Tenancy deposits bite landlords
Tax Savings on Termination Payments
Credit cards - liability of banks on overseas purchases etc
Taxation of termination payments – Inland Revenue going up
Insolvency - Easy come, easy go?

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Tenancy deposits bite landlords

An important decision concerning tenancy deposit schemes under sections 212-215, Housing Act 2004 was delivered on Friday, 14 June 2013.

Background to tenancy deposits

Since 6 April 2007, tenancy deposits on shorthold tenancies of residential premises must be dealt with in accordance with an authorised scheme.  This requires that, within 30 days of its receipt of the payment from the tenant, the deposit is paid into an authorised scheme and that the landlord give to the tenant information in prescribed form concerning the deposit. 

Failure to comply with the requirements leads to the following consequences:

  • First, a landlord holding a rent deposit which was not paid into an authorised scheme within 30 days may not serve a valid section 21 notice for possession under Housing Act 1988.  Failure to pay the money into an authorised scheme within 30 days cannot be rectified, meaning that the deposit must be returned to the tenant before a section 21 notice can be served.
  • Second, a landlord who has not given to the tenant  the information may not serve a valid section 21 notice until the information has been given.  So default in giving the information can be remedied to allow service of a section 21 notice.
  • Third, the tenant may apply to the court for an order directing the repayment of the deposit (or for its payment into an authorised scheme) and for compensation of between one and three times the amount of the deposit.  The fact that any default in giving the information has been rectified will not exempt the landlord from liability to pay compensation.  Remedying that default simply allows the service of a valid section 21 notice.

Superstrike v Rodrigues

This case concerned a shorthold tenancy granted in January 2007 for 12 months.  Therefore, the tenancy deposit was not subject to the above requirements as it pre-dated them.  

The tenancy continued after the expiry of the 12 month period as a statutory periodic tenancy on equivalent terms.

But the Court of Appeal held that, after the original term expired, the statutory periodic tenancy was a new tenancy which became subject to the new  requirements ie that the deposit be held in an authorised scheme and that the information be given to the tenant.  As the landlord had not complied with the requirements, it was not entitled to an order for possession; and is liable to return the deposit and to pay compensation to the tenant.  Until the deposit is returned, the landlord cannot  serve a valid section 21 notice. 

Does the case also mean that landlords who complied with the requirements after April 2007 have to re-comply when the term of the original  tenancy has expired and been replaced by a statutory periodic tenancy? 

The Court of Appeal held that there is a notional repayment and payment of the deposit on the termination of the original tenancy and the commencement of the statutory periodic tenancy.  So, a landlord does not have to repay the deposit and then take a fresh deposit and then pay that into an authorised scheme.

The requirement to give information is possibly a little more uncertain.  It is probably the case that, once given, the notice is effective.  The Act provides that the information must be given “within the period of 30 days beginning with the date on which the deposit is received by the landlord.”  So, the argument is that, if the information were given at any time before the expiry of 30 days of the (notional) payment of the deposit, even if given a year or more before, it meets the requirement.  But I can see an argument that the notice must be given within that 30 day window.  So, the prudent course might be to give the prescribed information again.

Now, the decision is specific to those situations where the grant and expiry of a shorthold tenancy spanned the introduction of the tenancy deposit scheme ie 6 April 2007.  But what of those tenancies which were converted to statutory periodic tenancies before 6 April 2007?    It was argued that they, too, are caught by the requirement to pay the deposit into an authorised scheme and give information.  But the Court of Appeal decided that it was not necessary for disposal of the case before it to determine the point, so the point lives for another day.  Somewhat worryingly, the Court said that it could “see the basis for this argument on the literal words of the [Act]”.

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Tax Savings on Termination Payments

Losing your job is a painful experience. Termination payments soften the blow, but then the tax man grabs back tax on amounts over £30,000, adding to the trauma.

The answer to the problem of how to avoid tax on termination payments over £30,000 has been found – and like the invention of the wheel, it could hardly be simpler!

Tax experts have said it cannot be done, but it can and it has. What is more, any businesses can ensure that tax free benefits on termination are available to their employees at no risk to themselves.

The key point is that the compromise agreement is drafted correctly – and that is where we can help. Standard agreements will not do – it is all in our wording.

Inland Revenue has confirmed that our system works and is completely above board.

We have achieved saving for clients in a variety of scenarios: one client received a payment of £38,000 and got the tax on the whole sum back, another received £100,000 and also got back the tax on the whole lot, another received £117,000 and got the tax back on £54,000.

We have not only helped employees – we have even got tax back on severance payments to partners of law and accountancy firms. Here too, the magic is in the wording!

Not convinced? Most of our tax work is done on a No Win, No Fee basis, so you have nothing to lose. Contact us now to discuss your case in detail.

