Policy Win That Builds on a Decade of EO Growth and Impact

We're delighted that the UK government has taken key steps recommended by the eoa to support the momentum of growth in employee ownership in the UK.

Employee ownership via an EOT is the fastest growing succession choice in the UK, that roots good jobs, investment and innovation in regions for the longer term. It offers a supply-side solution to low output and efficiency, empowering employees to drive increased productivity of 8-12% that can be scaled across every UK sector.  

The EOT has been future-proofed in the Autumn Budget 2024 through reforms securing its integrity and ease of use, actioning recommendations proposed in the previous Government’s consultation in September 2023, as well as muting speculation that its tax advantages may be under threat.

 The reforms closely reflect our recommendations that we developed with members and stakeholders, that informed our consultation response and manifesto.

How EOTs have been reformed effective today (Oct 30, 2024):

1. Restricting former owners or persons connected with former owners from retaining control of companies post-sale to an EOT by virtue of control (direct or indirect) of the EOT. This aligns with eoa recommendations and reflects existing best practice around EOTs.
2. Requirement that the trustees of an EOT must be UK resident (as a single body of persons) at the time of disposal to the EO. While there are various examples of fantastic EOBs owned by offshore EOTs and demonstrating authentic best practice EO, we have supported this measure, closing a potential tax loophole that enables a ‘pre-planned’ secondary event, which would in turn allow the tax advantages to be used by those not intending to implement EO.
3. Confirm in legislation that contributions made by a company to an EOT to repay the former owners for their shares will not be charged to income tax as a distribution. We support this measure, provided that the consideration does not exceed the open market value for the shares.
4. Require that the trustees must take reasonable steps to ensure that the consideration paid to acquire the company shares does not exceed market value. The eoa fully supports this action, which addresses a concern that the integrity of the model may be threatened by businesses being overvalued on sale to EOTs.
5. Ease the EOT income tax-free bonus provisions to allow bonuses to be awarded to employees without directors being included. The eoa supports this in the interests of being able to administer bonus payments with appropriate flexibility, but we urge businesses not to lose sight of the ‘all employee’ spirit that underpins the vales and success of giving employees a stake and a say in the business.
6. Extend the period of time within which the relief can be withdrawn from the former owner if the EOT conditions are breached post-disposal, to the end of the fourth tax year following the tax year of disposal.
7. Require that individuals provide within their claim for Capital Gains Tax (CGT) relief information on the sale proceeds and the number of employees of the company at the time of disposal.
8. In addition to these legislative changes, in line with wider practice on anti-avoidance motive tests, HMRC will from 30 October 2024 onwards cease to provide clearances to companies and their advisers on the application of section 464A Corporation Tax Act 2010 to a transaction to establish an EOT.

The achievements of the past decade, and the momentum we have today linked to the EOT, are built on the eoa’s long-term relationships with tenacious pioneering founders, advisers and EOB leaders from our membership.

The EOT gained royal assent in 2014, providing a much-needed jolt to the UK’s still embryonic employee owned sector. In the decade since, it’s acted as rocket fuel, delivering 90% growth in employee ownership. This rapidly growing sector hardwires growth into the economy, increasing wellbeing and prosperity for people and communities, including:

Supporting CleanTEC to share ownership and success with 1,250 employees in stark contrast with this industry and others in the foundational economy where low pay, and undesirable employee rights contribute to the UK’s working poor.

Anchored sustainable farming practices with Riverford Organic Farmers rooting jobs and innovation in the many communities in which the business is based.

Turbo charged innovations in the medical sciences and advanced manufacturing sectors through businesses such as Pennine Healthcare, not just affecting employees and the business, but important innovations that can change people’s lives. 

The model also has a continued relevance to the future economy – both as a proven succession opportunity for 51,000 SMEs that risk closure because of ownership changes over the next decade, and as a vehicle to transition to a fairer, more equitable, and more sustainable economy.

Crucially, the EOT aligns with Labour’s pledges and missions. This includes the party’s manifesto pledge to double the size of the cooperative and mutual sector under which employee ownership is defined.

Continuing the momentum of employee ownership offers multiple impacts that cuts across all the aims for stability, growth and investment in Labour’s ‘growth mission’ set out in their Industrial Green Paper in October 2024. An expanding sector of ‘growth champions’ offering better livelihood outcomes, greater investment in innovation and training, better environmental practices, and higher performance and productivity, is what the economy is crying out for.

We're learning the ‘how’ of scaling employee ownership working with Mayoral Combined Authorities in West Midlands, Great London and South Yorkshire, but support and ownership on employee ownership from UK government needs to be in place to deliver its full potential for people, planet and place. This is a much needed and significant step in that direction.

Read our manifesto on how to the unlock the potential of EO in the UK, plus talk to us and share your ideas on how we can nudge employee ownership into the mainstream of UK business.