A summary of some of the headline legal changes relevant to commercial organisations anticipated in 2017:
1. NON-FINANCIAL REPORTING
Under new regulations, certain companies and groups (namely traded companies (those listed on a regulated market), banking companies, authorised insurance companies and companies carrying out insurance market activities) which are not small or medium sized and which have more than 500 employees, are required to prepare a non-financial statement as part of their strategic report.
The non-financial statement must address environmental, social and employee-related matters, respect for human rights, anti-corruption and bribery matters. The statement, which will form part of the strategic report, will include a description of the policies, outcomes and the risks related to those matters and companies will be required to explain any non-pursuance of policies in relation to those matters.
Timeframe: The regulations will apply to financial years of companies and qualifying partnerships commencing on or after 1 January 2017.
2. TAX FREE CHILDCARE
A new scheme will allow working families to be able to claim 20% of childcare costs for children under 12. Claims will be capped at £1,200 per child per year. The new scheme will be operated centrally rather than by individual employers.
The current childcare vouchers system will remain open to new entrants until the new scheme launches. Individuals who wish to remain within the old system will be able to do so while their employer continues to operate it. However, after the new scheme launches, employers cannot offer vouchers to new employees on a tax-exempt basis.
Timeframe: Expected early 2017.
In October 2016, the prime minister, Theresa May, announced she would begin the formal Brexit negotiation process by serving the required Article 50 notice before the end of March 2017. In early November, a High Court ruling that the royal prerogative did not empower the government to serve the notice threw a question mark over this. Following an appeal by the government, we now await the judgment of the Supreme Court, expected in early 2017, to see if the prime minister will be able to stand by her announcement.
Timeframe: By end of March 2017.
4. APPRENTICESHIP LEVY
Employers with a total payroll which exceeds £2.8 million in the previous tax year (or is expected to reach £3 million in the current tax year) will need to pay an apprenticeship levy of 0.5% of their paybill. Businesses will then be given a digital voucher to exchange for apprenticeships in the government's bid to create 3 million new apprenticeships by 2020.
Timeframe: The levy will come into force on 6 April 2017.
5. IMMIGRATION SKILLS CHARGE
The immigration skills charge, introduced under the Immigration Act 2016, will be payable from April 2017 by all employers who are registered sponsors for the points based system which is designed to discourage employers from recruiting from outside the EEA. Following a review by the Migration Advisory Committee the proposal is to set the charge at £1,000 per employee per year.
Timeframe: The immigration skills charge will be payable from April 2017.
6. NEW STATUTORY EMPLOYMENT PAYMENTS
The weekly rate of the following statutory employment payments will increase (figures in brackets show the current rates):
- sick pay (SSP) will be £89.35 (£88.45)
- maternity pay (SMP) and (maternity allowance) will be £140.98 (£139.58)
- paternity pay (SPP) will be £140.98 (£139.58)
- shared parental pay (ShPP) will be £140.98 (£139.58)
- adoption pay (SAP) will be £140.98 (£139.58)
Timeframe: The increase normally occurs on the first Sunday in April, which would be 2 April 2017, although the government has suggested that the increases will take effect from 10 April 2017.
7. NATIONAL MINIMUM WAGE
The rates for the national minimum wage (NMW) will rise as follows (figures in brackets show the current rate):
- workers aged 21 to 24 over: £7.05 (£6.95)
- workers aged 18 to 20: £5.60 (£5.55)
- young workers aged under 19 but above compulsory school age who are not apprentices: £4.05 (£4.00)
- apprenticeship rate: £3.50 (£3.40)
The national living wage (NLW) for workers aged 25 and over will also increase from April 2017 from £7.20 to £7.50.
From April 2017 all rates of NMW and the NLW will be uprated in parallel every 12 months.
Timeframe: The rates will increase from 1 April 2017.
8. GENDER PAY GAP REPORTING
Under new regulations, private and voluntary sector employers in England, Scotland and Wales with at least 250 employees will be required to publish gender pay gap figures.
Every 12 months extensive information on the organisation's gender pay gap (based on a 'snapshot' of pay as at 30 April) must be published on a searchable UK website that is accessible to employees and the public. A written statement confirming accuracy and signed by a director must accompany the data.
Timeframe: The regulations are expected to come into force on 6 April 2017 and organisations will need to take a snapshot of data as at 5 April 2017 and publish their first gender pay report by 4 April 2018 at the latest. Thereafter, reports must be published every 12 months.
9. LATE PAYMENT REPORTING
The government has recognised that small and medium sized UK businesses often suffer due to the payment practices of larger customers and plans to introduce greater transparency through a new reporting requirement on prompt payment practices.
Under draft regulations, companies who have exceeded two or more of the following: (i) annual turnover of £36 million; (ii) a balance sheet total over £18 million and (iii) on average, more than 250 employees, on both of the last two balance sheet dates will need to publish details of their payment practices twice yearly on a website to be provided by the government.
Timeframe: Expected to come into force on 6 April 2017 and apply to financial years starting on or after that date.
10. SALARY SACRIFICE
From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income. However, this change will affect types of salary sacrifice arrangements differently, not all benefits in kind will be within the new regime. Notably, pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt and will continue as before. Salary exchanged for intangible benefits, such as flexible working or the buying of additional holiday will also be unaffected.
The benefits in kind which will be affected include private medical insurance, cars, health screening and the provision of assets such as mobile telephones, TVs, computers and other white goods where offered through salary sacrifice.
Timeframe: The changes will come into force from April 2017.
