G R writes: My business needs some more working capital and one of the
suggestions is that I factor my debts. At the moment I use cash accounting
when working out the Vat liability at the end of each quarter. If I decide
to go for factoring, will it have any effect on the cash-accounting system I
use?
The simple answer is yes, writes Chris Lane, a partner at Kingston Smith LLP.
When you factor your debts you are assigning the ownership to someone else
and receiving a cash amount up front in part settlement of your original
invoice. The Vat rules are quite specific on the subject and, as soon as you
factor any debt, the whole of the invoice has to be treated as cash
received, regardless of the size of the advance you receive from the factor.
This approach was tested in the courts in 2004. In that case, Customs had
issued an assessment on the basis that the debts had been assigned to the
factor and that the Vat on the invoices sold became due at the end of the
Vat quarter. The business argued that because the debts could revert to the
business if they were unpaid after 60 days, they should not be counted as
cash received. The court ruled that the Vat became due once the debt was
assigned.
This means that if you factor your whole sales ledger and continue to cash
account for your Vat, you will be worse off than if you went back to the
normal method of accounting for Vat on an invoice basis. If you do go back
to the normal method, you will be able to claim the Vat on any of your
creditors, which you would not be able to do under cash accounting.
DEALING WITH A DRUG TAKER
D P writes: I believe that one of my employees is taking drugs at work.
Fellow workers also have their suspicions because his behaviour is
irrational and his productivity erratic. How should I deal with this?
You cannot act on suspicion alone because all employees should be treated
fairly and without blame until proven guilty, writes Peter Done, managing
director of Peninsula.
The onus is on you as the employer to establish reasonable grounds for
believing that drugs have had a detrimental impact on this man’s ability to
do the job.
The productivity aspect of this should be dealt with under the normal
procedure for handling poor performance.
When it comes to the individual’s alleged misconduct, any reasonable suspicion
needs to be formally investigated. The employee should be invited to a
meeting to establish the facts and to see whether an offence has been
committed. It could be that personal problems have caused temporary drug
taking and so the meeting should establish whether any outside influences
are affecting him.
If his actions amount to gross misconduct, he should be suspended on full pay
during the investigation. If, after the investigation, you believe he has
broken your rules on drugs, then the statutory disciplinary procedures and
your own contractual procedures should be followed. This will involve as a
minimum, writing to the employee, setting out the areas of concern, giving
him reasonable notice of a disciplinary hearing and allowing him the right
to be accompanied by a trade-union representative or a fellow worker.
The employee needs to be given a fair hearing so that he has a chance to
explain his behaviour. The meeting should be documented and minuted. Once
you have had time to fully consider the arguments and factors, decide the
appropriate course of action and confirm it in writing. Remind him of his
right to appeal.
If this worker operates machinery, or does anything that could jeopardise his
safety or the safety of others, you must treat the matter urgently.
You should have a policy on alcohol and drugs and make sure that all staff
know about it. The Health & Safety Executive publishes a guide for
employers, available from hse.gov.uk/pubns/indg91.pdf
Kingston Smith LLP, the chartered accountant, and Peninsula, the
employment-law firm, can advise owner-managers on their problems. Questions
should be sent to Business Doctor, The Sunday Times, 1 Pennington Street,
London E98 1ST, or faxed to 020 7782 5765. Advice is given without legal
responsibility. bizdoc@kingstonsmith.co.uk
