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Matt Green provides insights on bitcoin recovery to Thomson Reuters

Posted on: January 27th, 2025 by Hugh Dineen-Lees

In a recent article published by Thomson Reuters, Matt Green, Head of Blockchain and Digital Assets, explores the topic of recovering lost Bitcoin. Alongside his co-authors, Brian Mondoh, Barrister at Titan Chambers, and Marcin Zarakowski CEO of Token Recovery, Matt addresses the common belief that Bitcoin is a decentralized network and explains how recent developments have made it possible to recover lost Bitcoin assets.

The article highlights two primary scenarios for losing Bitcoin: theft or scam, and losing access to private keys or seed phrases. They delve into the Digital Asset Recovery (DAR) process on the BSV blockchain, which allows for the reassignment of lost or stolen digital coins through valid court orders.

By ensuring compliance with court orders, the BSV network can freeze and reassign assets to their rightful owners, making the recovery process more efficient and cost-effective.

Read the full article here.

Danny Schwarz and Sophie Levitt discuss how the rise in NICs will affect property investors and landlords, in FT Adviser

Posted on: January 13th, 2025 by Natasha Cox

Head of Commercial Real Estate Danny Schwarz and Solicitor Sophie Levitt discuss how the increased rate of employer Class 1 national insurance contribution rates will impact property investors and landlords.

Danny and Sophie’s article was published in FT Adviser, 13 January 2025.

NIC Rate Hike: UK businesses brace for landlord and tenant turmoil

Rachel Reeves presented her Autumn Budget 2024 to Parliament on 30 October, to a mixed reception. One of the most controversial changes announced was that the government will be increasing the rate of employer Class 1 National Insurance Contribution (NIC) rates from 13.8% to 15%. The current rate of 13.8% is payable on the amount that an employee’s earnings exceed the secondary threshold of £9,000 per year/£175 per week. However, the increased rate will be 15% and the secondary threshold will be reduced to £96 pounds per week/£5,000 per year. These changes to employers NIC rates will come into effect on 5 April 2025, however are already posing concerns for the UK’s retail and hospitality sector.

While the increase in employer NICs aims to raise revenue for vital services, such as the NHS, and may increase funding for contributory benefits, such as the State Pension, the measure could have a profound effect on retail and hospitality businesses due to the increasing costs such businesses face and may result in shop closures, and others feeling the strain.

As a result of these changes, it is vital that property investors and landlords consider how these measures will impact their buying strategies, and tenants may well consider renegotiating their lease agreements to offset the higher operational costs which may otherwise impact their businesses.

For landlords and tenants alike, these reforms pose a number of challenges.

Operational costs

The prospect of raising employer National Insurance costs could prove to be a major setback for businesses. As a result of these reforms, businesses could be forced to face higher operational costs due to increased NICs, which would reduce their profit margins and place a greater strain on their livelihoods. For instance, it has been estimated that Tesco alone could face a £1 billion pound increase in its National Insurance bill over the course of this parliament.

Smaller and medium-sized enterprises (SMEs) are expected to be the most severely impacted as a result of these changes. SMEs often operate on tighter profit margins and many such businesses will therefore be forced to decide whether to fund the higher NICs by operating on reduced profits, cutting back on expenses or increasing their prices.

As a result, a phased introduction of the NIC threshold may be a better way for businesses to absorb the costs without passing them on to consumers in the form of higher prices.

Price increases

If a retail business opted to increase their prices of goods and services to offset the higher costs, consumer spending and demand could also be impacted as a result of the NIC hikes. Higher prices could exacerbate the cost-of-living crisis, making everyday items more expensive for shoppers.

It therefore comes as no surprise that more than 70 of Britain’s largest retailers have signed an open letter to warn the Chancellor that the NIC hike may lead to price increases and job losses throughout the high street. Some of the signatories included Aldi, Lidl, Boots, Ocado, Morrisons, Greggs and JD Sports – all of whom share concerns about the viability of such proposals.

Lease agreements

Business tenants who face the higher operational costs from the increased NIC rates may also seek to renegotiate their lease terms as a result of these changes. This could potentially lead to more flexible or reduced rent agreements since landlords are likely to be reluctant to lose longstanding tenants and will want to avoid being left with vacant properties and no rental income.

There are several ways for landlords to offer incentives and concessions to tenants to help them through this new financial burden. Temporary rent reductions could help tenants manage their cash flow during challenging times. Landlords could otherwise offer reduced rent for early renewal, waive certain fees or provide additional services such as maintenance.

Consequently, the terms of the lease could be made more manageable for tenants.

Rent arrears

Moreover, under the strain of these measures, certain landlords may also be less willing to renegotiate their lease terms and tenants may struggle to absorb the additional costs. Tenants, particularly in the retail and hospitality sectors, may be unable to generate enough income to meet their rent obligations. This could lead to higher rates of tenant defaults, leaving landlords with no choice but to forfeit their leases and to re-market the property. If landlords were left with no rental income, this would place a further strain on their finances.

There would also be additional expenses including administrative costs and legal fees when dealing with tenant defaults.

The fact that the British Retail Consortium is seeking a meeting with the Chancellor to discuss their concerns about the increased NIC rates, is proof that the scale of the new costs has the potential to cause severe financial hardship across different businesses.

Property transactions

The hike in NIC rates could affect the overall cost structure of property transactions and lead to higher property prices for buyers and sellers. Buyers may face higher purchase prices, which can affect affordability and demand in the property market. This could create a more challenging environment for property transactions, with reduced demand leading to slower market activity. 

If property investors and developers must operate on reduced profit margins, therefore, certain projects may seem less attractive or viable. This could lead to a decrease in the number of new development projects.