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Credit cards – liability of banks on overseas purchases

Many of you will be aware that a bank that issues a credit card is liable jointly and severally with the supplier if there is any misrepresentation or breach of contract (provided the transaction is between £100 and £30,000). So, if goods or services purchased on credit card prove to be faulty, or do not live up to promises made by the supplier at the time of purchase, you can choose to sue the bank, the supplier or both. This is particularly useful where the supplier has become insolvent or has vanished or is difficult to pursue.

Does this protection apply to goods and services purchased overseas? In October 2007, the House of Lords confirmed that it does. This further enhances the attraction of credit cards over purchases made by cash, cheque or debit card.

Liability of banks under finance agreements

The principle that makes banks jointly and severally liable with the supplier in credit card transactions also applies to purchases made on finance provided by third parties. So, if a car, electrical goods or services are purchased on finance, the bank or other party providing the finance is responsible together with the supplier for any misrepresentations or breaches of contract.

Credit cards – default charges

You will have noticed that the default charges levelled by banks under credit cards have generally reduced. They were around £20-£25 per default. The reduction follows an investigation by the Office of Fair Trading which recommended that these charges should not generally be more than £12. In doing so, the OFT added that it was quite possible that even a £12 charge was too high. The OFT also said that charges for late or missed minimum monthly payments should be reversed upon the payment being received. The reason is that the bank doesn’t suffer a loss as a consequence of a late or missed payment, but banks do not, as a matter of course, reverse or reduce the charge, although some will upon request. The climate is ripe for a court case seeking to recover a default charge. It could prove to be the most important dispute over £12.

Bank charges – overdrafts and returned cheques

While on the subject of bank charges, it is worth reporting that the OFT wants to investigate the charges on ordinarily bank accounts levelled by banks when private customers exceed overdraft limits, including the increased interest rates charged on so doing, and for returned items (ie bounced cheques and standing order or direct debit payments). A number of banks have objected to the investigation on the grounds that it is outside the OFT’s investigative remit under the Unfair Terms in Consumer Contracts Regulations 1999. The OFT has brought proceedings against the banks seeking a declaration that it can undertake its proposed investigation. The case is due to come to court in January or February 2008.

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Taxation of termination payments – Inland Revenue going up

Many people have heard or even been advised that payments up to £30,000 received on termination of their employment will be exempt from tax. While this is true to an extent, the law is largely misunderstood.

Particular confusion surrounds payments made to employees in lieu of the notice prescribed under their employment contracts. More often than not, such payments are emoluments and are taxable as income just as if the employee had worked the notice period.

Other assumptions on the availability of the tax exemption will have to be revised in the light of recent cases which have seen outcomes favourable to Inland Revenue.

These cases have given added bounce and bite to Inland Revenue's approach to claims for tax free payments. However, it should not be overlooked that an exemption is available. It may just be a little harder to find and people need to ensure their advisers know where to look.

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Insolvency- Easy come, easy go?

Recent legislation has brought about many important changes to corporate and personal insolvency. The impetus was the government's desire to encourage risk taking and an entrepreneurial culture.

Corporate insolvency
It is now much simpler and cheaper for companies in financial difficulty to get breathing space from creditors to enable it to reorganise itself. While reorganisation may lead to some people losing their jobs, creditors being paid less than the full amount of their debts and customers foregoing supplies, the hope is that the outcome for all stakeholders – employees, creditors, customers and shareholders – will be better than if a company is not saved. Some commentators have observed that the changes will make it even easier for the unscrupulous, but the overall reception has been positive

Another important change is the removal of the preferred status given to PAYE and VAT due to the revenue authorities. Their claims will now have the same rank as ordinary creditors. This means that ordinary creditors will fare better when a company goes into insolvency than they did under the old law, but the revenue authorities will fare worse. No tears from the general public on that score, but expect a “no more Mr Niceguy” attitude from the revenue on overdue PAYE and VAT.

Personal insolvency
The headline changes are

  • the reduction of the period of bankruptcy from three years to one; and
  • the requirement that a bankrupt's interest in the matrimonial home must be realised within 3 years of the bankruptcy.

The second change should prevent the rather unfortunate situation that arose out of the property crash in the early ‘90s. Many bankrupts with negative equity were allowed to keep their matrimonial homes. But when, many years later, the home had returned to positive equity, official receivers and trustees in bankruptcy came knocking to ask the bankrupt (who had long been discharged from bankruptcy) to pay over the equity.

It is worth remembering that changes to protect a bankrupt's pension were introduced in 1999. The changes on the matrimonial home and pensions law recognise a spouse's and children's interest in these assets.

The alternative to bankruptcy - the Individual Voluntary Arrangement – has also had a facelift. The procedures have been simplified and it is no longer necessary to go to court to get one. However, it is expected that the number of people seeking IVAs is likely to drop in the light of the relative attractiveness of new bankruptcy. Indeed, too beautiful in the eyes of some beholders.

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