Black holes and other strange phenomena – will Entrepreneur’s Relief survive?

Don’t worry: a legal blog hasn’t morphed into something that Professor Brian Cox might write (although, if they re-run it, I do recommend the Astrophysics of Light evening class run by St Andrews University). No: it is financial black holes that interest me here.

There was a good article in the April 27th edition of the Economist (A Form 10-K for America’s government) which in turn talked about Steve Ballmer’s USAFacts website. One of the themes is to treat the US government as a company and see what the results looked like. And if it works in the US….

In Britain, there are increasing and vociferous calls and claims on the income that Britain Inc has. The cash out includes both revenue items (such as pension payments, NHS costs and so on) and capital items (such as infrastructure spending and debt repayments). The cash in comes from taxation in all of its forms. But one major (and really rather worrying) difference between UK Inc and your business is the lack of any real accruals. The major example relates to pensions: a 35 year old pays taxes now with the promise of a pension some time after they are 65 (whatever the rules then are). But, today’s income is being used to pay today’s pensioners – not put to one side for the 35 year olds. Their pensions will depend on the people who are now babies paying enough tax to fund those pensions. Put another way, those pensions are completely unfunded: black hole # 1.

Less worrying but more imminent is black hole # 2. Assuming that the Conservatives are re-elected next month (and even I might put some money on that) then they will attempt to balance the current books of UK Inc (including some debt repayment).That’s going to be tough, and at its simplest they will have to (a) cut more (and that will be hard); (b) tax more (and that will be unpopular – but do watch the manifestos); and/or (c) not repay debt (and what does that do to credit ratings?). It’s (b) that I am most interested in here: the potential tax black hole.

We saw in the budget and subsequent about-turn that the Chancellor was trying to raise some of the less obvious taxes in order to plug gaps. The National Insurance paid by the self-employed and tax free dividend income were two targets before “her next door” called the election. But after the election, the new manifesto will be in place; the government will have five years (I assume) to get over any problems caused by changes now; and the black hole still needs filled. And, from the point of view of our clients, the tax – more properly a relief – that worries me most is Entrepreneur’s Relief.

Many of you will know that, subject to meeting qualification requirements, you can sell your business and pay CGT of 10% on the next proceeds. Short of dying, that’s the lowest tax rate in the UK. It encourages people to build up value in their business, keep it in the business and then realise the benefit on sale. But – is that 10% rate tempting? What if it were raised to, say, 15%? The business community would complain, but at 15% it would still be a low rate; it would help the “just about managing” families (who seem to have dropped off the radar); and if a “rich” business person sold their business for £1M and ended up with £850K and not £900K – who are they to complain?

So – where am I going with all of this? Entrepreneur’s Relief results in a low CGT rate and that has been the case for some time. It may be just too tempting a target for the Chancellor. Therefore, there must be a real risk of an increase in the effective rate in the next budget, whenever that is. We would never recommend disposing of a business for purely taxation reasons, but it is part of the mix: what will be your net proceeds of sale now compared with next year? If you are thinking about selling in the near future, have a good think – now.

Back to the real black holes. As I understand it (and my understanding is sketchy despite trying really hard) at time zero, everything in the universe – matter, energy, the whole damn lot – was in a super-concentrated small ball. At least, that’s how I imagined it. The big bang happened and, after an infinitesimally small gap, the universe started expanding broadly in terms of the rules about gravity and so on that we now know about. Today’s question is this: if the universe only started with the big bang, where was the black hole before the big bang? Answers, on a postcard……

Office and meeting rooms

We are re-arranging our space within our Dunfermline office at Crescent House from 15 May 2017. What does this mean for you?

  • our address, phone numbers, etc will remain unchanged, but
  • all future meetings will take place on the ground floor rather than the first floor, so
  • you’ll be directed to turn right at reception next time you visit us!

We look forward to welcoming you in our new meetings rooms soon.

