The Ways in Which European Law Affects the Conduct of Business in the United Kingdom - Case Study Example

Business in the UK Part I Unincorporated Business Businesses in the UK can be run in three ways either as a sole proprietor, as a limited Partnership or forming a Limited Liability Partnership. An unincorporated business "does not have its own legal personality and as such it is comprised of the people who run the business" (NickWis). People owning the business also own the full liability of business individually. There are many kinds of unincorporated business structures such as sole traders and partnerships. A sole trader business is run by a person in his own name or a trade name such as LB Builders or LB Trading. In such set up there is no legal distinction between the business and individual owner. As individual is a sole owner, he or she enjoys all benefits as well as all liabilities. This also means that individual is liable to lose his or her personal assets in the event his or her trading outfit fails. This is risky, especially when the business grows and operations become cumbersome. Moreover, the tax liability will arise on personal level and he will be taxed on capital gains and business income. Owner will be needed to submit a tax return on the year end along with VAT and payroll returns depending upon the nature of business. A sole trader needs to register with the Inland Revenue and that is as simple as providing certain details in the prescribed form as provided (NikWis). Partnership When two or more individuals join to form a business venture, it is said to have a partnership business. As such, it does not form a legal entity rather each partner will be assumed to work in lieu of another in Partnerships. Examples of Partnership are lawyers and accounting firms. Partners are taxed individually as per their share in partnership venture. In this case, liability of each partner is not limited to their shares but each will bear firm’s full liability. To avoid full liability of the firm by partners, the provision of Limited Liability Partnership (LLP) firm is made (NikWis). Limited Liability Partnership (LLP) When partnerships are formed with limited liability for partners, it falls in the category of Limited Liability Partnership (LLP). The business is managed in the same way as done in case of partnership but partners will have the benefit of owning a limited liability. Its management and tax treatment does not differ than ordinary Partnership business. However, statutory requirements and obligations remain in line with those of a limited liability company. In this case, partners enjoy limited liability for the partnership debt to the extent of their percentage share they contributed but the firm bear the full liability (NikWis). There has been significant difference in tax liability of small businesses ever since Chancellor Gordon Brown reduced corporation tax to zero in April 2002. While corporations pay 20% income tax for incomes up to £300,000, individuals need to pay income tax of 50% for the same income. For individuals, income tax rate of 20% is applicable only up to £37,400. Though tax incentives are significant, there are some other costs involved in forming corporations or a limited liability company (Corporation Tax rates and reliefs, 2014). Merits of Incorporation After incorporating the business, one can pay salary to oneself and that will be tax-deductible. Corporation tax is nil for the profit up to £10,000. Small company rate is 19% applicable for the profits up to £300,000. Incorporation provides safeguards in the event the firm is required to wind up and it is unable to meet its liability through its assets. Most small companies prefer incorporation to avail the benefit of tax provisions. Incorporation makes business easier as buyers, investors, suppliers prefer incorporated companies due to statutory procedures follow up including proper accounting and audit (This is Money, 2008). Unincorporated Association In an unincorporated association a group of people come together and share individual skills for a particular purpose. Many voluntary and community groups run as unincorporated associations. They do have a constitution but usually, they are non profit and debt free Organisations because their monetary needs are satisfied by donations (This is Money, 2008). Some Disadvantages Though there are tax benefits and safeguard from unlimited liability, incorporation involves significant amount of paper work that include submitting annual accounts, corporation tax return, as well as a personal self-assessment tax return. Accounting work needs to be completed as per the high standards of the Companies Act and for that reason accountant fees to arrange books in line with the Act will be higher than otherwise needs to be paid (This is Money, 2008). It is important to note that as a company, one needs to disclose