Restrictive covenants: compromise agreements

compromise agreementWhen an employment is terminated the employee may enter into an agreement with the former employer to accept a payment “in full and final settlement” of all of the outstanding claims against the employer. In doing this, the employee accepts that the sum payable satisfies claims and legal rights that arise either under the terms of the employment or statutory provisions. The employee therefore gives up his or her rights to pursue claims before an Employment Tribunal or in the courts. Agreements of this kind find their origins in The Trade Union Reform and Employment Rights Act (1993). This legislation refers to “compromise contracts or agreements” which bind both parties to the agreement.

By agreeing not to pursue claims before a Tribunal or Court, the employee is giving an undertaking that restricts conduct. It follows that any sum given in respect of that undertaking falls within Sections 225 to 226 ITEPA 2003 (see EIM03601). Such a sum is not within the terms of Statement of Practice 3/1996 (see EIM03610) because the parties themselves are attributing a value to the undertaking. So where the agreement attributes a specific sum to this undertaking it is taxable.

Such an attribution is not very common. Usually, no specific sum is attributed to this undertaking in the agreement so there is no charge in respect of it.

Compromise agreements often contain a “repayment clause”. Such a clause provides that if the employee does later initiate proceedings before a Tribunal or Court – despite signing the agreement – then the sum paid under the agreement must be repaid to the employer. In a normal case, do not argue that such a clause means that a sum is being attributed to the undertaking not to pursue claims. In virtually all cases, the sum paid under the agreement can be fully attributed to settlement of the claims being dealt with. So there is no sum remaining to be attributed to that undertaking, even where there is a repayment clause.

If the employee does repay such sums, there is no provision in the legislation that gives any deduction for that payment.

Can a charity have a political purpose?

Charities and the LawTo be a charity, an organisation must be established for charitable purposes only, which are for the public benefit.  A charity cannot have a political purpose.  Nor can a charity undertake political activity that is not relevant to, and does not have a reasonable likelihood of, supporting the charity’s charitable purposes.   An organisation will not be charitable if its purposes are political

Whilst a charity cannot have political activity as a purpose, the range of charitable purposes under which an organisation can register as a charity means that, inevitably, there are some purposes (such as the promotion of human rights) which are more likely than others to lead trustees to want to engage in campaigning and political activity.

Here are some examples which might illustrate what would be accepted or rejected by the Charity Commission

Example 1

An organisation set up to oppose a new runway at an airport applies for charity registration. The commission would reject the application as having a political purpose, as it would oppose the government’s policy on airports.

Example 2

An organisation set up to protect the environment applies for charity registration. The organisation carries out a range of activities, including some political activity aimed at securing a change in the government’s policy on airports. The commission would accept the application if it was clear that securing a change in government policy was not the continuing and sole activity of the charity, but part of a wider range of activities aimed at furthering its charitable purposes.

Example

An organisation which has been established to protect life and property by the prevention of all abortions applies for charity registration. Since the purpose can only be achieved through a change in law, the commission would reject the application as having a political purpose.

More details can be found here

Changing Your Charity’s Financial Year

You cannot change your charity’s financial year or period if your latest annual return and accounts (if required) are overdue.

charity collecting tinRules for charities that are not companies

If your charity is a charitable incorporated organisation (CIO) or unincorporated (not a company) you can change the financial year or period to run for more or less than 12 months.

It needs to be a minimum of 6 months, and no longer than 18 months.

You can only:

  • change the dates for your current financial year
  • make a change once every 3 years

Changing your financial year or period will also change your deadline for filing the annual return and accounts.

Rules for charities that are companies

If your charity is incorporated (a company) you can shorten your financial year or period as often as you’d like.

The minimum period you can shorten it to is 1 day.

You can lengthen your company’s financial year to a maximum of 18 months, but this can only be done once every 5 financial periods.

Rules for newly registered charities

If your charity is newly registered, and you have not submitted an annual return you will need to request permission to change your financial year.

To sign in and change your financial year you will need your:

This password gives people in your charity access to detailed information about your charity and individuals connected with it.

When giving access to this password you need to have measures in place to make sure the system is only used for proper purposes, and that the information accessed through the Commission’s services will be treated carefully and sensitively and in accordance with legal requirements including the General Data Protection Regulations (GDPR).

Read the privacy notice before you use the service.

Payroll Annual Reporting

Payroll 21If you are an employer running payroll, you need to:

  • report to HM Revenue and Customs (HMRC) on the previous tax year (which ends on 5 April) and give your employees a P60
  • prepare for the new tax year, which starts on 6 April

Update employee payroll records

For each employee working for you on 6 April, you’ll need to:

  • prepare a payroll record
  • identify the correct tax code to use in the new tax year (The most common tax code for tax year 2021 to 2022 is 1257L.  You can find out more about tax codes here)
  • enter their tax code in your payroll software

You should include in your payroll:

  • all employees you pay in the tax year, no matter how much you pay them
  • any employee who has worked for you in the current tax year (since 6 April) even if they have already left

What the Charity Commission expects from trustees in its casework

CC903546-E4A0-491B-9E28-17765EEBB663Trustees or charity officers contact the Charity Commission for different reasons. These include applying to register a charity, updating the recorded details of a charity or using one of the electronic forms to apply for a service. When you contact the commission, it expects you to always:

  • prepare carefully – this includes reading relevant commission guidance, ensuring you have all the information you need before contacting the commission and being clear what it is you want or need from the commission
  • provide information which is true, complete and correct

When the Charity Commission contacts you, it needs to be confident that its regulatory concerns have been fully addressed. This means the commission expects you to:

  • fully cooperate with it
  • provide full, frank and honest answers to its questions
  • provide information or documents it has asked for by the date specified

This will help ensure the commission’s engagement with your charity is completed as soon as possible.

Sometimes the commission may decide to check some of the information you have given it with other people or organisations, or it may ask for evidence to prove what you are telling it is correct. This is standard practice.

If you cannot meet a deadline the commission has set, you must let it know immediately and before the deadline expires. You must also ensure that you answer the commission’s questions fully and honestly. This means you should not provide limited or partial responses.

If you:

  • do not cooperate with the commission
  • do not provide information the commission has requested, or
  • provide partial, inadequate or no response

the commission is likely to conclude that the regulatory concerns are not resolved or allayed. If you do not provide the information requested, or provide limited, partial or inadequate responses the commission will often consider this a regulatory concern in itself. This may result in it deciding to take stronger regulatory action.

The courts have made clear that they expect trustees to cooperate with the regulator.

The commission will consider non-cooperation as evidence of mismanagement or misconduct, which is a matter the commission takes seriously.

It is a criminal offence under section 60 of the Charities Act 2011 for anyone to knowingly or recklessly provide false or misleading information to the commission. This includes suppressing, concealing or destroying documents.