended retirement date
• seriously consider any such request
• meet with the employee to discuss the request, although reasons do not have to be given for a refusal
• consider an appeal.

Failure to follow these guidelines may constitute unfair dismissal and leave the employer needing to defend a case before the Industrial Tribunal.

Budget 2007
The Chancellor will give his Budget speech on Wednesday 21 March 2007.  Our next edition of Financial Monitor will consist of a summary of the main Budget measures.

Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.
UHY Wingfield Slater
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