What is an EOT?
EOTs were introduced by the Government in September 2014 to encourage more companies to set up a structure that would enable wider employee ownership. To incentivise shareholders, the Government introduced generous tax breaks.
To qualify for these tax incentives, certain conditions must be met, including:
- The company transferring the shares into the EOT must be a trading company. Partnerships therefore would have to incorporate to benefit.
- The EOT must benefit all employees on similar terms.
- The trustees must retain at least 51% of the controlling interest otherwise tax relief is withdrawn.
- The number of shareholders after the transfer of control to the EOT cannot exceed 40% of the total number of employees.
- Whilst generous, the tax breaks available will vary depending on your circumstances and we will be happy to give you an idea what these could be.
Why consider an EOT?
An EOT can be a neat tax effective solution to address succession issues and is one of the drivers for considering this structure. Furthermore:
- Based on an independent valuation, shareholders can sell their shares for the full market value.
- Not all shareholders have to sell their shares although control must pass to get the maximum tax break.
- The transaction can, in most cases, happen quickly and smoothly.
- An EOT can be attractive to potential new staff and can be a positive point of differentiation from competitors.
How can we help?
Selling all or part of a Company to an EOT can be a great solution for many businesses, however there are many restrictions and potential drawbacks with this approach. Furthermore, as with any transaction, careful thought and consideration is required and it is imperative professional advice is sought.
HURST is well placed to assist businesses considering an EOT as we can assess the approach against other disposal methods, and if it comes to it, we have the know-how to successfully implement the EOT.
If you are already progressing an EOT, we can support you with specialist tax advice and independent valuation. We also have strong relationships with funders and legal advisors who have the knowledge and appetite to assist businesses considering at Employee Ownership Trust.
To learn more contact Liz Gallagher or Nigel Barratt on 0161 477 2474 or email us firstname.lastname@example.org