By: Simon B
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Regulations and Legislation
Depending on the type of business you are running, you may need to worry about any of the following areas of law:
- Employment law
- Consumer rights
- Competition law
This includes the laws you must abide by to ensure that your employees are treated fairly. Issues in this area of law include:
- Minimum wage
- Redundancy and termination of employment
This is an ever-changing area – for example, the minimum wage is increased every year, and failing to pay your employees the minimum wage or could land you in trouble. You can find a lot more information about this in our employment law section.
If your business sells a product or a service, you will need to comply with consumer law. However, your business has rights under these same laws when buying goods or services from other businesses.
Here are some of the key consumer rights which are more likely to affect your business.
Sale of Goods Act
By law, any goods that you sell must be:
- as described
- of satisfactory quality
- fit for purpose
If the product fails to meet any of these criteria, the buyer is entitled to a refund.
This means that the product you sell must match the description that the buyer read or heard from you – this description could be provided on a website or in a catalogue or given by you or an employee. This means you can’t mislead the customer by telling them something about the product which isn’t true or describe it as having features that it doesn’t have. For example, if you describe a pair of shoes as being red, you can’t send the buyer a pair which are blue.
Of satisfactory quality
This means that the product should meet reasonable standards for how it looks, how well made it is, and how well it lasts. This is largely based on how much the item cost – for example, a more expensive pair of shoes would be expected to last longer and be of better quality than a cheap pair of shoes.
Other factors can affect whether or not a product is satisfactory – for example, a product with some wear and tear on it wouldn’t be considered of satisfactory quality unless it was second hand, and the seller had informed the buyer of the wear and tear. If the buyer was not told that the product was second hand, it would not be “as described”.
Fit for purpose
This means that the product should be able to do what it is supposed to do, or what the seller has told the buyer it will be able to do. For example, if you bought a pair of shoes, it is a reasonable expectation that you should be able to wear them on your feet – if it turns out that the shoes were not designed to be worn on feet, they could not be described as fit for purpose.
When the buyer has bought a product for a specific purpose, their rights will depend on what they told the seller beforehand. If a customer told you that they wanted a pair of shoes suited to running, and you recommended and sold them a pair that were not appropriate for this, they would be entitled to a refund. However, if the buyer had not explicitly stated that the shoes were designed for running, you would have no way of knowing that the buyer wanted to use them for running, and you couldn’t have misled them.
Distance selling regulations
As the name suggests, these will affect your business if you are selling goods or services over the telephone, online, or via another long-distance method.
Distance selling gives the consumer more rights, as they are unable to see or try the product before they buy it. This means that you, as the seller, must provide the customer with some information before they place their order, such as:
- a description of the goods or service, as well as the full price
- information on delivery and costs
- the name of your business and how they can contact you
- information about their contract, including the minimum length and how to cancel it
- their cancellation rights
- whether or not they will have to pay to return the goods.
Once a customer has placed their order, you will need to provide them with extra information in writing (by letter or by email). This information will include:
- full details of what they have purchased and what they have/will be charged
- when and how the goods or services will be delivered or provided
- details of how to cancel their order or return their goods
- an address at which to contact you if they have a complaint, as well as information on any extra call charges they will have to pay for any helpline you provide.
If the product or service was sold online, you also need to provide the buyer with an email confirmation of their order as soon as possible and make it reasonably possible for them to correct any mistakes in their order. You should also provide the buyer with an email address at which to contact you.
Competition law is designed to prevent any business practices that would strangle competition and unfairly reduce choices available to customers.
If you think that a competitor is involved in anti-competitive business practices, you should report them to the Competition and Markets Authority (CMA). You can do this by emailing a CMA reporting form to [email protected], or by calling them on 0203 738 6000.
There are two main types of anti-competitive practice which are prohibited under UK and EU law – Anti-Competitive Agreements and Abuse of Dominant Market Position.
This accounts for practices where businesses working in the same market make some kind of agreement or arrangement to not compete in a way that would benefit them but unfairly hinder other businesses or provide fewer options to the consumer.
