AGENCY LAW


Q I bought my Agency from the previous Agent for £50,000 over twenty years ago. I have built up the Agency successfully for the one Principal and have also acquired other smaller Agencies.


My Principal has unilaterally decided to terminate me but has given me five months notice rather than the three I am entitled to. They have also offered me £150,000 by way of compensation. Is this taxable?


A Yes, all compensation is taxable in the hands of the recipient self-employed Agent. However, I have recently come across a case where the Agent obtained advice from his Accountant as soon as he received an offer of termination compensation and agreed with the Principal that they would buy his Agency rather than enter into a Settlement Agreement and pay compensation. By buying the Agency the Agent only has to pay 10% Capital Gains Tax on the difference between the purchase price of £50,000 and the sale price of £150,0000 i.e. £10,000 whereas if he was receiving it as income he would certainly have to pay income tax at his higher rate on £150,000 although it may be possible to try and argue a reduction in relation to the original £50,000 paid for the Agency. So arranging a sale of the Agency as a settlement rather than a claim for compensation covered by a Settlement Agreement has reduced the Agent’s tax liability.


Similarly, I had an Agency several years ago that instructed me in connection with an enormous claim. The best possible result for the Agent was to sell the shares of his limited company agency to the Principal for £6,000,000 on which he would only have to pay 10% Capital Gains Tax by virtue of Entrepreneurs Relief again based on his Accountant’s advice. This meant when he received £6,000,000 he only had to pay 10% of that as Capital Gains Tax, rather than Capital Gains Tax at the full rate on the increased value of the Agency of £100,000.


Both these options are worth considering if you operate as an Agent as a PAYE self-employed Agent or as a limited company Agent depending on which tax is payable. I increasingly see Agents are seeking to incorporate and it is essential to make sure the Principal agrees to this in writing.


10 MAA Agents News


YOUR QUESTIONS ANSWERED by Larry Coltman, Partner, Fieldfisher LLP, Birmingham


Selling the Agency back to the Principal is a far more tax efficient way of resolving these claims leaving the Agent with a higher net amount than a pure claim for compensation on which the higher Income Tax level will be payable depending upon the Agent’s tax code if self- employed or Corporation Tax if a limited company.


Q I am the executor of an Estate of an Agent under a Power of Attorney on behalf of his widow. He recently passed away and I understand I can bring a claim for compensation. What information do you need?


A You explained on the telephone you are an Executor of the Agent’s Estate acting under a Power of Attorney on behalf of his widow who is confused and unable to deal with the administration of the Estate herself.


Your predicament is looking through a mountain of paperwork to find the information I need to write to the Principal claiming compensation arising out of the Agent passing away. You have been able to confirm the name of the Principal but it would be helpful to have a copy of the Agency Contract, details of the Agent’s last five years income as commission for each and every Agency he had, a copy of the Power of Attorney, a copy of your passport or photo driving licence, a recent utility bill with your name and home address and a copy of the death certificate of the Agent.


You explained that with the Will was the MAA leaflet explaining you could claim compensation hence the reason why you contacted me.


Your situation highlights the need for Agents to keep with their will records of their Agency for the last five years particularly if they become terminally ill so that all the paperwork is available and on hand easily after they pass away. Sometimes it is possible for the Agent to terminate when they are ill and claim compensation at that stage but if they are too unwell to face the prospect of a claim, it may well be left to the Executors after they pass away to pursue the claim.


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