» Over 200 at EOA Conference
» Vince Cable to keynote at leaders Dinner
» Cass research launch event

» EOA manifesto
» Mutuo and mutuals’ manifesto
» Partnership trusts in public services

Employee ownership news :

» `In Business´ series opens on employee ownership
» Parties back employee mutuals for public services
» EOA at Party conferences
» Iconic newspaper goes employee owned
» Beeb profiles Scott Bader
» Home care group’s new venture

EOA:

» EOA’s new wiki website attracting attention
» EOA reforms governance
» Welcome to new members

Whitehall update:

» New constitution
» Longer lasting EBTs
» In the spotlight
» Family benefit trusts
» EFRBS
» IHT risk for 5% or more shareholders
» Grogan’s QUEST
» Annual returns
» Pre-budget Report 2009

EOA’s biggest ever event saw 230 delegates attending the employee ownership conference at Birmingham’s NEC on 11 November. Sponsored by advisers Field Fisher Waterhouse LLP and Lee & Priestley LLP, the one-day event featured presentations from 21 co-owned companies and 34 speakers, with a choice of 12 syndicate workshops. Conference presentations are now available on EOA’s website.

Link to conference presentations.

Liberal Democrats deputy leader Vince Cable MP is to address a private EOA Dinner for leaders of co-owned companies at the House of Commons in January. Hosted by Association president Sir Stuart Hampson, the Dinner is designed to pinpoint key policy issues for the co-owned sector ahead of the 2010 general election. Vince Cable (left, addressing an EOA event) recently accepted a role as one of several honorary vice presidents of the Association.

Researchers at Cass business school will present the results of a new study into the co-owned business sector at a conference organised by the John Lewis Partnership and EOA in February. Aimed at policy makers, with an election likely to be less than 4 months away, the half day event takes place at the Institute for Government in Central London. For further information on the conference contact: lo.waghorne@employeeownership.co.uk

One step ahead of the political parties, EOA has launched its own manifesto on employee ownership in time for the next general election. Called "Ownership Matters", it highlights macro trends in the ownership of British business, acknowledges how much progress has been made with share schemes in public companies but shows how low the penetration is in the unquoted company sector. The manifesto calls for a more concerted effort to encourage employee ownership in the unquoted sector and recommends a range of measures, including a focus on employee trusts. The manifesto will be used over the coming months to support our lobbying of policy-makers in all the main parties.

Link to `Ownership Matters'

EOA is contributing policy ideas to Mutuo, the trade association of mutual organisations, which launched its own mutuals manifesto at its annual conference in October at the Emirates stadium in north London. Education minister Ed Balls MP and shadow Treasury minister Mark Hoban MP both spoke in support of the mutuals sector, in its broadest sense, and pledged to remove obstacles to the creation of new mutuals, including employee-owned businesses.

View the slides from the forum

Self-styled "Red Tory", Phillip Blond, founder of new right-of-centre think tank ResPublica and an influential thinker close to David Cameron, has recently published a report with National Endowment for Science, Technology and the Arts. Called "The Ownership State", it calls for new models to accelerate the reform in public services, including civic associations and "partnership trusts", businesses wholly or majority owned by employees. This has a quite different tone to the privatisation solutions of the 1980s and 1990s, in which employee share ownership was a prominent feature, and which proved to be quite short-lived. Whoever wins the next general election, public service reform will be high on the new government's agenda and the EOA is preparing the ground to ensure that sustainable employee ownership is widely understood and appreciated.

Download 'The Ownership State'

BBC Radio 4's flagship business programme kicked off its new series in November by looking at employee ownership in the UK. EOA members Lindum Group, Make architects and Parfetts cash and carry were profiled during the 30-minute edition of `In Business'. Award winning presenter Peter Day also interviewed EOA's Patrick Burns and Nigel Mason, along with Will Davies, author of the recent Demos report `Reinventing the Firm' (see EOA at Party conferences below).