Price-fixing is a good example of this – two or more competitors may agree, formally or informally, to sell a product at a fixed price, meaning that other businesses involved in the agreement will not need to worry about their competitors offering a similar product or service at a lower price.
This is illegal in almost all cases because it hampers competition, and removes the incentive for businesses to strive to out-do each other by improving their goods and services to provide a better deal for customers. They can also prevent potential new competitors from entering the market.
Another form of anti-competitive agreement can occur when two or more competing businesses agree to work together on a single product – this would likely be considered anti-competitive, as it would result in fewer competing products being available to consumers than if the businesses had worked separately and created their own products.
More serious and formal agreements are known as cartels, and these are more seriously punished – those caught involved in a cartel can face up to five years in prison, as well as an unlimited fine.
If your business is involved in a cartel, you can confess using the CMA’s leniency programme – through this, you and your business may be granted partial or full immunity to any fines, prosecutions or director disqualifications. You can learn more about this at the CMA’s website. You can also find information there on reporting other businesses if you believe they are involved in a cartel.
Abuse of dominant market position
This can occur when a business with a significantly large share in a market uses its power to dominate the market to an unfair degree, preventing smaller competitors from competing.
One example could be if a major competitor decides to sell a product at a loss. Larger business could probably afford to absorb the cost of selling the product at a loss, but a smaller company would not, making them unable to compete. Ultimately, this could lead to the larger business eliminating its smaller competitors, resulting in less choice for the consumer.
On the other hand, a competitor that is sufficiently dominant in a market could abuse their position by making their products or services artificially expensive, leaving consumers with little option but to pay over the odds. This is also prohibited under competition law.
Running a business from home
Running a business from your home will spare you the trouble of finding premises for your business, and could make it easier to balance your home life with your work. However, there are a number of extra rules that you will need to consider, depending on what sort of business you are running.
You will need to consider who you will need to obtain permission from to run a business from your home. For example, if you are renting the property, you will need to check that you are allowed to run a business from the property – this may be prohibited under the terms of your tenancy agreement. If it isn’t mentioned in your tenancy, you should still get permission from your landlord.
If you have a mortgage on your home, you should get permission from your mortgage provider.
Getting planning permission
If running a business from your home is unlikely to cause any disruption or be noticeable to your neighbours or anyone outside the property, it is unlikely that you will need planning permission. For example, if your business is largely run by you alone from the computer in your office, this is unlikely to affect anyone.
However, you may need planning permission if your business will require or cause any of the following:
- significant structural changes to the home
- noticeable increase in people coming to the home (customers, for example)
- a sign outside to draw attention to the business
- storage of things related to the business on the outside of the property
- any other activities that wouldn’t be expected in a residential area
You should talk to your local council or planning office if you have any doubts over whether or not your business will need planning permission.
If part of your home is used exclusively for business purposes, you will need to pay business rates on that part of the property – for example, if part of your home is used as a shop, and nothing else.
You will also need to pay Capital Gains Tax on this section of the home if you ever sell the property – for example, if your business premises make up 20% of the property, you will need to pay tax on 20% of the amount you gained from selling the property. This is because homeowners are entitled to Private Residence Relief from Capital Gains Tax if they sell their home (provided it is their only or main residence).
However, bear in mind that these taxes only apply if an area of the home is used exclusively for business. For example, if you are running a business on your computer from your bedroom, or your office can also be used as a living area, you would not need to pay these taxes on your bedroom or office.
Self-assessment tax return
If you are a sole trader or part of a business partnership, you can use what is known as simplified expenses if you work for 25 hours or more from home. This means you can pay a flat rate for some of your business expenses, rather than working out exactly how much of your home bills were spent on business.
Doing this, you can claim back a portion of your household costs, such as council tax, heating and internet bills, based on how many hours you spent working at home each month.
It is likely that your home or contents insurance will not cover aspects of your business if you are working from home, particularly if you are storing a large amount of stock or you have customers entering the premises.
If you have customers or other members of the public entering your home, you will need public liability insurance. You will also need employer’s liability insurance if you have employees working on the premises. You should also get business contents cover if you store any equipment or stock that you need for the business in your home.