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.

Uncovering the benefits of employee owned businesses

Why an employee owned business?

There are a number of reasons as to why you may want to consider employee ownership.  For example, a start-up business could benefit by encouraging fast growth and performance where employee owned, and long-standing businesses may find it an attractive route where there is no clear succession plan in place.

Employee ownership can offer a tax efficient exit route for the founding shareholder as, if structured correctly, no capital gains tax will be due when disposing of a controlling interest.  This is compared to a minimum 10% tax rate if disposing of the shares through a standard third-party sale.  Further an annual bonus of up to £3,600 can be paid to employees without being subject to income tax.

The decision to move to employee ownership should, however, ultimately be commercially driven.  There are a number of statistics supporting that employee owned businesses can improve employee engagement, increase productivity and financial performance.  With employees having a say in how the business is run and linking performance to rewards it is easy to see how this could be the case. 

Would my business be suitable for an EOT?

An EOT could be implemented for any size business within almost any trading sector.  

Employee owned businesses have grown in popularity in recent years with over 730 employee owned businesses now in the UK, of which 20% were estanlished during 2020 according to statistics from the EOA.  

With the entrepreneurs’ relief lifetime limit now £1 million, employee ownership is becoming a more attractive option for a tax efficient exit.

How can we help you?

Careful structuring is required in order to qualify for the tax benefits when transitioning to an employee-owned business model.

We can help throughout the process from advice on whether an employee ownership model could be suitable for your business through to advising on the most appropriate structure and implementation steps to obtaining clearance from HMRC, liaising with lawyers, providing company secretarial support, completion and filing of stamp duty returns and valuation assistance.

Hazlewoods is a supporter member of the Employee Ownership Association (EOA) which represents organisations that are employee owned or transitioning to employee ownership.  



Key contacts

Tom Woodcock
Tom Woodcock
Partner
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Megan Lewis-Bourke
Megan Lewis-Bourke
Associate Director
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