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  • The original shareholders can dispose of their shares to the EOT with 50% of the gain being exempt from capital gains tax (CGT). This would generally result in an effective CGT rate of 12%. Note that it would not be possible to claim business asset disposal relief where CGT relief under the EOT provisions is claimed.
  • Bonus payments of up to £3,600 per year can be made to all qualifying employees exempt from income tax (but not NIC) providing they are made on the same terms, although directors may now be excluded.
  • The disposal can provide a steady return in future years, free of income tax and NIC, as the consideration (which is often left outstanding) is repaid.
  • No tax liabilities are incurred on the employees as the shares are held by the trust on behalf of the employees.
  • The original shareholders can dispose of their shares to the EOT with 50% of the gain being exempt from capital gains tax (CGT). This would generally result in an effective CGT rate of 12%. Note that it would not be possible to claim business asset disposal relief where CGT relief under the EOT provisions is claimed.
  • Bonus payments of up to £3,600 per year can be made to all qualifying employees exempt from income tax (but not NIC) providing they are made on the same terms, although directors may now be excluded.
  • The disposal can provide a steady return in future years, free of income tax and NIC, as the consideration (which is often left outstanding) is repaid.
  • No tax liabilities are incurred on the employees as the shares are held by the trust on behalf of the employees.

Bonus payments up to £3,600 per year can be made to all qualifying employees exempt from income tax (but not NICs).

Tax

Employee Ownership Trusts

An employee owned business is solely owned by its employees and can provide a tax-efficient exit route for founding shareholders as well as facilitating succession and improved performance of the business. 

Tax can be a complex area to understand. We have the knowledge and expertise to ensure you’re enjoying the tax breaks you’re due, not risking any potential penalties and can guide you through the labyrinth of complex laws. Click here to get in touch.

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What is an EOT

Employee Ownership Trust (EOT) is a government initiative to promote the “John Lewis model”. It involves a special form of trust in which the EOT holds controlling interest in the company on behalf of and for the benefit of the company’s employees so that, in effect, the employees indirectly own the business.

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Why consider an EOT?

  • Increased productivity and engagement of employees can be achieved by giving them a stake in the business and a say in how it is run.
  • Increased profitability and efficiency are likely to be achieved as employees have a vested interest in the performance of the business.
  • Businesses are more stable, with employee-owned businesses are less likely to fail during economic downturns.
  • Staff tend to be happier, more productive, and better paid
  • When selling to an EOT, the company has an immediate purchaser. This results in a quicker process, lower fees and less disruption to the company than a traditional sale.
  • Shareholders can dispose of their shares for full market value (an independent valuation is required).
  • Not all existing shareholders have to sell their shares to the EOT, and partial exits can be facilitated. The existing shareholders can continue to hold a minority shareholding (<50%) in the company.
  • Shareholders looking for a full or partial exit from a business but with no other obvious route for succession can utilise an EOT to pass the business on.
  • The original shareholders can dispose of their shares to the EOT with 50% of the gain being exempt from capital gains tax (CGT). This would generally result in an effective CGT rate of 12%. Note that it would not be possible to claim business asset disposal relief where CGT relief under the EOT provisions is claimed.
  • Bonus payments of up to £3,600 per year can be made to all qualifying employees exempt from income tax (but not NIC) providing they are made on the same terms, although directors may now be excluded.
  • The disposal can provide a steady return in future years, free of income tax and NIC, as the consideration (which is often left outstanding) is repaid.
  • No tax liabilities are incurred on the employees as the shares are held by the trust on behalf of the employees.
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How can we help?

1. Discussion of how the EOT would be put in place and how it would operate going forward.

2. Formal valuation of the company to support the price to be paid for the company by the trustees.

3. Draft a steps paper setting out detailed tax advice relating to the transfer of the company to employee ownership.

4. Legal steps required to enact the transaction and liaise with solicitors and company in respect of transaction documentation.

5. Financial analysis to support the proposed payment schedule.

6. Support the company with the communications to the shareholders and employees where required.

7. Submit clearance to HMRC.

8. Register the trust with HMRC

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