Higher NIC rates would also likely lead to increased labour costs for property investors and developers. This would inevitably make construction and development projects more expensive, potentially leading to higher prices for new properties.

Additionally, higher costs may be reflected by the fees of the professionals who are involved in the development projects, such as surveyors, architects and contractors.

Reduced investment

With increased costs due to higher NIC rates, landlords and tenants may also reduce investments in property improvements, expansions, or new technology, potentially slowing growth and innovation in the sector. The NIC rate hike has the potential to exacerbate economic uncertainty and make buyers, sellers and investors more cautious.

It is highly likely, therefore, that the changes will affect the overall health of the property market and have a significant knock on effect on the UK’s retail and hospitality sector.

Potential for legal disputes

Unsurprisingly, therefore, changes implemented as a result of the Budget could lead to legal disputes over lease agreements, employment terms and other obligations as parties adjust to the new financial landscape. There is also potential for businesses to struggle to comply with these new NIC regulations, which could lead to disputes with HMRC over unpaid contributions or penalties for non-compliance.

It is vital that businesses stay updated with the latest NIC regulations to ensure that they remain complaint. Payroll systems will need to be reviewed and updated to reflect the changes in the NIC rates. Compliance will reduce the risk of disputes arising from regulatory issues and will ensure a smoother operation of business.

Navigating the increased secondary NIC liability

As a result of Reeves’ proposals, the UK government estimates that 940,000 employers will face an increased secondary NIC liability. It is therefore inevitable that businesses across the UK and especially SMEs are feeling the pressure of this financial burden. It is essential for businesses to consider a variety of cost saving measures and to save price increases and redundancies as a last resort.

Landlords must also take a balanced approach and agree to renegotiate their lease agreements with loyal tenants if it is reasonable to do so. Landlords may be able to offer more flexible payment plans or allow temporary reductions with the agreement to recoup the difference at a future date.

However, maintaining open and transparent communication is fundamental.

Landlords and tenants should discuss the financial challengers together to find mutually beneficial solutions. By adopting this strategy, landlords can help their tenants through financial hardship whilst maintaining occupancy and fostering positive landlord-tenant relationships.

Looking ahead

Unsurprisingly, the proposed NIC hikes has provided cause for concern for many UK businesses in the retail and hospitality industry. From the impact on operational costs to the risk of litigation, there are a plethora of factors that must be considered if businesses are to weather the storm and remain both profitable and compliant.

In order to navigate these choppy waters, it is therefore vital that businesses seek tailored legal advice concerning their employment obligations and property agreements to ensure that they are braced for the upcoming changes and able to tackle the issues head on.

For more information on our Commercial Real Estate services, please click here. For our services in the Retail and Hospitality sector, click here

 

Matt Green comments on the rise of Big Tech lawsuits in CDR Magazine

Posted on: January 7th, 2025 by Natasha Cox

Head of Blockchain and Digital Assets and Technology Disputes Matt Green comments on the rise in litigation against Big Tech companies, and explores how regulation must adapt to provide better protection and recourse for consumers.

Matt’s comments were published in CDR Magazine, 6 January 2025.

“There have been very few useful regulatory protections for consumers, although attempts have been made under financial promotions regimes.

“There is a severe lack of protections for consumers broadly when dealing with crypto assets, particularly at retail exchanges. Under recent case law, the trend is to treat crypto exchanges like banks, which themselves are governed following hundreds of years of banking law with consumer protection in place. 

“However, these laws cannot be applied to crypto exchanges given technical and operational differences. On that basis, crypto exchanges are given wide protections for how they custody and pool assets (tilting in favour of their own interests), but consumers are left without recourse where those exchanges are unwilling to help.”

For more inforamtion on our regulatory services and crypto practice, please click here

Joanne Leach, Emma Cocker and Becci Collins examine the government’s crackdown on foreign labour exploitation, in People Management

Posted on: December 19th, 2024 by Natasha Cox

Senior Associates Joanne Leach and Emma Cocker and Solicitor Becci Collins explore the government’s recently announced plans to tighten immigration systems, and discuss how this will impact employers and employees, in People Management.

Joanne, Emma and Becci’s article was published in People Management, 17 December 2024, and can be found here.

Government cracks down on foreign labour exploitation: what employers need to know

Emma Cocker, Joanne Leach and Becci Collins explain recently announced plans to tighten immigration systems, and how they will affect business that hire overseas talent.

On 28 November 2024, the government announced that it intends to tighten immigration worker systems by extending categories of breaches, as well as strengthening sanctions. In its pre-election manifesto, the government stated that it intended “to reduce net migration through proper control and management of the visa framework”. The proposed new rules are evident of the government’s intent to “crackdown on visa abuse and prevent exploitation”.

The government proposes extending the circumstances in which sanctions can be issued to companies that sponsor overseas workers, to include those who commit serious employment breaches. It is expected that this will include the reforms proposed in the Employment Rights Bill published in October, as well as existing rights, such as the entitlement to national minimum wage. However it is unclear how a company will be judged to be in breach of employment laws. Such a finding could potentially derive from a successful employment tribunal claim, or a new regulatory body may be tasked with assessing failure to comply with minimum standards.

The current sanctions available to enforcement officers in relation to companies held in breach of immigration laws can only be issued for a period of 12 months. For those who commit repeat offences, this period will be doubled to “at least” two years, suggesting there is a possibility of longer sanction periods.

There will also to be a new initiative to take pre-emptive action against those who are suspected of committing serious breaches.  Where there are already signs of rule breaking, the government intends to use action plans to bind businesses to take specified steps to improve and correct issues. Currently, action plans can be implemented for a period of three months. However, this is to be extended to 12 months. If the required improvements are not made, the sponsor’s licence will be revoked.