General Data Protection Regulation

Are you ready for the GDPR? Without thinking about it too deeply right now, start with your gut reaction and answers to the following questions…

  • Have you started preparing for the GDPR?
  • Do you know how long you have left to get ready or finish getting ready?
  • Do you know when a Data Protection Impact Assessment needs to be carried out?
  • Do you understand the day to day impact this will have on your business, especially for marketing activities?
  • Do you know what the consequences are for your business if you are not ready in time?

If the answer is no to any of the above, we would suggest you get in touch with our data protection team at CCW.  Even under current Data Protection regulation, in this case, the Privacy and Electronic Communications Regulations, businesses are already being fined for trying to ‘tidy up’ their customer data in advance of GDPR, and getting it wrong – see this link:

In short, most if not all businesses will be affected by this new law, and in some cases an entirely different approach will need to be taken for day to day operations and how personal data is dealt with. In particular, the question of how and on what basis the information you already have on your databases (whether for marketing or other purposes) will require review. As for new data, there are steps you can take during the next 12 months to ensure future use of that new data is compliant.

The bad news is Brexit (in case you were hoping) is likely to make no difference. The really bad news is that there is another privacy law waiting in the wings which will cause additional impact on top of GDPR (and, under present proposals, at about the same time). The good news is there is still time to start getting your procedures compliant (just under a year) but such compliance involves a lot of planning.

CCW can help you prepare for GDPR, including the preparation advisable before you contact the Information Commissioner’s Office (as suggested by the ICO in the link above) in case you are already in breach under the current regime.   In short, don’t bury your head in the sand around GDPR. Contact Emma Arcari or Stephen Cotton at CCW for advice.

Don’t vote: it just encourages the……….

If you don’t know the missing word, google P. J. O’Rourke, and you’ll learn. But after yesterday’s announcement of a General Election in Britain on 8 June, there is a real risk of voting apathy/exhaustion in the UK. So, here’s today’s quiz question: just in the same way that “claustrophobia” means “fear of confined spaces”, “fear of elections” is – what? A bottle of something (quality depending on the quality of the winning answer) to the winner!
Since most of the rest of the world seems to get by OK with fixed term parliaments or presidencies, I had thought that the UK having a fixed term parliament was a step in the right direction. But now I know: our parliamentarians had their fingers crossed when the Fixed Term Parliaments Act was passed, so it doesn’t mean what it says on the tin.
What all of this means for UK businesses – Brexit uncertainty; the Westminster election; the threat of Indyref2 in Scotland; the current lack of a devolved assembly in Northern Ireland; local elections; and all the others that I have forgotten to mention – is continuing uncertainty. That means that it is harder to make long term decisions and when to make those decisions – and of course, it is all too easy to delay making that difficult decision.
It’s maybe some small comfort that we are not alone. Imagine that you were running a business in France just now, needing to make the same sort of decision, but with even greater political uncertainty there. As Donald Trump is finding out, running a business and running a country are two very different things. The CEO of a company is quite clearly in charge, and reports to only a few groups of stakeholders (such as shareholders). When running a country, annoying and unpredictable things like democracy get in the way (unless, of course, you follow the Turkish model…)
Enough of this rant (but do check out P.J O’Rourke). On a brighter note, we are hosting our Avrio colleagues in Edinburgh on 19/20 May. We already have a few clients lined up to meet colleagues from other countries (Cyprus, Switzerland and the USA so far) so if you have or might have any need to chat to one of our overseas colleagues, get in touch and I’ll see what I can do.