information pertaining to business, its profits and salary of self. The information can also be availed by suppliers and customers if they desire so. It is likely that they may come to know about profit margins of the business. Incorporation cost towards accountancy fees is in the range of £3,500 and £5,000 as given by tax experts. This cost, however, may vary depending upon the place of operation (This is Money, 2008). Overall Significant Incorporation Advantages Nevertheless, apart from limited liability and lower corporation tax applicability, there are certain other benefits of incorporating the firm. In the event of death of the director, the company continues to exist and maintain its separate legal entity. Its market value is not jeopardised. The word Limited behind the entity enhances its status that is an important element in business. It is easier to transfer shares instead of selling whole business in case, one wants to exit from the running business. A director can borrow from the firm without going to bank or paying high credit card interest provided the loan amount does not exceed £5,000 and interest charge is not less than 4%. Tax free benefits or perks can be availed; that is not possible in the firms without incorporation. If the business premises or building is held in directors name, then the director can receive rents from the company. Dividends can be declared suitably to manage fund transfer to director’s account (Adams, 2011). Part II The Equality Act 2010 and Its Consequences Several laws such as the equal Pay Act 1970; the Race Relations Act 1995; the Sex Discrimination Act 1975; the Disability Discrimination Act 1995; the Employment Equality (Religion or Belief) Regulations 2003; the Employment Equality (Sexual Orientation) Regulations 2003; the Equality Act (Sexual Orientation) Regulations 2007) and the Employment Equality (Age) Regulations 2006 existed in the UK to protect people from discrimination in terms of race, gender identity including transgender issues, Sexual orientation, religion, belief, disability, mental or physical disabilities, age, marital or parental status. The Equality Act 2010 has been made integrating all of them in a single piece of legislation. The Act necessitates that organisations of all kinds and sizes need to enforce equality in the workplace. The Act also aims to remove the pay gap between women and men (Equality and Human Rights Commission, 2010). Applicability of the Equality Act (EA) 2010 The EA 2010 is applied to all employers whether they provide a service to the public or charge a fee for that service. The Act is applicable to all kinds of organisation including voluntary, statutory, community or private sector organisations. The Act establishes that everyone needs to be treated at par without affecting their dignity and respect (Equality, 2014). The Equality Act 2010 – An Effort to Bring Inclusiveness Equality is just not extending equal treatment to each staff member within the firm. The Act lays the foundation of inclusiveness removing any entry barriers that may affect recruitment process. Beginning from initial recruitment, each and every policies and practices within the establishment should refrain from discriminating anyone that may affect their personal or professional advancement. This includes establishing transparent and fair pay structures, facilitating equal benefits to all that include providing paid holiday without affecting individual promotion and progression (Equality, 2014). Before delving deeper into likely consequences, it would be appropriate to understand inequality incidents through some examples in the workplace. Understanding Direct and Indirect Discrimination The Act prohibits both direct and indirect kind of discrimination. When recruitment is open to only male applicants barring others to apply including people of transgender then it will be considered a direct discrimination. Considering another example of direct discrimination, a care home provides smaller amount of food to women and larger amount to men thinking men have always higher appetites. This will fall in the category of direct discrimination based on sex (Implications of the Equality Act 2010). In an indirect kind of discrimination rules are framed to favor certain group of people. For example, putting a condition for applicants to be clean-shaven as a prerequisite falls under an indirect kind of discrimination. This kind of prerequisites would prohibit certain religious groups to apply for the post. Indirect discrimination whether explicit or implied is an unlawful activity as per the provisions of the Act. In another example, specifying minimum height requirement for applicant is an indirect way to reject a large group of people unless it is justified as an essential requirement to accomplish the task. Similarly, if the employer focuses on younger generation for providing training