Tougher rules to prevent companies exploiting cheap foreign labour should be welcomed. Workforces are strengthened by the diversity brought to organisations by migrant workers and those individuals deserve not to be exploited. This issue is also addressed by proposals that intend to prohibit exploitation by passing on the costs of recruiting overseas workers to the individual, sometimes at a premium or excessive rate. These costs can result in individuals being left with unfair and unmanageable debts to their employers. The proposal to ban these practices will help to ensure that only businesses who genuinely require overseas workers – and can afford to recruit them in a fair and respectful way – benefit from the immigration system.

Prudent employers will take the recently published statistics as a warning, indicating how seriously the government takes the issues of tackling abuse and failing to adhere to the immigration system rules. For example:

  • In October 2024, there were 856 visits conducted to businesses suspected of employing illegal workers, a 55% increase on visits carried out in October 2023.
  • Between January and October 2024, more than 6,600 visits were made, a 22% increase on the same period in 2023.
  • Between January and October 2024, over 4,600 arrests were made, a 21% increase on the same period in 2023.

The government’s intention to expand the circumstances in which sanctions can be issued to include employment law breaches, and to extend the penalty from being banned from hiring overseas workers from one year to two, will shift the compliance landscape considerably. Further extending the power of Home Office officials to permanently withdraw a company’s sponsorship licence if they breach employment laws could have catastrophic consequences for businesses relying on an overseas workforce. However, it seems that the proposed expansion only applies to companies. It may be more effective to increase the sanctions on individuals who facilitate these breaches – perhaps further changes are to come before the draft legislation reaches parliament.

It is uncertain when we can expect this law to come into effect, but we shouldn’t expect this to be the final crackdown by the government. We may also see the reintroduction of the resident labour market test, or salary thresholds and visa fees being increased. Hopefully, the government will consult early as to how these changes may be implemented but, in the meantime, companies effectively have a grace period to get their house in order.

Companies should take an active approach to ensure compliance in all areas of employment and immigration law and they should do more than take a simple ‘tick box’ approach. Employers should review their policies and procedures to ensure they are up to date and meet minimum standards to avoid the above-mentioned sanctions, as well as the reputational damage and disruption to the running of a business held to be in breach of immigration and/or employment laws.

This announcement should serve as a wake-up call to all employers that they must comply with employment laws as well as immigration rules, otherwise they will face increasingly severe consequences of enforcement.

If you have any questions about the government’s plans and how you can ensure your business is complying with employment and immigration laws, please contact a member of the Employment team.

Seasonal parties and employer liability for acts of misconduct by employees

Posted on: December 6th, 2024 by Natasha Cox

‘What happens on a staff night out, stays on a staff night out’

The holiday season is well underway with Christmas parties planned and booked. However, with seasonal joy and merriment comes a warning: inappropriate acts carried out by staff at company events can lead to liability on the part of employers.  

While it is well known and accepted that employers may be liable for inappropriate conduct by staff members in ‘the workplace’ and during office hours, employers are often less well versed in how to deal with inappropriate conduct at work-related events. So where is the line between work and non-work-related events, and how can employers best protect themselves?

Events outside the workplace and outside of working time

The law states that employers are liable for acts of harassment and sexual harassment carried out by their employees ‘in the course of employment’.

Despite this, there is a common and somewhat dangerous misconception that “what happens on a staff night out, stays on a staff night out.” This was the exact sentiment declared by a manager to Ms Pealing, a junior employee, before he attempted to place a banknote in her cleavage[1]. The respondents’ representative submitted that the manager’s conduct “wasn’t in works time, nor was it on works premises; it happened outside of work,” suggesting the employer would not be liable for the manager’s sexual harassment.

In Chief Constable of Lincolnshire Police v. Stubbs[2], the Employment Appeal Tribunal acknowledged that the dividing line between employment and off-duty conduct can become especially blurred where social events involving colleagues are concerned. Further, in Lister & Ors v. Hesley Hall Ltd[3], the House of Lords held that the question to be asked is whether the employee’s wrongful acts were “so closely connected with his or her employment that it would be fair and just to hold the employer vicariously liable”.

In the present case, the night out was attended almost exclusively by the first respondent’s employees. The premises at which the event took place was closed for the evening, and the two directors of the respondent company made a financial contribution to the night out. For these reasons, the Tribunal arrived at the unanimous view that there was a sufficiently ‘close connection’ between the employer and the incident to render it just that the employer should be vicariously liable for the manager’s sexual harassment.

The claimant in this case said she was left feeling “objectified” and “humiliated” and was awarded more than £5,000 in compensation.


Christmas parties in the employment tribunal

Each year the employment tribunal publishes a report on cases heard. This year to date, ten employment tribunal claims have cited Christmas parties and one third of the reported cases related to sexual harassment and/or discrimination related to sex.  

Employers must be aware that work-related events carry risk, in particular, where alcohol is involved. Sexual or sex-based harassment and discrimination is the largest area of risk, with the heady combination of alcohol and seasonal jollity sometimes becoming a toxic combination clouding employees’ judgement.

In addition to Ms Pealing’s case described above, there are a number of other cases which highlight the risks arising from such events, including:

  • In P v Chrest Nicholson Operations Limited[4], P’s complaints of harassment were upheld and her employer was liable, following a colleague of P attempting to kiss them whilst travelling in a taxi to a hotel following the company Christmas party, and P subsequently being raped by her colleague.
  • In Phillips v Pontcanne Pub Company Limited[5], Ms Phillips brought a successful constructive dismissal claim after she was put in a ‘playful’ headlock by a colleague during the company Christmas party which left her unconscious.


