Employee Ownership Trusts – New Reliefs for Indirect Employee Ownership
The Nuttall Review highlighted that giving employees a meaningful stake in the business they work for can help companies to be more successful. As such, Draft legislation was published on 10 December 2013 in relation to the Government’s will to invest an estimated £60m+ of annual reduced tax take, into this notion.
The result is the concept of the qualifying “Employee Ownership Trust”. An outline of the arrangements is provided.
Disposals Constituting a Controlling Interest
From April 2014, disposals of shares that constitute a controlling interest in a trading company will qualify for an exemption from Capital Gains Tax if they are to a qualifying Employee Ownership Trust.
This relief is available for disposals made in one given single tax year. In that tax year control must pass to the Employee Ownership Trust, but qualifying disposals can be made by more than one individual and can be for any number of shares.
The Trust’s capital gains base cost in the shares will be that of the individual who sold the shares.
The exemption may be claimed by individuals, trustees or personal representatives.
Stamp duty will be payable by the Trust on acquisition of all shares.
A Qualifying Employee Ownership Trust
The trust must be for the benefit of all the employees of the company.
However, certain participators must be excluded from being beneficiaries.
Tax Benefits to Employees through an EOT’s Ownership
If bonuses become payable to all employees based on qualifying criteria then the first £3,600 bonus per annum per employee will be free from tax. The qualifying criteria is that all employees (except those in employment for less than 12 months) must become due to some bonus and that the bonus arrangements must be provided on the basis of
– Percentage of salary
– Hours worked, or
– Length of service
or a combination of these, on a consistent basis. Bonuses cannot be paid disproportionately to any groups of directors or employees.
It is important to note that this relief will not be extended to National Insurance. However the employing company will receive corporation tax relief on the tax free element of any bonuses.