ignoring the older group with the presumption that younger group will be worth more to contributing to the organisation and for their own career advancement (Equality, 2014). Harassment and Discrimination by Association Harassment to employee will have uniform definition and interpretation that include unwanted conduct affecting a persons dignity through degrading, humiliating or intimidating behaviour. Even harassment by a third party such as contractor will make employer liable for compensation. Discrimination by association is also not spared as per the provisions of the Act. For example, Dolly is not permitted into community library with her son due to her sons disability issue. This will be termed as discrimination by association against Dolly. Discrimination by perception is also a punishable offense against employers under this Act (Equality, 2014). Victimisation Victimisation happens under the contractual agreement of maintaining ‘Pay Secrecy’ - making employees not to discuss pay details with other colleagues. It has been reported that "for every pound a man earns, a woman earns just 87 pence" (Richardson and Hoar, 2010). Under the veil of ‘Pay Secrecy’ a part time female workers earn significantly less than male worker. Since 1 October 2011, a person cannot be forced to retire at age 65 by default unless clear justification can be provided. Default Retirement Age (DRA) takes away freedom of workers to work for longer duration of years. Employers must take a note of this, otherwise they would be accused to have victimised certain group of people. Health Related Questions to Job Applicants Under the EA 2010, employers cannot ask health-related questions to applicants while offering jobs to them unless it concerns with an intrinsic necessity of the work. In other words, employer cannot design a generic questionnaire asking about health (The Equality Act 2010 and Schools, 2014). Contractual Agreement Cannot Disband Equality Law Employer cannot stop equality law to come in force. For example, employer cannot make a condition in contract that equality will not be in force. It has no legal validity and effect. No such condition mentioned in the contract with employee is enforceable lawfully. That is to say the employee can still file discrimination case against employer and ask compensation in Employment tribunal or Labour court. Similarly, mentioning in the contract that employee cannot file a claim in an Employment Tribunal has no legal validity. In another example, employer informs applicant that Equality Act is not applicable to his business. Employee accepts the given job. Later on when she becomes pregnant, she is discharged from duties. In this case, she can file her claim with the Employment Tribunal and demand remedy as the EA does not permit discrimination on the ground of pregnancy (Equality and Human Rights Commission, 2014). The Potential Consequences for Employers and Directors In the event when an employer fails to comply with any of the provisions of the Act, it can lead to serious consequences for them. Moreover, it has certain implementation costs for businesses. As per British Chambers of Commerce, “it will cost £189million for business to implement the Equality Act” (Beckford, 2010). Apart from implementation costs, significant risk increase in tribunal claims is likely due to enforcement of the EA 2010 in the UK. It is easier for the employee to file a claim or compensation case in Employment Tribunal against the employer. The EA provisions are likely to create confusion to business owners and managers leading to red tape. Business owners will refrain from recruiting people due to risks involved of violating one or other provisions of the Act leading to huge financial loss. Employers and recruiting managers will not be able to ask about health/disabilities in interview process. Employers can screen the employee health only after issuing an appointment letter to them; however, on cancellation of offer, employees will have more grounds of having met with discrimination. Though provisions are made essentially to protect people with mental and physical issues, employers will always apprehend and keep worrying while issuing an appointment letter whether the person will be perfectly fit and healthy to perform daily job needs assigned ((Beckford, 2010). While contractors are not in direct employment and control of employer yet their adverse behaviour leading to discrimination may become a liability for them if some offense is done by contractor organisation (provision of a third party harassment). For example, if a person makes racist comments at contractors premises, the firm engaging contractor will be made liable for such actions. Tribunal Courts may come hard on such happenings and firms will have to bear the brunt of it. As such, there is no upper limit to compensation award putting businesses at immeasurable risks. Mild