What steps can employers take to mitigate risk arising from workplace events?

While it is unlikely that employers will be able to eliminate all risks arising from workplace events, there are steps that can and should be taken both preventatively and following any complaint, to avoid escalation to an employment tribunal claim.

Preventative steps are even more important since the introduction in October of the new requirement for employers to take a positive action to prevent sexual harassment. Under the Worker Protection Act 2023 employers must take ‘reasonable steps’ to actively prevent the sexual harassment of their employees. If they don’t and the worst happens, they may be liable for compensation plus an additional uplift of 25% on the total compensation in relation to such failures. Examples of preventative steps include:

  • Carrying out risk assessments of the workplace and any particular events;
  • Implementing (or updating) policies relating to discrimination, harassment and disciplinary and grievance procedures; and
  • Training the workforce on what constitutes discrimination and harassment, the employer’s behavioural expectations and what to do if they are a victim.

As well as the positive duty to prevent sexual harassment, the law on harassment may afford an employer a defence to a claim of vicarious liability by showing that they took ‘all reasonable steps’ to avoid harassment (which is a higher bar than the ‘reasonable steps’ required under the preventative duty). An example of such a defence succeeding (albeit in the context of a personal injury claim) can be seen in the case of Shelbourne v Cancer Research UK[6] where the employer had risk assessed the event and sought to minimise any risks identified by hiring additional security guards and so they were not liable for the injuries suffered by one employee who was assaulted by another employee.

Employers should also be aware of the culture they are creating. The effect on the victim of any harassment is viewed subjectively, meaning that the effect is viewed through the eyes of the victim. As such, any claims that the behaviours were ‘banter’ or ‘a compliment’ are not an adequate defence. Employers should aim to cultivate a culture of respect and inclusivity and make it clear that discrimination and harassment will not be tolerated and will lead to disciplinary action.

If complaints of discrimination or harassment are made, these should be properly investigated, and disciplinary action meted out where necessary. In addition, complainants should never be treated less favourably for raising issues of discrimination and harassment.

How we can help

If you have any questions about employers’ duties to prevent discrimination and harassment or if you need assistance regarding employee complaints, please contact a member of our Employment team.

 

Sources:

[1] 8000363.2024_-_Miss_Freya_Pealing_v_1__The_Croft_Aberdeen_Ltd_2__Andrew_Robert_Eagar_-_Judgment.pdf (publishing.service.gov.uk)

[2] [1999] ICR 547

[3] [2001] ICR 665

[4] P v Crest Nicholson plc and Crest Nicholson Operations Limited: 3311744/2020 and 3313454/2020

[5] Phillips v Pontcanne Pub Company Ltd: 1600719/2018

[6] [2019] EWHC 842 (QB)

Joanne Leach comments on the new laws cracking down on bosses exploiting foreign workers in Personnel Today

Posted on: November 29th, 2024 by Natasha Cox

Senior Associate and employment law specialist Joanne Leach comments on the new laws just introduced that will ban bosses who fail to pay their staff the minimum wage from hiring workers from abroad for up to two years.

Joanne’s comments were published in Personnel Today, 28 November 2024, and can be found here.

“Tougher rules to prevent companies exploiting cheap foreign labour are certain to be welcomed. Workforces are strengthened by the diversity brought to organisations by migrant workers and those individuals deserve not to be exploited.

“However, extending the power of Home Office officials to withdraw a company’s sponsorship licence if they breach employment laws could have potentially catastrophic consequences for businesses which rely on an overseas workforce. This announcement should therefore serve as a wake-up call to all employers that they must comply with employment laws as well as immigration rules.

“The government’s intention to expand the circumstances in which sanctions can be issued to include employment law breaches and extend the penalty from being banned from hiring overseas workers from one year to two will shift the compliance landscape considerably. However, it seems that the proposed expansion only applies to companies. It may be more effective to increase the sanctions on individuals who facilitate these breaches – perhaps further changes are to come before the draft legislation reaches parliament.

“It is uncertain when we can expect this law to come into effect. Companies effectively have a grace period to get their house in order. To do so, they should be taking an active approach to ensure compliance in all areas. Employers should review their policies and procedures to ensure they are up to date and meet minimum standards.

“It is hoped the government also consults early as to how this change can be implemented. It is unclear how a company will be judged to be in breach of employment laws – will this finding derive from a successful employment tribunal claim or will a new regulatory body be tasked with assessing failure to comply with minimum standards?”

If you would like some advice on how these new regulations might impact you as an employer, please contact our Employment team.

Matt Green comments on the Digital Assets Bill in eprivateclient

Posted on: November 18th, 2024 by Hugh Dineen-Lees

Director and Head of Blockchain and Digital Assets Matt Green comments on the introduction of the Property (Digital Assets etc) Bill, and argues that this legislation will provide greater clarity to the treatment of cryptocurrencies and digital assets under UK law.

Matt’s comments were published in eprivateclient, 15 November 2024, and can be found here.

“Property rights allow individuals to identify and demarcate ownership. In turn, being deprived of property creates a right in either damages or for that exact property to be owed. This ensures there’s greater market confidence when dealing with property, as there are clearer legal rights to ownership, control and general treatment of that property.”

“Historically property fell into two main categories – things that are tangible and exist physically or a contractual right enforced by a legal system (such as a debt claim or contractual right to goods). Digital assets (including cryptocurrencies, digital files and records, email accounts and certain in-game digital assets, domain names, even verified carbon credits) do not fall neatly into either category.”