Meanwhile, keep practising your “x”: you don’t want to spoil your ballot paper!
John Clarke

Growing plans

The Scottish Ministers recently published a consultation paper on proposals to strengthen the Scottish Planning System to help support sustainable economic growth.
The Ministers had previously appointed an independent panel and in May of last year that panel published its report: the recent paper is part of the response and ongoing consultation.
The proposals are wide-ranging, but specific aspects of the existing system have been identified as requiring reform, including removing the “strategic development plans” and making significant changes to the local development plans. A major focus is on putting measures in place to increase community involvement in proposed developments, while trying to impose as much of the cost of this as possible on to the development companies.
There are also suggestions to councils of ways to speed up development to meet demand, including making more publicly owned land available for development.
In line with other legislative changes, another major element of the proposals is to increase transparency when it come to infrastructure funding. There is a general proposal to allow for an infrastructure tax for Scotland, with income collected at the local authority level.
There is also focus on the costs involved in the planning system itself, with the Ministers indicating that the goal should be to make the system self sustainable, with mechanisms in place to allow it to recover its own costs.  This will be achieved by allowing for higher fees for applications, charging for appeals and allowing for fast-tracked applications in exchange for higher fees.
The consultation paper is at this stage quite high-concept, and vague on the detail of how the goals will be arrived at.  However, developers and other stakeholders will need to be aware of the proposals and the ongoing consultation process which will inevitably flesh things out.


Data Protection and Brexit – Are you ready for the General Data Protection Regulation?


As of 25 May 2018, the UK Data Protection Act 1998 (DPA) will be replaced by new legislation which will apply across the EU, primarily comprising the General Data Protection Regulation (GDPR).

The UK Government has confirmed that the UK’s decision to leave the EU will not affect the commencement of the GDPR.

This means that businesses and public bodies across the UK and the EU will have just over a year to make sure they are compliant with the new rules imposed by the GDPR.

The UK Information Commissioner gives the following guidance on the significance of the GDPR:

  • The GDPR applies to ‘controllers’ and ‘processors’. The definitions are broadly the same as under the DPA – i.e. the controller says how and why personal data is processed and the processor acts on the controller’s behalf. If you are currently subject to the DPA, it is likely that you will also be subject to the GDPR.
  • If you are a processor, the GDPR places specific legal obligations on you; for example, you are required to maintain records of personal data and processing activities. You will have significantly more legal liability if you are responsible for a breach. These obligations for processors are a new requirement under the GDPR.
  • If you are a controller, you are not relieved of your obligations where a processor is involved – the GDPR places further obligations on you to ensure your contracts with processors comply with the GDPR.
  • The GDPR applies to processing carried out by organisations operating within the EU. It also applies to organisations outside the EU that offer goods or services to individuals in the EU.

This is particularly important if your business transfers personal data outwith the EU – you will need to confirm that the process of transferring the data is compliant with the new regulations.

  • The GDPR does not apply to certain activities including processing covered by the Law Enforcement Directive, processing for national security purposes and processing carried out by individuals purely for personal/household activities.

What information does the GDPR apply to?

  • Personal Data – this definition is similar to the DPA, which is data that can identify the identity of an individual whether directly or indirectly, for example, their name, date of birth, address etc. The GDPR will expand on this to include online identifiers such as an IP address
  • Sensitive Personal Data –  this is similar to the DPA, and includes, racial or ethnic origin, political opinions, religious and philosophical beliefs, trade union membership, health or sex life and will now include genetic or biometric information which when processed can indentify an individual

So remember to get your systems ready for the GDPR by 25 May 2018.

Corporate and business

Going into business together? Get a Shareholders’ Agreement

Let me tell you a story of two individuals (A and X) who formed a beautiful working relationship and decided to go into business together.

They incorporate the company, appoint themselves as directors and take a 50/50 shareholding each.

All goes well for the next few years, profits are growing and their client base blooms.

Then, over time, cracks begin to form in the working relationship, things aren’t working out anymore and eventually the situation becomes unbearable meaning working together is impossible.  A wants to buy X out of the company, but X refuses to sell, or cooperate.

A seeks advice from a lawyer, and is asked – is there a shareholders’ agreement? The answer is of course no. There is no agreement on the valuation of shares, and A cannot terminate X’s directorship.

After a long-drawn-out dispute, with the business’s future being put in jeopardy, A and X agree a settlement, with vast sums, going on lawyers and court fees.

