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Tax reliefs for employee owned companies: new proposal

The very first UK Employee Ownership day was held on 4 July 2013 and the Government launched a consultation on two new tax reliefs to encourage and support the creation and growth of employee-owned companies.

As I’ve mentioned in recent blogs, employee ownership can take the form of direct ownership – which means that employees hold shares in the company that employs them; and indirect ownership – which means shares are held collectively on behalf of employees, often through an employee benefit trust (EBT), or a combination of the two.

The first Government proposal is for a sale of a controlling interest in a business to an indirect employee ownership structure (usually an EBT) to be entirely free from capital gains tax (CGT).

The second proposal is an income tax and National Insurance Contribution (NIC) exemption on bonuses paid to employees of companies where a significant proportion of the company is owned by an EBT.

During the consultation period, which will end on 26 September 2013, the Government hopes to gather more information about the employee ownership sector, for example, the nature and number of existing employee-owned companies with an indirect ownership structure; and the likely extent to which the proposed reliefs will be used.

You can find the consultation document on the Government website.

As announced in the 2013 Budget, the Government will provide £50 million annually from the 2014-15 tax year to finance these new tax reliefs and support employee ownership models in order to incentivise growth of the sector. There could be a risk that this may be insufficient, as John Lewis (for example) could use most, or perhaps all, of this budget on its bonus payments in a good trading year.

The Government proposes that the new legislation will include appropriate provisions to ensure that this initiative is not used for tax avoidance.

HMRC has also updated its website to make available employee ownership model documentation, including a model trust deed and a note on tax issues, as well as a note on the tax implications for employees selling shares following the new regulations on share buybacks introduced with effect from 30 April 2013.

The model documents are intended to make it easier and more cost effective for companies to introduce employee share ownership.

The Government appear to have a genuine commitment to developing the employee ownership sector: see the HMRC website.

More information on this topic at

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