“Use of a negative definition as proposed in the Digital Assets Bill, future proofs how property is treated, preventing the need to return to the issue for decades to come. To give an exhaustive list of what property is limits what may or may not exist going forward, so the wording is designed to ensure policymakers and the public at large are given that freedom to treat “things” as property when required, as well as the ability to sensibly divert from the rigid definition of property when required.”

“Although a welcome change for a legal system previously often unequipped to deal with such matters, enabling a “thing” to be property even where it is not tangible or creates a legal right may create inconsistencies at common law given the broad strokes definition. However the benefit of future proofing far outweighs the potential for inconsistencies and the Law Commission included guidelines as to what may constitute property under this Bill to assist decision makers.”

“As more “things” become property at a legal level, we may see the implementation of further laws, or even Judge’s decisions, which sweep up any unanswered issues. Overall, this Bill is a huge win for those dealing in digital assets, providing much needed clarity in an economy already utilising this technology at large.”

Effects of the budget changes on owner managed businesses

Posted on: November 5th, 2024 by Hugh Dineen-Lees

Rachel Reeves finally delivered the first budget of the new Labour Government on 30 October 2024. Following intense speculation beforehand (including our own!), industry commentators in the aftermath of the announcements were suggesting that the budget was not as dramatic as they had expected. Perhaps this was more down to the carefully thought-through campaign leading up to the announcements and an excellent presentation of the changes on the day.

Most commentators have, however, pointed out that these changes will mean that businesses and entrepreneurs will be paying more tax, in some cases as soon as today. Now that the dust has settled and further analysis has taken place, we can take a look at the key changes introduced and their implications for owner-managed businesses.

Capital Gains Tax (CGT)

Business owners considering selling their company will be very interested in any changes to CGT. These were keenly anticipated, and it was confirmed that these and the tax on carried interest will rise from April 2025.

With immediate effect, the rates of CGT increased from the current 10% (for basic rate taxpayers) and 20% (for higher and additional rate taxpayers) to 18% and 24% respectively. There are special provisions for contracts entered into before 30 October 2024 but completed after that date. Anti-forestalling rules were also introduced with immediate effect which can, in certain circumstances, apply to unconditional contracts entered into before 30 October 2024 which were not completed by then. The rates for selling second properties remain at 18% and 24% respectively.

The CGT rate for Business Asset Disposal Relief (BADR), which can apply to lifetime gains of £1m on certain disposals by employees and directors in their unlisted businesses, will continue. However, the tax rate will increase from the current 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. It has been calculated that this will mean an increased bill of up to £80,000 for those planning to sell their businesses after April 2026.

Investors’ Relief (IR) provides for a lower rate of CGT to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met, previously subject to a lifetime limit of £10m of qualifying gains for an individual.

It is aimed at encouraging entrepreneurial investors to inject new capital investment into unquoted trading companies.

The CGT rate for IR, which applies in similar circumstances to BADR but where the investor is unconnected with the business, will increase in parallel with the BADR rates. Furthermore, the lifetime limit for this relief will also reduce from £10m to £1m for disposals made on or after 30 October 2024, significantly limiting its financial benefit going forward.

Carried interest changes

Carried interest refers to the performance-related rewards received by fund managers, primarily in the private equity industry. Previously, carried interest was taxed at lower capital gains tax rates, compared with income tax rates. The Budget changes included an increase in the CGT rate for all carried interest gains to a new flat rate of 32%, applying to carried interest arising on or after 6 April 2025. This is a temporary measure ahead of wider reforms that will apply from the following tax year. From 6 April 2026 a specific tax regime for carried interest will be introduced, moving it from the CGT framework to income tax. All carried interest will then be treated as trading profits and subject to Income Tax and National Insurance Contributions (NICs). However, the amount of ‘qualifying’ carried interest subject to tax will be adjusted by applying a multiplier resulting in an effective tax rate at 34.1% including NICs. Some might see this change as somewhat cosmetic, but it seeks to deal with some of the negative perceptions about carried interest representing remuneration rather than true capital gains.

These are all significant changes but, according to an analysis by Grant Thornton, this “still presents an attractive environment for management incentives and investors and is unlikely to discourage ongoing deal activity”. They “therefore expect the impact on M&A to be less severe than anticipated with the announcements ensuring the UK remains an attractive and internationally competitive environment for investors”.

Changes to Inheritance Tax (IHT)

While the CGT announcements were not as drastic as some had been speculating, the IHT reforms present a substantial shift in the tax landscape, especially for entrepreneurs and business owners. The changes introduced in the budget have particularly alarmed farmers and small business owners as from 6 April 2026, a 20% tax rate – half the headline inheritance tax rate of 40% – will be applied to the value of farms and businesses worth more than £1m when they are passed on.

The existing 100% business property relief and agricultural property relief will continue only for the first £1m of combined agricultural and business property after 6 April 2026. The rate of relief will be 50% thereafter, effectively making this a 20% IHT charge.

This presents a risk for family business owners as well as their companies, which will no doubt have to play a major part in funding any IHT that is due.

Changes to National Insurance contributions

From April 2025, employers’ NICs will increase from 13.8% to 15%. The threshold at which employer NICs become payable will fall from £9,100 to £5,000. To help mitigate these additional NICs costs for smaller employers, the employment allowance (which allows businesses whose annual NICs bill is less than £100,000 to reduce their NICs costs) will increase from £5,000 to £10,500 per year, and will apply to all businesses as the £100,000 threshold will be removed.

These changes present a challenging scene for our retailer and hospitality clients. The changes in NICs will be accompanied by increases to the National Minimum Wage and National Living Wage rates. This rising cost base will be particularly felt by people heavy businesses, perhaps making life on the high street even harder.