Link to Radio 4 In Business `Unlimited Company’ edition – only available briefly on i-player

With a general election due in months, both main Parties have given a strong indication they support a measure of employee ownership in public services. Shadow health spokesman Andrew Lansley told the NHS employers' conference in Birmingham that an incoming Conservative government would introduce what he termed employee partnerships into parts of the health service. The move was designed to improve employee engagement and patient services, Mr Lansley said. Less than a week later, under the headline “Labour’s plan for ‘John Lewis’ services”, the Guardian reported Government plans to introduce mutual ownership models into health, education and other local services.

Link to report on Conservative plans
Link to report on Labour plans

EOA attended the Labour Party Conference in Brighton and the Conservative Party Conference in Manchester to support fringe meetings on the recent Demos publication "Re-inventing the Firm" by Will Davies (reported in the last EOA e-Bulletin). The meetings were chaired by Times leader writer Phil Collins, Tony Blair's former speechwriter, and featured Patrick Lewis from the John Lewis Partnership and FT journalist Stefan Stern. Guest speakers at Labour were Treasury minister Sarah McCarthy-Fry MP, Alan Milburn MP and Geoff Mulgan of the Young Foundation. The packed Conservative meeting had Miles Templeman, Institute of Directors director general, and Shadow business minister John Penrose MP as guests. There was a similar event at the Liberal Democrats conference in Bournemouth. The report's advocacy of employee ownership was endorsed at all three events, suggesting the all- party consensus is as strong as ever.

Download 'Reinventing the Firm'

One of Scotland’s most famous newspapers, the West Highland Free Press, is to become employee owned. Under a deal achieved with help from the Baxi Partnership, the weekly paper’s staff will buy the title from its current owners and set up an employee benefit trust. The paper was founded in 1972 by former Government Minister Brian Wilson and others, and has campaigned on Gaelic language and a range of other local issues.

Link to West Highland Free Press

EOA founder members Scott Bader were one of the companies profiled by BBC Radio 4’s Sunday morning Broadcasting House programme on 15 November. Group managing director Philip Bruce was among those interviewed for a feature on Quaker businesses.

A fourth home care franchise has been launched by EOA members Care and Share Associates [CASA] - the initiative of Sunderland Home Care founder Margaret Elliott OBE [pictured]. Department of Health social enterprise unit chief Rebecca Chaloner was keynote speaker at the launch of Calderdale Home Care Associates in Halifax on 4 November.

Link to Care & Share Associates

The EOA's new wiki website is beginning to be updated with entries from the companies on the site. The website, which is free and available to anyone to use and edit, lists 450 companies that are known or suspected to be substantially employee-owned. EOA wants everyone with an interest in this field to share their knowledge about the sector by correcting and maintaining the list, so that we have a much better data base for research and lobbying.

Link to the Ownership Matters site

EOA’s board have approved plans to give all member companies more direct say in the Association’s governance. A new council and management board will boost elected representation from EOA’s ‘partner’ members – most of them smaller firms. The Association’s main funders, its ‘Trustee’ members, will have a majority of seats on both bodies, but the ultimate governing body remains the member forum on which all members have equal representation. EOA will be in touch with all members in the near future with more details.

These co-owned companies have recently become EOA members. Click the company name to go to their website.

Acona – corporate responsibility consultants
Innoval Technology – materials consultancy
Jane Wernick Associates – consulting structural engineers
Lynn Jones Research – market research
Mercia Partnership – training and education
Skye Instruments – electronic instrumentation
Telos Partners – management consultancy
The TAS Partnership – public transport consultants
WT Burden – building materials

Whitehall Update is written by Graeme Nuttall [pictured], legal adviser to the EOA and tax partner with Field Fisher Waterhouse LLP. Contact Graeme at graeme.nuttall@ffw.com

This issue’s round-up includes significant company and trust law changes and the latest in the HM Revenue and Customs (“HMRC”) campaign to counteract tax avoidance, particularly through the use of employee trusts. The latter sets the scene for this month’s Pre-Budget Report.

On 1 October 2009, all remaining provisions of Companies Act 2006 came into force.

