Final EOT Guidance: Progress Made, But Key Ambiguities Remain

HMRC has now published its guidance on the legislative changes to employee ownership trusts (EOT). There’s undeniable progress, but key ambiguities are cause for concern.  

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EOBs and their advisors should be aware that guidance on legislative changes to the EOT has now been published by HMRC, following consultation with the eoa and Chartered Institute of Taxation (CIOT).  

Several improvements are included, but key concerns remain unaddressed.  

Recommendations to HMRC were made by the eoa developed in consultation with key partners, Specialist Advisors, and direct engagement with businesses and advisors across our member base. 

Our International Ambassador, Graeme Nuttall OBE, also contributed to the general recommendations and supported their incorporation into suggested redrafting, which has been adopted in the final version. 

You can read the full CGT guidance, Distributions guidance, and Employee Bonus guidance or read on for a brief overview of the changes and what they mean for you. 

Progress - But Gaps Remain

While we’re grateful for the updates HMRC have made to action the views of the EO sector, the final version released this week still leaves some unresolved questions.  

Chief among them is how contributions to EOTs may be regarded as distributions depending on its purpose and the capacity it is paid, and the full scope of trustee independence and its implications on how former owners may be involved in the business. 

We also remain concerned by the practical implications of the changes to the legislation itself.  

For example, the risk for well-meaning employee owned businesses (EOBs) to fall foul of the trustee independence requirement in the event of the unexpected departure of a Trustee for any reason other than death.  

Likewise, we’re disappointed that the opportunity was not taken to future-proof the model by uplifting the £3,600 cap on income-tax free employee bonuses. 

We’ll continue to advocate for these necessary changes and continue to work with EOBs and their advisors to convene best practice.  

The intention is to work towards a common understanding of the necessary steps businesses need to take both to bring their EO model to life and ensure it complies with regulatory requirements. 

What This Means for You 

Employee owned businesses and sector advisors need to make themselves aware of the new guidance and its potential pitfalls. 

We’ll look for further clarifications – either independently, with HMRC, and / or the CIOT, or other partners – and continue our advocacy work. 

"From trustee recognition to a clearer take on consideration requirements, the final EOT guidance reflects positive movement in several critical areas. It’s a testament to the collaborative effort of our members, advisors, and the CIOT,” said eoa Chief Exec, James de le Vingne. 

“But we’re not there yet. Key concerns remain around trustee independence and disqualifying event triggers; issues that could create uncertainty or risk for employee owned businesses.” 

If you have any concerns about the new guidance at all, get in touch with us directly.  

We're also keen to hear views and concerns from sector specialist and advisors. That way, we can monitor the situation for any rising issues and continue advocating to grow this vibrant sector from strength to strength. 

The Journey So Far  

Since the EOT first gained royal ascent, it’s had a fascinating – and sometimes uncertain – journey.   

Revisit the articles below to discover more about the background to EOT, how it laid the foundation for the rapid expansion of the EO sector, and how we’ve helped ensure its fit for the future.  

• Ten Years of the EOT  

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

• Government Acts on EOT Legislation Following eoa Advocacy