Ricardo Geada explores the ban on disposable vapes in The Times

Posted on: November 3rd, 2024 by Hugh Dineen-Lees

Director and Head of Regulatory Solutions Ricardo Geada explores the recently announced ban on single-use disposable vaping products, and argues that it may cause non-nicotine products to be caught in this regulatory dragnet.

Ricardo’s article was published in The Times, 31 October 2024, and can be found here.

Last week, the government confirmed that the sale and supply of single-use disposable vapes will be banned in England & Wales. The ban, which will come into force from next June, was inevitable, and the devolved nations of Scotland and Northern Ireland are set to follow suit.

Its stated intention is to protect children’s health and to prevent environmental damage. Some aspects are positive. For example, limiting flavours and colours that appeal to under 16-year-olds is a sound approach to minimising underage user numbers. But however well-intentioned, the ban will probably lead to an increase in both the sale and use of illicit, unregulated vaping products. Illegal vapes are much more likely to contain other harmful chemicals, which could, in turn, create serious public health issues.

Single-use vape legislation, first announced in January by the previous Conservative government, was not enacted before the July general election. The new Labour government then picked up the baton. But simply because cross-party consensus exists in principle does not automatically make legislation right in practice. Improper use could also be limited by implementing better enforcement on trading standards to prevent children under 16 having access to vapes.

Manifestly, the most effective way to prevent the unsafe use of vaping products is to create a robust regulatory framework that can be properly enforced by trading standards, unfortunately they like many other government departments lack the adequate funding and resources required. 

Nonetheless, measures must be taken to address safety and social concerns surrounding disposable vapes, such as underage use and potential fires resulting from the lithium-ion batteries used in them, as well as the adverse environmental effects of litter and the lack of sustainability in single-use products. According to Defra, five million single-use vapes were either littered or thrown into general waste every week last year.  

To the extent that it is both practical and financially feasible, companies that sell single-use vapes may have to retrofit their products in order to make them compliant with the new regulations.

But there are other consequences: the single-use ban extends to both nicotine and non-nicotine-based products. It therefore includes Cannabidiol (CBD) vapes which do not contain nicotine and are non-addictive. In fact, the reverse may apply, CBD vapes are heralded by some advocates for their potential and varied health benefits.

Although CBD vaping has been on the rise in recent years, unfortunately for companies that manufacture CBD vapes, their sector is still relatively small and does not have the financial resources of big tobacco. So, for many of these CBD companies it may prove difficult to access the necessary finance to re-engineer their existing products in order to bring them in line with the imminent regulations.

Only time will tell whether this ban will have the desired effect or if it will simply open up untested and harmful vape products on the illicit market.

Autumn Budget: Potential changes of concern to owner managed businesses.

Posted on: October 24th, 2024 by Hugh Dineen-Lees

As the Autumn Budget approaches on 30 October 2024, speculation is rife about potential changes. Labour has pledged to make the tax system fairer, delivering economic stability with tougher spending rules, and growing the UK economy at the same time.

There has been much commentary regarding how to address the ‘£22bn black hole’ in the government’s finances identified by the incoming government. But having ruled out changes to the rates of the UK’s major taxes, the government has been left with fewer options to raise revenue. The implications of these for owner managed businesses could be significant, particularly changes to Capital Gains Tax (“CGT”), Business Asset Disposal Relief (“BADR”), increases to National Insurance Contributions (“NIC”) from Employers, and changes to Inheritance Tax (“IHT”) Business Relief (“BR”).

Here’s a look at what might be on the horizon:

Increase in CGT rates

Presently, the CGT rate for basic rate taxpayers is charged at 18% on disposal of residential property and 10% for all other assets. The CGT rate rises to 24% on residential property and 20% on other assets for higher or additional rate taxpayers.

In addition, if you qualify for BADR, CGT is charged at a reduced rate of 10% for the disposal of qualifying business assets.

Compared to income tax, where higher and additional rate taxpayers are charged 40% and 45% respectively, CGT is significantly lower.

As such, it is widely speculated that the Government may increase the rates of CGT. There are two potential methods being considered. The first approach involves aligning the lower CGT rate on all other assets with the higher rate applied to residential property, thereby creating a uniform CGT rate for all asset disposals. Alternatively, the Government might adopt a more aggressive strategy by aligning CGT rates with income tax rates.

Reducing or removing the CGT annual exemption

Individuals currently benefit from an annual exemption of £3,000 for CGT. In recent years, the annual exemption has gradually decreased, with the latest reduction to the CGT annual exempt amount taking effect in April 2024, lowering it from £6,000 to £3,000.

In line with recent trends, where the annual exemption has gradually diminished, it would not be surprising to see the annual exemption being reduced further or even being removed altogether.

Reduction or removal of the lifetime limit for BADR

As set out above, BADR entitles certain individuals (if they qualify) to benefit from a reduced rate of CGT. Currently, there is a lifetime limit of £1 million, thereby allowing entrepreneurs to benefit from a lower rate of CGT on the first £1 million of lifetime chargeable gains.

It is speculated that the Government may either lower the £1 million lifetime limit, reducing the tax savings available for investors or entrepreneurs.

Alternatively, the Government may opt to abolish BADR entirely. Business owners would have to pay the standard 20% (if not more if the government decide to increase the CGT rate) on all gains.

Increases to National Insurance Contributions from Employers

The Labour party committed in its manifesto not to increase national insurance contributions for working people. However, it did not rule out increasing the contribution from Employers which has led to speculation from informed commentators that they may increase this by 1%, making the new rate 14.8%.