11. CORPORATION TAX REFORMS
In its 2016 Autumn Statement, the government confirmed that it would be introducing a restriction to the extent to which large international companies can reduce their UK corporation tax liability by way of deductions for interest payments.
Currently, companies are permitted to deduct all interest payments made from their turnover for the purposes of calculating their corporation tax liability, providing that such financing arrangements are on an arm's length basis.
However, the new proposals will only apply to large multinational groups, broadly those whose: (i) annual net interest expense exceeds £2m; (ii) net interest expense exceeds 30% of EBITDA; and (iii) net interest to earnings ratio in the UK exceeds that of the worldwide group.
The exact deduction limits for such multinationals have not yet been published by the government.
Timeframe: The restrictions will take effect from April 2017.
12. DIRECT MARKETING
The Digital Economy Bill includes an amendment to the Privacy and Electronic Communications (EC Directive) Regulations 2003 which will introduce personal liability for directors in relation to nuisance calls. The ICO will be able to issue fines of up to £500,000 to each company director for nuisance calls.
Timeframe: Spring 2017.
13. GREAT REPEAL BILL
The Queen's speech (in April or May 2017) is expected to contain details of the Great Repeal Bill which will repeal the European Communities Act 1972 in preparation for the UK's exit from the EU. The House of Commons Library has published a research paper which considers some of the key issues surrounding the proposed Bill.
Timeframe: The draft Bill is expected in April/ May 2017.
14. MONEY LAUNDERING DIRECTIVE
The Fourth Money Laundering Directive is designed to strengthen the EU's defences against money laundering and terrorist financing. It applies (amongst other entities) to most financial institutions and includes provisions in relation to due diligence, beneficial ownership information relating to corporate and other legal entities, reporting obligations, data protection, record keeping, policies, procedures and supervision.
Transposition of the Directive may have a wider effect on UK businesses generally, with changes expected to the persons with significant control (PSC) register regime.
Timeframe: The Directive must be implemented by 26t June 2017. There was a proposal to bring this forward to 1 January 2017 but a number of member states have expressed concern about amending the original timetable.
15. TAX EVASION CRIMINAL OFFENCE
A new offence to criminalise corporate bodies which fail to prevent an associated person from facilitating the fraudulent evasion of tax, either in the UK or overseas, is due to be implemented. The offence will apply in three situations:
- where a UK based corporation fails to prevent those who act on its behalf from criminally facilitating a UK tax loss
- where a non-UK based corporation fails to prevent those who act on its behalf from criminally facilitating a UK tax loss and
- where a UK based corporation fails to prevent those who act on its behalf from criminally facilitating a tax loss overseas, where the jurisdiction suffering from the tax loss has laws in place equivalent to those in the UK ie, where there is dual criminality.
Timeframe: Due to be implemented by 30 September 2017.
16. PAYMENT COMPLAINTS SCHEME
It is proposed that part of the new Small Business Commissioner's remit will include a payment complaints scheme to support small businesses who are experiencing payment issues in connection with the supply of goods or services to a larger business.
Large businesses will need to familiarise themselves with the complaint scheme proposals so they are able to respond, should they be faced with a complaint. The scheme will not just relate to late payments/ failure to pay but also encompasses requests for a new fee, alteration of agreed price/ fees and requests for fees included in the contract between the parties which have not previously been relied on.
Timeframe: A consultation on the proposed scheme closed on 7 December 2016. Implementation in 2017 is anticipated, probably coinciding with the appointment of the Small Business Commissioner expected to occur in Autumn 2017.
17. UNITARY PATENT
It is proposed to introduce a unitary patent which would create a single patent valid in the majority of EU member states together with a unified litigation system under a new Unitary Patent Court whose decision will have effect in all signatory countries. It is proposed for one of the three central division courts to be situated in London.
Timeframe: Likely to come into operation during 2017.
18. CORPORATE GOVERNANCE REFORM
The government has announced a review of certain areas of corporate governance in response to public concern over decision making and accountability within large UK businesses. It has published a Green Paper in which it invites comments on a range of options for updating the corporate governance framework with an aim of restoring public confidence and supporting companies in taking better decisions. The Green Paper focuses on the following areas of corporate governance reform:
- shareholder influence on executive pay
- increasing the connection between boards of directors and other groups with an interest in corporate performance, such as employees and suppliers
- extending features of the corporate governance regime to large privately-held businesses
Timeframe: The consultation runs until 17 February 2017. It is anticipated that corporate governance will be a key focus during 2017.
19. ABOLITION OF CORPORATE DIRECTORS
The abolition of corporate directors is one of the transparency provisions envisaged by the Small Business Enterprise and Employment Act 2015. It was originally expected to be implemented in October 2016 but exceptions to the proposed prohibition are 'still under development' so the date has slipped.
Timeframe: Likely to be implemented during the course of 2017.
20. VAT/ PENSION SCHEMES
HMRC is changing the policy for the recovery of input tax in relation to the management of pension schemes.
The current simplified method for VAT recovery, the 30:70 split regime, is to be withdrawn with effect from 31 December 2017. From that date, sponsoring employers will only be able to recover input tax incurred on services relating to final salary pension schemes if there is evidence (at the relevant time) that the sponsoring employer receives the service in question, and in particular is a party to the contract under which those services are delivered and has paid for the services and receives a VAT invoice.
Timeframe: The change to the VAT regime will take effect from 31 December 2017 (or such later date as HMRC may set if it is decided to extend the transitional period).