Employee Ownership Trusts

Employee Ownership Trusts (EOTs) are a Government initiative aimed to promote employee ownership by giving business owners the opportunity to sell their shares to an employee owned trust free from capital gains tax. EOTs do not involve direct share ownership by employees, rather a controlling interest in company is transferred to an all-employee trust which is then held for the benefit of employees.

Why might you use an EOT?

Short term benefits

Allows an exit where there is no obvious third party purchaser.
Can provide a quick and streamlined exit route for shareholders.
Allows a tax free disposal by UK individual shareholders.
Owner can retain some involvement (up to 49%).
Share capital still available to incentivise management and key employees.

Long term benefits

Aligning the goals of stakeholders and employees.
Improved employee retention and morale.
Encourages innovation at all levels.
Improved business performance by driving growth of stakeholder values.
Employee ownership encourages employee engagement.

Tax benefits

Owner: Disposals into the trust can be made free from capital gains tax and inheritance tax.
Employee: The EOT can pay annual bonuses of up to £3,600 to employees free of income tax.
Company: A corporation tax deduction for the value of the bonuses will be available to the company.

EOT structures and funding

On setting up an EOT, funding will be required in order to allow the purchase of shares from the existing owners. The vendor will often be paid for their shares out of future income generated by the Company.

How can PwC help?

PwC can assist with all aspects of the implementation of an Employee Ownership Trust.

Strategic review

We will advise on ensuring that an EOT is the best option for the company and outline the key considerations taking into account potential alternative structures.

EOT design and tax structuring

We will work with the company and owner(s) so that the Company can have the confidence that the beneficial tax treatment will apply.

Share valuations

We will provide a robust and fair valuation of the company. This is to ensure that no additional tax charges arise as a result of the shares being sold at an overvalue and so that the trustees can be confident they are acting in accordance with their obligations.

Employee communications

We will assist with the production of communication materials to employees to ensure that they understand and appreciate the benefits to them of the move to EOT status.

Legal assistance

We can prepare the necessary share transfer and trust documentation to ensure the transfers occur in accordance with the legislation so that the beneficial tax treatment applies and so that the trustees can be confident they are acting in accordance with their obligations.