While on the face of it, the predicted increase affects only employers, however there are concerns that raising employer NICs in an already stretched economy would negatively affect growth, ultimately leading to businesses having less money to invest in their staff, so that the burden would nevertheless ultimately fall largely on working people.

The Office for Budget Responsibility has commented that any rise in employer NICs would be passed onto workers and ultimately to consumers. Businesses may respond to the rise by limiting pay rises, reducing staff numbers, freezing recruitment and scaling down employee benefits. There are also arguments that the increase may complicate and distort the tax system and the jobs market, stymying the economy.

Changes to Inheritance IHT Business Relief

When children are an integral part of the running of a business, many business owners choose to gift or transfer shares in their business to them. Gifts such as this may not only be subject to CGT, but may also be subject to IHT. In these instances, BR may be available to reduce any unexpected IHT arising.

Where available, the relief reduces the taxable value of qualifying assets by either 50% or 100% depending on the circumstances.

Rumours ahead of the upcoming Budget are suggesting that we could see changes to IHT BR. This could now be capped at anywhere between £500,000 and £1m per person, removing the reliefs that currently apply without limit on qualifying assets meeting certain requirements. IHT Business Relief changes could the have a significant impact on business legacy.

When will these likely changes happen?

It is unclear what date that these changes will take effect from. There is potential that these changes may be brought in with immediate effect following the conclusion of the Autumn Budget from 30 October.

Alternatively, the Government could choose for any changes to the CGT rates to take effect upon the commencement of the new tax year – 6 April 2025.

The Government’s final decisions will be revealed on 30 October 2024 and there is considerable uncertainty what the upcoming changes may be. Please do not hesitate to contact us for further details about how the upcoming Autumn Budget may impact you.

Asim Arshad discusses the FCA’s crackdown on crypto ATMs in Law360

Posted on: October 14th, 2024 by Hugh Dineen-Lees

Senior Associate Asim Arshad examines the FCA’s first criminal prosecution over the unlawful operation of crypto ATMs, and discusses the wider implication of this crackdown for both lawyers and crypto businesses in the UK.

Asim’s article was published in Law360, 11 October 2024, and can be found here.

On Sept. 10, the U.K.’s Financial Conduct Authority launched a criminal prosecution against Olumide Osunkoya, the first of an owner of a firm enabling crypto asset trading, who pled guilty to the charges. The regulator announced that it had secured its first conviction on Sept. 30 for two offenses relating to the unlawful operation of multiple crypto automated teller machines that were not registered with the FCA.[1]

This article will examine the wider implications for lawyers of that decision.

The FCA alleges that, between December 2021 and September 2023, machines operated by Osunkoya across multiple locations processed crypto transactions with a combined value of £2.6 million ($3.4 million).

It is clear that the regulator is starting to clamp down on crypto activities associated with money laundering.

The FCA confirmed that this is its first criminal prosecution relating to unregistered crypto asset activity under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Over the past two years, the regulator has inspected dozens of locations suspected of hosting crypto ATMs, and last month stated that there are no legal crypto ATM operators in the U.K. Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said: “If you’re using a crypto ATM, you are handing your money directly to criminals.”[2]

Overly Aggressive

The FCA’s position is clear: Crypto ATMs are inherently problematic. As a result, legitimate operators who value regulatory compliance are being actively deterred from considering the U.K. as a potential jurisdiction in which to locate them.

The prosecution of Osunkoya demonstrates the FCA’s commitment to taking enforcement action against unregistered crypto asset businesses. It is an unambiguous signal to those operating within the sector that the regulator will actively pursue transgressors via criminal charges, civil proceedings, or both.

This is not unprecedented. Through previous enforcement action, the FCA has shown itself willing to act, not least because firms operating in this sector are perceived to be a greater risk in terms of money laundering and potential misuse by bad actors.

In its inaugural crypto-related enforcement action in July, the FCA imposed a £3.5 million fine on CB Payments Ltd., part of the Coinbase Group, for breaching requirements imposed under the Electronic Money Regulations 2011.[3]

Crypto ATMs

In their simplest form, crypto ATMs enable users to deposit cash that is converted into crypto-assets. The machine records the deposit, either generating a wallet for the user or requesting the user’s public wallet address to which the crypto can be sent. Operators typically earn fees from these transactions.

Crypto ATMs are often fitted with a camera that records the user making the deposit; some also require the user’s ID documents to be scanned, allowing their details to be recorded.

This functionality enables easy, almost immediate conversion of cash to crypto. Some ATMs offer bidirectional functionality, enabling both the purchase of crypto and the sale of crypto for cash. Some ATMs require little or no personal information, providing the user with the additional benefit of privacy, or even complete anonymity.

Although crypto ATMs are not inherently illegal, to operate one requires registration with the FCA. As noted, currently, there are no registered crypto ATM operators in the U.K.

It is important to note that the same requirements do not apply to crypto purchases made via more traditional methods, such as a centralized exchange.

Illicit Use of Crypto ATMs

The privacy afforded by crypto is attractive to criminals, particularly those who seek to launder illicit money and obfuscate any audit trail. Globally, authorities in multiple jurisdictions have moved to shut the machines down because they provide an ideal conduit for laundering money, with limited traceability on where funds originate and where they are sent.

Although this regulatory approach is becoming more common, it should not be automatically assumed that everyone who uses a crypto ATM is party to a criminal transaction.

Impediment to Thriving U.K. Crypto Industry

It can be argued that the FCA should narrow its focus toward enhanced monitoring and regulatory compliance. It may also be said that its objective should be to ensure that crypto ATMs and, therefore, those operating and profiting from them, require customer identification and appropriate know-your-customer steps before customers can transact.

