Legal factors affecting business – from employment to sales

Launching a business can be a step into the unknown. As well as finding customers, handling finances and hiring staff, you need to take time to understand any legal obligations facing your startup.

From employment rights to keeping customer data safe, the legal factors affecting business can read like a laundry list of law terms. But making sure your business meets legal requirements can help it grow by protecting it against expensive mistakes.

According to research carried out by YouGov for LawBite, SMEs lose more than £13.6bn each year failing to care of legal issues, with disputes costing £1.7bn and issues relating to employees and contractors costing £1.6bn.

What are the legal factors affecting business?

UK law applies to all aspects of running a business, and each company will face specific legal rules for their business and industry. For example, the legal requirements that affect a petrochemical company may be very different to those a taxi service must comply with.

There are, however, legal issues common to most businesses. These cover tax, employment, data and trading regulations.

Tax and National Insurance legal factors

If your business earns revenue, makes a profit or pays staff, there are legal factors affecting business governing the payment of tax owed to HMRC. This differs depending on how your company is structured.

Sole traders – You must register with HMRC within three months of becoming self-employed – even if self-employed on a part-time basis or in addition to being employed with another company. You can register online with HM Revenue and Customs (HMRC). Fail to register and you’ll face a fine of £100. Once registered, you must complete an annual self-assessment, and pay any due tax and NI before January 31 for the preceding tax year.

Limited company – There are specific legal requirements when setting up and running a limited company. You must register your business with Companies House, listing all directors, as well as persons with significant influence on the business. You must submit annual business accounts to Companies House.

You must also submit an annual tax return for the business to HMRC and pay Corporation Tax – currently 19% of company profits – within 9 months and 1 day from the end of your financial year, also known as your accounting period.

If you have staff or draw a salary as director, you must register for Pay As You Earn (PAYE) and submit a payroll report to HMRC each month detailing salaries, as well as income tax and NI owed by both the employee and the business.

Whatever your business structure, if your turnover is greater than £85,000 in a 12-month period, you’re legally required to register for Value Added Tax (VAT). Depending on the VAT scheme you apply for, you must file a VAT return every three months and pay the VAT your business has charged on goods or services. You can register for VAT on the HMRC website.

Employment legal requirements

The legal factors affecting business magnify when you hire staff. Employment law covers the complete lifecycle of employment – from hiring and contracting staff to redundancy, dismissal and pensions. Your business has a legal duty to keep your employees safe, treated fairly and with respect, with access to statutory holiday, statutory sick pay, minimum wage and pension enrolment, as well as hold Employers’ Liability insurance.

Failing to meet legal requirements can land a business with hefty fines and a criminal prosecution.

Employer’s legal requirements include:

Register with HMRC – You must register your business as an employer with HMRC before paying any staff. HMRC has guidance on how to register as an employer.

Right to work – Your business has a legal obligation to check that staff have a legal right to work in the UK before employing them.

Employment contract – All employees must have a written employment contract, including details such as working hours, place of work, salary, contractual benefits such as pension and paid holidays. It should also detail disciplinary and procedures, employment rights, duties and responsibilities. The government has a helpful online guide that details what to include in an employment contract.

Minimum wage – This affects every employee, through the amount differs by age for those aged 24 and lower. The National Minimum Wage for those aged 25 and older is £7.83 per hour, rising to £8.21 per hour from April 2019. The government has a minimum wage information website that lists how much you need to legally pay your staff as a minimum.

Salary – You’re legally required to provide an itemised payslip to employees. This should show how much they earned in the pay period, how much tax and National Insurance was deducted, any other deductions and their net pay they will take home. It should also list the pay date.

Workplace pension – Under the Pensions Act 2008, UK employers must put eligible staff into a workplace pension scheme from their first day at work. Any employee aged between 22 and the state pension age, and who earns at least £10,000 a year must be enrolled automatically. Both you and your staff must pay into the pension scheme for as long as the employment lasts. As a business, you must pay the equivalent of 2% of their earnings into the pension fund, rising to 3% from April 2019.

Employers’ Liability – When your business employs staff, you must hold valid Employers’ Liability (EL) insurance. It must include cover for £5m and be purchased from an authorised insurer. It covers legal costs and compensation if your business is sued by an employee who is injured or becomes ill as a result of working for your business. The fines are steep for not holding insurance, so don’t dodge buying a policy: you can be fined £2,500 for every day you do not have EL insurance, and fined £1,000 for not displaying your EL certificate.

Health & safety (H&S) – As a business, you are legally required to provide a safe environment for staff to work in. This can be environmental – such as keeping staff safe from hazardous materials or continual loud noise – or staff-related such as bullying and discrimination. The Health & Safety Executive has a comprehensive guide to H&S laws that affect business. You may also need to conduct regular risk assessments, display a Health & Safety poster and have policies for recording injuries to staff.

Data and marketing legal factors affecting business

The General Data Protection Regulation (GDPR), which came into force in 2018, places new legal requirements on how businesses acquire, use and store the personal information of customers, contractors and suppliers, and employees – both past and present.

The two main principles of GDPR are that businesses must have appropriate legal grounds for processing personal data and must do so transparently, and businesses can only collect and use personal information solely for a specific purpose.

GDPR requirements apply to all businesses, although there are some exceptions for SMEs. Get to grips with understanding GDPR and follow our GDPR compliance checklist to ensure your business is taking steps to being GDPR compliant.

There are hefty fines for non-compliance. A GDPR breach can result in a fine of up to 4% of total worldwide turnover of your business or €20m – whichever is higher. The Information Commissioner’s Office has a guide to GDPR regulations.

Trading regulations and legal factors affecting business

Depending on the nature of your business, there will be a catalogue of legal factors relating to how you trade. Legal issues range from consumer law through to financial services regulations and rules governing weights and measures.

As many businesses sell directly to the public, consumer laws that govern consumer rights are important to know.

Consumer rights laws are designed to protect consumers from buying goods not fit for purpose, not as described, and give them the right to return faulty goods for repair, replacement or refund. The law differs depending on whether goods are bought in a shop or online. If selling involves a contract, you’ll need to offer a cooling-off period of 14 days to allow a consumer to change their mind.

There are two key legal factors affecting business that affect selling goods and services to the public:

Sale of Goods Act – This governs how you describe and sell goods and services, ensuring they’re of satisfactory quality and fit for purpose. If they don’t meet the requirements, consumers can get their money back. Which? has a good overview of the Sale of Goods Act.

Consumer Contracts Regulations – These govern how you sell goods or services at a distance from the consumer, such as online or over the phone. Consumers generally have more rights, including the ability to reject the goods as unwanted and get a refund. Which? has a guide to Consumer Contracts Regulations.

A raft of other UK laws may affect your business, from copyright law designed to protect brands to patent law that protects intellectual property and inventions. Other legal requirements may apply depending on the nature of your business, such as the need to hold a licence to sell alcohol or operate a tattoo parlour.

Catering companies face a range of legal factors affecting business in terms of food safety and hygiene. Key regulations include the Food Standards Act 1999 governing food businesses in the UK. Catering businesses across the United Kingdom will need to comply with The Food Safety and Hygiene (England) Regulations 2013; The Food Hygiene (Scotland) Regulations 2006 (as amended); The Food Hygiene (Wales) Regulations 2006; The Food Hygiene Regulations (Northern Ireland) 2006.

To find out which laws apply to your business, visit Gov.uk. It may also be worth talking to a solicitor who specialises in commercial law to ensure you’re fully up to speed on legal factors affecting business in your industry.

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