offensive talk by someone not really directed at them can make organisation liable and punishable (Smarta, 2010). This means that stricter rules need to be formulated regarding behaviour and speech by organization and that needs to be pursued by all rigorously. Persons with certain health issues such as dyslexia can feel discriminated if they are restricted to do certain writing tasks because they are prone to spelling mistakes ((Beckford, 2010). When someone is restricted to take more sick leaves, they may feel offended and discriminated; employer may face a discriminatory suit in employment tribunals to justify their actions for not allowing sick leaves (Smarta, 2010). For there are six million home care takers in the UK and any of them can resort to ‘discrimination by association’ when they feel they have been mistreated in the office for being engaged in home duties (Smarta, 2010). Employees can freely discuss their compensation packages and this will make employers utterly conscious of bringing equality in pay packages but it also raises risk of being dragged to Employment Tribunal for presumed discriminatory treatment on pay packages (Beckford, 2010). The Equality Act has brought many complexities in its wake and businesses really wonder how they can estimate their future liabilities due to such stringent provisions. As per Martin Beckford in The Telegraph, "Experts fear the significant strengthening of anti-discrimination law will lead to a surge in employment tribunal claims as well as increasing the burden of red tape on businesses when they are struggling to recover from the recession"(Beckford, 2010). The provisions of Equality Act 2010 can make significant changes to the ways of businesses in the UK. There is no doubt that small businesses will suffer most due to their limited financial resources in managing the affairs while facing the risk of violating the provisions of the EA 2010. Many of them may halt their hiring spree until they know how Employment Tribunal responds to the cases filed by employees asking for redressal. At the same time, it is also felt that unemployment woes may worsen further due to provisions of the EA 2010 and investments may migrate to other destinations where employer can safeguard themselves from the Equality Act. The real impact of the EA 2010 on the UK businesses will be known only after a few years depending upon how Employment Tribunal reviews employee discrimination claims as more and more people file cases with the EA for redressal of their grievances. References Adams, J. A. (2011). Accounting Web. accountingweb.co.uk. [Online] Available from http://www.accountingweb.co.uk/topic/tax/incorporation-why-bother/514243 [Accessed 22 November 2014] Beckford, M. (2010). Equality Act: firms must not ask job applicants about health. The Telegraph. [Online] Available from http://www.telegraph.co.uk/news/uknews/8035606/Equality-Act-firms-must-not-ask-job-applicants-about-health.html [Accessed 22 November 2014] Corporation Tax rates and reliefs (2014). gov.uk. [Online] Available from https://www.gov.uk/corporation-tax-rates [Accessed 22 November 2014] Equality (2014). Inclusive Employers. inclusiveemployers.co.uk. [Online] Available from http://www.inclusiveemployers.co.uk/equality [Accessed 23 November 2014] Equality and Human Rights Commission (2010). Creating a fairer Britain. [Online] Available from http://www.equalityhumanrights.com/private-and-public-sector-guidance/employing-people/your-responsibility-for-others/what-happens-if-you-try-to-stop-equality-law-applying-to-a-situation [Accessed 23 November 2014] The Equality Act 2010 and Schools (2014). Department of Education. gov.uk. [Online] Available from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/315587/Equality_Act_Advice_Final.pdf [Accessed 23 November 2014] Implications of the Equality Act 2010. Social Care Institute for Excellence. scie.org.uk. [Online] Available from http://www.scie.org.uk/publications/ataglance/ataglance41.pdf [Accessed 23 November 2014] NikWis (2012). A guide to unincorporated business structures. wisteriaformations.co.uk. [Online] Available from http://www.wisteriaformations.co.uk/articles/index.php/a-guide-to-unincorporated-business-structures/ [Accessed 23 November 2014] Richardson, A. and Hoar, C. (2010). The new Equality Act and you. bbc.com. [Online] Available from http://www.bbc.com/news/business-11453052 [Accessed 23 November 2014] Smarta (2010). The Equality Act (October 1 2010): need to know for small businesses. [Online] Available from http://www.smarta.com/advice/legal/employment-law/the-equality-act-%28october-1-2010%29-need-to-know-for-small-businesses/ [Accessed 23 November 2014] This is Money (2008). Incorporating: pros and cons. thisismoney.co.uk. [Online] Available from http://www.thisismoney.co.uk/money/article-1585171/Incorporating-pros-and-cons.html [Accessed 23 November 2014] Read More