If you are starting up a new business, you may think a shareholders’ agreement is just an extra expense which you don’t really need – which is understandable when you are juggling other costs for your business. However, after seeing many clients learn the hard way, and waste so much time and money in resolving deadlock disputes, we cannot stress how important it is to get things right at the beginning.

It may be that things are working well for you in the present, but you cannot predict what the future holds. Protecting your position by planning is the best way to avoid a commercial disaster.

Is your trademark a popular word or phrase?

A recent ruling by the Court of Session in Edinburgh highlights the difficulties businesses face registering popular words and phrases as trademarks .

Tartan Army Ltd v Sett GmbH and Others [2017] CSOH 22 concerned a long-running dispute between retailer Tartan Army Limited (“TAL”) and a football magazine publisher, Alba Football Fans Limited (“AFF”).


The match

TAL registered EU and UK trademarks for their trademark  ‘Tartan Army’ for their merchandise, clothing and other products in 1996.

TAL accused AFF of passing off, claiming that AFF infringed their rights by publishing ‘The Famous Tartan Army Magazine’ aimed at Scottish football fans.

TAL requested an order prohibiting AFF from infringing its rights – along with destruction of all promotional and printed material bearing the ‘Tartan Army’ trademark.

AFF counterclaimed that TAL’s trademarks were ‘invalid’, as the phrase ‘Tartan Army’ had widely been used as a collective noun for Scottish football fans since the 1970s. AFF claimed that TAL were attempting to “commandeer and monopolise well‑known words or phrases which they did not invent and which had a very well‑known and widespread meaning which was not distinctive of trade origin”. AFF’s supporting witness statements included a number of well-known football personalities in Scotland, including former Scotland national team manager Craig Brown, commentator Archie MacPherson and journalist Chic Young.


The result

Lord Glennie, IP judge in the Court of Session rejected:-

  • AFF’s challenge that TAL’s trade marks were invalid.

He said: “The fact that the term is often used as a badge of allegiance, in this case to the Scotland football team and its fans, does not prevent it being registered as a trademark”.

  • TAL’s claims that AFF was liable for trademark infringement and passing off.

He said the title of AFF’s publication was not identical to the ‘The Tartan Army’ mark and that, despite being similar, TAL had failed to show there was a “likelihood of confusion on the part of the public” between AFF’s use of the mark and its own. “The evidence does not suggest that anyone becoming aware of the Magazine would associate it with TAL or any of TAL’s products bearing the words Tartan Army.  Nor does it seem to me to be likely that there would be any such confusion.”

  • TAL’s argument that AFF had been “free-riding” on the reputation of its mark.

TAL failed to show that their trademark had a reputation in the UK which had been taken unfair advantage of by AFF. Lord Glennie said: “Certainly TAL’s trademark is distinctive otherwise it would not be validly registered but I do not accept that it has a particularly strong distinctive character.  There was no substantial body of evidence to suggest that it was widely known amongst the mass of the Scotland football supporters.  Even if it were more widely known than it is, the lack of confusion is a factor of some importance. Unless there were a possibility of confusion, or perhaps more accurately association, between the two marks, there would be little risk of diversion, tarnishment or freeriding.”

Lord Glennie ruled that AFF’s popular magazine did not infringe the trade mark of retailer Tartan Army as football supporters and consumers would be unlikely to “associate” AFF’s magazine with the merchandise sold by TAL:

I consider that most potential customers or consumers, being Scotland fans or, to put it another way, members of the tartan army, would understand the name of the Magazine to refer to them (and the Magazine to be for them) rather than as a reference to TAL or its products….In those circumstances the claim in passing off fails“.

Lord Glennie found that there was no infringement nor passing off and ruled to reduce the scope of TAL’s trademark rights after determining that there had been no “genuine use” of the trademarks for some classes of goods, including flags, bunting and banners, and wall hangings.

What does this mean for your business?

The ruling shows that well-known words and phrases can be registered as trademarks. However, businesses wishing to make use of those marks cannot assume that those common terms are in the public domain and free to exploit.

