HMRC Issues Self Assessment Tax Guidance on Employee Ownership Trusts

HMRC has issued new Self Assessment guidance on Employee Ownership Trust disposals, while also clarifying key technical questions on EBT contributions, irrecoverable deferred consideration, and the availability of BADR where EOT relief is withdrawn.

Recent changes to the tax treatment of disposals to Employee Ownership Trusts (EOTs) and the associated guidance have created a number of practical questions for employee owned businesses, advisers, and vendors.

The eoa has continued to engage with HMRC, alongside sector advisers and professional bodies, to seek clarity where uncertainty remains. 

We’re now able to share several formal updates provided by HMRC.

HMRC Self Assessment Help Sheet

HMRC have published a help sheet which explains how to claim relief from Capital Gains Tax (CGT) on disposal of shares to the trustees of an Employee Ownership Trust. 

The help sheet can be accessed by clicking or tapping here.

Key Questions Raised by the eoa

HMRC has also provided clarity around three key areas that have been raised with the eoa by members and advisers:

1. Contributions made by a company to the trustees of an Employee Benefit Trust
2. Claims where deferred consideration becomes irrecoverable
3. The availability of Business Asset Disposal Relief where EOT relief is withdrawn

As always, these updates are intended to support general understanding and should not be treated as tax or legal advice. Businesses, trustees, vendors, and advisers should consider the facts of their own circumstances and seek appropriate professional advice.

Contributions to Employee Benefit Trusts

HMRC has provided the following statement on contributions by a company to the trustees of an Employee Benefit Trust (EBT):

“The question of whether a payment is a distribution ‘in respect of shares’ in any particular case remains one of fact and degree. 

“However, HMRC does not generally regard contributions by a company to the trustees of an EBT as distributions ‘in respect of shares’ where those contributions are intended to allow the EBT to act as a warehouse for shares pending award or as a market-maker to acquire vested shares in the operation of a tax advantaged or non-tax advantaged employee share scheme, and do not form part of a scheme or arrangement for the extraction of value to the shareholders.

“There has been no change of view in this area.”

This is a helpful clarification, particularly for businesses and advisers concerned about the interaction between EBT funding arrangements and the wider changes to EOT legislation and guidance.

HMRC has confirmed its approach to contributions made to the trustees of an EBT to fund share scheme arrangements hasn’t changed because of any changes to the EOT. 

The eoa understands that further guidance may follow in due course, and we’ll continue to engage with HMRC on any remaining areas where additional clarity would be useful.

Irrecoverable Consideration & Section 48 TCGA 1992 Claims

HMRC has also responded to questions raised through the Share Schemes Forum regarding the position where deferred consideration becomes irrecoverable.

HMRC has provided the following statement regarding the consequences of claims for irrecoverable consideration under section 48 TCGA92:

“You have asked for clarity as to whether claims that part of deferred consideration has become recoverable (as made under section 48 TCGA92) can result in repayment of tax to the vendor, if appropriate. 

“The teams who process section 48 claims have confirmed that where section 48 claims are accepted, the CGT liability is recalculated and the customer’s SA statement is credited with any amounts of overpaid CGT. In the first instance, this credit would be offset against any other outstanding SA liabilities. 

“After this, any excess remaining credit would be repaid to the customer if the customer had provided instructions that they wished a repayment. (If the customer had not requested a repayment, then HMRC would write to the customer to inform them of the credit on their account and give guidance on how to request a repayment).”

This is a practical point but an important one. It provides clarification that, where a section 48 claim is accepted, overpaid CGT can be credited and, where appropriate, repaid to the taxpayer, subject to the normal operation of the Self Assessment account.

Business Asset Disposal Relief Where EOT Relief is Withdrawn

HMRC has also provided clarification on whether Business Asset Disposal Relief may be available where EOT relief is withdrawn due to a disqualifying event.

The following statement has been provided by HMRC regarding the availability of BADR in cases where section 236H relief is withdrawn/disclaimed:

“You have asked for clarity as to whether it would be possible for persons claiming EOT relief under section 236H to make a claim to Business Asset Disposal Relief (BADR) if the EOT relief is withdrawn due to a ‘disqualifying event’ following the end of the tax year of disposal. 

“Where EOT relief has been withdrawn and HMRC raise an assessment for the year of disposal, the disposer may make a claim to BADR Relief provided of course that the BADR conditions at section 169I were met in relation to the original disposal, and that the claim is made within the applicable time limits.

“Whilst the ordinary time limit for making claims to BADR is on or before the first anniversary of the 31 January following the tax year of disposal (CG63970), if the claim is consequential to an assessment that HMRC has made for the relevant year then a claim to BADR can be made within one year of the date of the assessment in accordance with section 43(2) TMA70. (SACM9005)”

This clarification is relevant for sellers and advisers considering the interaction between EOT relief, disqualifying events and the potential availability of alternative reliefs.

Again, the position will depend on the facts of the individual case, including whether the BADR conditions were met in relation to the original disposal and whether the relevant time limits are satisfied.

What Happens Next

The eoa welcomes these clarifications from HMRC. They respond to several practical concerns raised by members, advisers, and professional bodies over recent weeks.

We also recognise that further questions remain. In particular, members and advisers have raised broader questions about the operation of the updated EOT regime, the practical impact of the reduction in CGT relief, and the need for clear, consistent guidance that supports high quality employee ownership transitions.

The eoa will continue to engage with HMRC, HM Treasury, and the Department for Business and Trade on behalf of members. 

We’d welcome feedback from members and advisers on these updates, including any further areas where clarification would be helpful. 

Please share any comments or examples with [email protected] so that we can continue to build an informed, practical and evidence-based picture of how the current regime is operating in practice.