See http://www.companieshouse.gov.uk/companiesActCountdown.shtml.

In broad terms, apart from charitable trusts, UK trusts cannot exist forever. Current law only allows trusts to exist for a fixed period of 80 years. In practice, most EBT founders have been prepared to leave the problem of what happens in 80 years time to another generation. The Perpetuities and Accumulations Act 2009 received Royal Assent on 12 November 2009 and is expected to come into force in 2010. It will allow new trusts, including EBTs, to have a 125 year life instead of 80 years. This is a boost to long term employee trust ownership, although, for those determined to create an EBT that lasts forever, it may be worth establishing the trust in an offshore jurisdiction that has abolished the requirement for a trust to have a fixed life.

HM Revenue and Customs generally keeps quiet about tax planning. However, there are a few tax avoidance ideas it tries to deter by publicising them, along with a clear warning that it will challenge such arrangements and seek full settlement of liabilities through enquiry and litigation. Called “Spotlights”, the latest ideas HMRC has announced it will challenge both feature trusts:

EOA members are well aware of the statutory prohibition on upfront corporation tax deductions for contributions to employee benefit trusts (“EBTs”). But what if the trust is more of a family trust than an EBT? Spotlight 5 warns:
“We're aware that companies have been seeking to reward employees without operating PAYE/NICs by making payments through trusts and other intermediaries that favour the employees or their families. The arrangements usually seek to secure a Corporation Tax deduction, as if the amounts were earnings at the time they are allocated, and also defer PAYE/NICs or avoid them altogether. Our view is that at the time the funds are allocated to the employee or his/her beneficiaries, those funds become earnings on which PAYE and NICs are due and should be accounted for by the employer. In addition our view is that an Inheritance Tax charge may arise on the participators of a close company…”

Alternatively, what if the trust is more of a retirement scheme than an EBT? Spotlight 6 warns:
“We are also aware of schemes where companies claim a Corporation Tax deduction for employer contributions to an [employer-financed retirement benefits scheme (“EFRBS”)] on the basis that either (a) the contribution to the EFRBS or (b) a subsequent transfer to a second EFRBS is a 'qualifying benefit'. This would allow the company to secure a Corporation Tax deduction before any benefits are actually paid by the scheme to the employee. Our view is that neither transaction involves the provision of a 'qualifying benefit'.”

EOA members were told of an inheritance tax (“IHT”) pitfall in the June 2007 Whitehall Update. In some circumstances, when a company makes a contribution to an EBT this can create an IHT liability on any 5% or more shareholders in the company. HMRC has now publicised this pitfall more widely in its Revenue & Customs Brief 61/09. The problem only applies to closely controlled companies (as defined) and should not arise if an EBT has been drafted so as to exclude or limit benefits for 5% or more shareholders. The required drafting is usual in employee ownership arrangements.

There is an anti-avoidance provision that HMRC can use to tax, in particular, the proceeds of share sales as dividends instead of as capital gains. The controlling shareholder in a company sold shares to a qualifying employee share ownership trust (“QUEST”) at a commercial price. This was at a time when this type of EBT had significant tax advantages. The Grogan case decided the anti-avoidance provision applied. Nigel Grogan failed to show that the QUEST was created for bona fide commercial purposes, rather than to obtain a tax advantage. The case helps show what needs to be done to convince a court that an arrangement is genuine. An interesting observation from the judge is:
“The Appellant produced no satisfactory evidence of his commitment to employee incentives. He did not come across to us as an apostle of employee share ownership.”

HMRC has published most of the annual return forms needed for approved share plans and unapproved arrangements in respect of tax year 2009/10

See http://www.hmrc.gov.uk/shareschemes/ann-app-schemes.htm

The Chancellor will deliver his Pre-Budget Report on Wednesday 9 December at 12.30 pm.

Any EOA member interested in receiving the EOI quarterly update should email Elaine McKay

If you no longer want to receive this Bulletin please let us know by emailing lo.waghorne@employeeownership.co.uk