Businesses need to be able to show that the public link the use of their mark with their brand. However, there is an inherent challenge in doing so where the words concerned are in common use and have broader associations than to just the goods or services for which the trademark is registered. Without that link being established, businesses are unlikely to be able to show that there is a reputation in their trademark which has been sullied by others’ use, or that they have sufficient goodwill built-up to sustain claims of passing off.

Reclaiming Song Copyrights

The US Copyright Act 1976 (“the Act”) gives artists the right to reclaim ownership of the copyright in works assigned by them prior to 1978.

The Act states that an artist may terminate all agreements for the grant, licence or transfer of US copyright entered into before 1978 by serving notice upon the assignee or licensee 56 to 61 years after the date on which the copyright was originally secured.

Although many well known artists have successfully taken back ownership of their rights in the US by relying on this statutory provision, Duran Duran were sadly denied this opportunity when they attempted to reclaim the rights to 37 of their songs from Sony/ATV Music Publishing LLC (“Sony”) at the High Court of Justice in England. The claim failed due to a lack of evidence that the Act would override the terms of their publishing agreement with Sony which was governed by English law.

The case confuses the position for British songwriters as it creates a situation where a US court could decide that US rights revert to the artist under the provisions of the Act, but an English court could find that this reversion constituted a breach of the publishing agreement, giving rise to a claim for damages for breach of contract against the artist.

On 18th January 2017, Sir Paul McCartney filed a claim in the US against Sony for a declaratory judgement in order to clarify whether his publishing rights will revert to him in accordance with the Act. Mr McCartney is asking the court to declare that in invoking the provisions of the Act and reclaiming the copyright in the Beatles songs, he will not be in breach of the terms of his publishing agreement. If successful, he will be able to reclaim his US copyright in a number of songs he wrote and co-wrote with John Lennon between 1962 and 1971.

What does this mean for UK artists and publishers?

Publishing agreements need to be properly drafted and sufficiently detailed in order to provide for the effect of various copyright laws around the world.

Artists, bands and songwriters should ensure that they receive specialist legal advice on the terms of their publishing agreements as they may contain long term implications.

Data protection and the GDPR – what does this mean for my business?

The General Data Protection Regulation (GDPR) comes into force in May 2018, so what generally should businesses be aware of?


  • Larger penalties for breach
    • A new tiered approach means penalties for the most severe breaches will increase from the current level of £500,000 to up to 4% of annual worldwide turnover or €20 million (depending on the nature of the breach).
  • Brexit does not provide an immediate escape route
    • The GDPR takes effect before Brexit and its effects have a wider territorial reach than the current law.
    • Organisations do not need to be in Europe for the GDPR to apply. For example if a website can be accessed by persons in the EU – the GDPR can apply if EU individuals are targeted or monitored, e.g. cookies are used to track persons or IP addresses are collected.
  • Data processors now face liability for non-compliance
    • It is not only data controllers who need to comply with the GDPR. Obligations will be placed on data processors to comply with the GDPR (this includes requirements for consent from data controllers to appoint new sub-processors, the need for activities to be covered by a binding contract, to keep records…and so on).
  • New and increased rights for data subjects
    • New rights include a right to be forgotten, a right to restrict profiling and a right to portability. The current rights available to data subjects are mainly retained and increased. For example the timescales organisations have to deal with subject access requests will decrease to a month.
    • The definitions of personal data and sensitive personal data have been widened. Online identifiers such as IP addresses or cookies are mentioned within the GDPR.
    • Information or fair processing notices must be provided in a concise, intelligible, transparent and easily accessible way. Additional information may be required to be provided by the data controller if this is necessary for the processing to be fair and transparent.
    • Using consent as the lawful basis to process personal data is made more difficult under the GDPR. If consent is used as the basis for processing this should be checked to ensure it meets GDPR requirements. Data subjects can withdraw consent at any point.
  • Be able to demonstrate compliance with the GDPR
    • To comply with the GDPR, organisations will need to implement technical and organisational measures to ensure data is processed appropriately and that the data is protected by an appropriate level of security. Organisations will be required to demonstrate that measures have been taken to reduce the risk of breaching the GDPR.
    • The “pseudonymisation” of personal data is encouraged by the GDPR, this means that the data is processed in such a way that it can no longer be used to point to a data subject without the use of additional information. This additional information is to be kept separately and securely (to prevent the pseudonymised data being attributed back to the data subject).
    • Privacy impact assessments will be required for data processing or technology which presents a high risk to individuals (a high risk is gauged in relation to the risk of infringing an individual’s rights and freedoms, such as large scale processing of sensitive data or profiling activities).
    • Data Protection Officers may be required depending on the format of the organisation and its core activities. For example the majority of public authorities will be required to appoint a DPO, together with those organisations which carry out regular and systematic monitoring of data subjects or large scale processing of sensitive data or criminal records.
    • Organisations will be required to keep records of their processing activities (e.g. types of data processed and for what purpose).
  • Mandatory reporting of personal data breaches
    • Data controllers will be required to report breaches to the relevant supervisory authority and/or the data subject unless certain exemptions are satisfied.
    • Data processors will be required to notify data controllers of all and any breaches “without undue delay on becoming aware of it”. More guidance is expected on this point, given the lack of exemptions in this area.