Another means of regulating the marketplace would be to create a customized set of KYC rules for crypto ATMs that would potentially mitigate their use for criminal activity.

Technology might play a part in making this work. For example, fingerprint or facial recognition technology could be used to validate an individual’s identity and enhance KYC checks. This could be undertaken in conjunction with the scanning of a passport, where a live camera scans an individual’s face and matches it to the passport photo, while background checks are simultaneously undertaken on the passport itself.

Regulatory authorities in some other jurisdictions take a different view. Crypto ATMs can be found in multiple countries, with more than 1,000 located in various European Union member states, for example.

Worldwide, users seeking to access crypto and bypass the traditional banking system can access more than 37,500 crypto ATMs, according to data provider AltIndex.[4]

Therefore, those who do wish to use them have perfectly legal options in diverse global locations.

The FCA’s excessively antagonistic language may deter crypto users who do value regulatory compliance from considering the U.K. as a potential jurisdiction to be located. Manifestly, choosing the U.K. in the current climate would be an unlikely option for any crypto ATM operator.

As current regulations stand, crypto companies wanting to operate in the U.K. must first register with the FCA, which assesses them under anti-money laundering and other regulations.

In its latest annual report published in September, [5] the FCA noted that it had rejected 87% of the applications received from crypto-asset companies seeking clearance for their money laundering defenses.

The regulator also issued 450 consumer alerts against crypto-asset promoters — only three months after rules against misleading marketing were tightened.

The charges brought against Osunkoya highlight the importance of compliance in the crypto sector, serving as a stark reminder for crypto asset businesses about the risks of noncompliance.

Conclusion

Given that the FCA is monitoring the crypto ATM sector through active policing, enforcement and prosecution, organizations in the U.K. need to take a similarly proactive approach to KYC and related protocols through constant monitoring and adaption. This means complying with the spirit of what the FCA wants, rather than just the bare minimum.

Read more here. 

Danny Schwarz and Stephen Dodge discuss the redevelopment of Oxford Street in Property Week

Posted on: October 2nd, 2024 by Hugh Dineen-Lees

Head of Commercial Real Estate Danny Schwarz and Trainee Solicitor Stephen Dodge explore the proposed pedestrianisation of Oxford Street, and discuss its potential impact on London’s retail and hospitality sectors, in Property Week.

Danny and Stephen’s article was published in Property Week, 2 October 2024, and can be found here.

Facelift will revive Oxford Street

Some shops may lose out, but pedestrianisation plan will broaden iconic retail destination’s tenant mix.

Last month, London mayor Sadiq Khan announced radical plans to pedestrianise London’s iconic Oxford Street. This proposal, Khan’s second for the famous high street, appears likely to succeed thanks to a Labour-led Westminster council, and for Oxford Street the timing could not be better; it is ripe for revitalisation.

The pandemic resulted in a slew of notable Oxford Street shop closures. With tourism statistics showing footfall is still yet to fully recover, it is clear that the retail district is struggling. This is hardly surprising; Oxford Street is often not London’s most desirable destination. Its pavements are cramped, the thoroughfare is plagued by antisocial drivers and the shopfronts are infested with much-derided American candy shops.

So, how will pedestrianisation breathe new life into Oxford Street? Case studies on the pedestrianisation of locations such as nearby Carnaby Street or Copenhagen’s Strøget Street are telling. Despite objections from business owners, particularly restaurateurs, these streets were closed to traffic and experienced significant increases in footfall. Local businesses benefited from an increase in customers.

However, there are risks involved in this latest proposal for Oxford Street. Prior to the announcement of plans for pedestrianisation, the post-pandemic rebound was in full swing on the street. Property vacancies are down 40% from 2023, with leasing activity breaking records in that year and remaining high now. With rents rising for commercial tenants on and around Oxford Street, mere speculation on the pedestrianisation proposal is likely to see rents continue to spike. The value of freehold titles could similarly creep upwards.

Tenants subject to upcoming rent review may see rates rise far beyond their short-run means and there is a risk that landlords may see an opportunity to trade up tenants, exercising break clauses to hike rents. Property lawyers will be busy with a flurry of breaks, renewals and disputes.

However, tenants on fixed rents may be buoyed by increased footfall and have a highly profitable few years. Tenants with high-volume businesses also stand to win regardless of their rents, as greater footfall will correlate directly to sales.

Winners and losers
Unfortunately, not everyone will be a winner as a result of Khan’s proposal. Low-volume luxury shops are often more reliant on patronage from customers who arrive by car and may prefer to move elsewhere, as their clients will not wish to brave crowds. At the other end of the spectrum, accessibility will be hampered by pedestrianisation, further inconveniencing those reliant on cabs or buses.

If these long-standing and successful luxury businesses fail, landlords will be seriously affected. Those who relied on the status quo, and did not obtain adequate guarantees or security at their last lease renewal, may also find themselves as low-ranking creditors in protracted insolvencies.

What is clear is that disruption creates opportunity and Oxford Street has already begun to change – no longer are all leases on the high street exclusively for retail use. Parts of John Lewis and similar buildings are being converted to office space, bringing a new type of consumer to the area, while parts of Debenhams are being converted for leisure use, alongside the openings of new entertainment venues. Spaces left behind in the ongoing – and welcome – retreat of American candy shops are similarly ripe for conversion into cafés, which could apply for pavement seating.

A new type of tenant, with a new clientele and different priorities, is coming to Oxford Street. Landlords may find it difficult to adjust to this new normal, but those who can be flexible and see the potential in their new tenants stand to gain from the new face of London’s iconic retail district.

If you would like further information regarding your obligations as tenants/landlords of retail spaces, please contact a member of our Commercial Real Estate team.