For Business
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.
There are a number of reasons as to why you may want to consider an EOT. 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 EOTs 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.
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 1,400 employee owned businesses now in the UK, of which 23% were established during 2022 according to statistics from the EOA.
With the business asset disposal relief lifetime limit now £1 million, employee ownership is becoming a more attractive option for a tax efficient exit.
Careful structuring is required in order to qualify for the tax benefits when transitioning to an EOT 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.
Background: Bayford New Horizons recently transitioned their group of five Bluebird Care franchises into an Employee Ownership Trust (EOT), guided by the specialist tax team at Hazlewoods and corporate lawyer, Tim Ward of Harrison Clark Rickerbys. Deemed to be unique within the franchise landscape, Paul Barry, franchisee, explains why it was the most attractive option for his business.
How we helped: “Due to the complex legislation regarding EOTs, a specialist advisor was essential. As our business was a franchisee there were additional complications with regard to explaining the proposed structure to the franchisor.
Hazlewoods were instrumental in clearing the path with HMRC so that we could go to the franchisor with clarity. Once they had secured HMRC’s stamp of approval, we could then proceed with confidence.”
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Due to the complex legislation regarding EOTs, a specialist advisor was essential. As our business was a franchise there were additional complications…Hazlewoods were instrumental in clearing the path with HMRC.”