The above notes provide only an outline about certain of the consequences faced by businesses under the forthcoming GDPR. Unfortunately this is not something businesses can ignore until May 2017, and it makes sense to start to address how to implement changes required  if they have not begun already. For example:

  • reviewing staff polices
  • reviewing how and what data is collected at present, checking whether or not consent from the data subject is obtained
  • reviewing the use of sub-contractors and suppliers and any relevant contracts already in place
  • planning on how to deal with data breaches, checking what technical and organisational measures are in place
  • conducting risk assessments.

More guidance is expected from the Information Commissioner (ICO) in the coming weeks and months which should be helpful. In the meantime – see here for some preparatory advice from the ICO

When Office Romance Turns Fifty Shades Darker

It’s no surprise that so many of us meet  our significant other at work; we spend a lot of time with our work colleagues and often more time than we spend engaged in personal activities. However, cupid’s arrow doesn’t always strike it lucky and not everyone gets their happily ever. Office romances can often be as short lived as the good biscuits in the office biscuit tin and cause more trouble than a gust of wind to Donald Trump’s hair when colleagues fall out of love.

There’s no employment law against office romance and, in any event, it wouldn’t make much sense for employers to ban relationships at work because for some the risk of being caught would make it all the more fun. Love contracts are commonplace in the US but to dismiss employees for partaking in a ‘romantic liaison’ or office romance may result in claims of an unfair dismissal and sex discrimination.

And yet they have their obvious problems; one half of the couple doesn’t want things to end or the feeling isn’t mutual and flirting or sexual advances are most definitely not welcome. The possibilities for sexual harassment complaints are endless. There are also other issues to consider. For example, one half of the couple may have the power to make decisions over the other’s role. This could give rise to a conflict of interest and accusations of favouritism from jealous colleagues, and depending on their respective positions in the business how can the employer be sure that confidential information remains just that?

Rather than have a policy exclusively dealing with dating or romantic relationships between co-workers, employers should think carefully about any type of work relationship that could lead to some of the same issues arising in romantic relationships including favouritism, reduced productivity and conflict of interest and recognise that these relationships may occur between a variety of different individuals such as co-workers, clients and customers. Of course, the behaviour or conduct that will not be tolerated in the workplace including inappropriate physical contact or language or personal use of company communication systems should also be very clearly explained so there can be no doubt about the standards expected in the workplace whether the relationship in question is romantic or strictly professional.

Donna Reynolds is experienced in Employment Law and HR matters advising SMEs in Fife, Edinburgh and across Scotland.