Top Tips for Tax and Accounting in a move to Employee Ownership

Kindly provided by EOA Supporter member Pett Franklin.


Think about tax


If you are the business owner, consider your own tax position. You might consider selling a majority share of your business tax free via an Employee Ownership Trust (EOT) or qualify for Entrepreneur’s Relief of 10% and sell less than 50%. Of course you should always seek guidance from a professional and clearance from HMRC to ensure your plans are in line with the latest tax rules. In considering the tax incentives for employees, it should also be remembers that if an EOT is used, the company can additionally pay a tax free bonus annually to its employees.


What is the value of the business and how will the purchase be funded?


You must consider what value the business has and how you wish to receive payments. Part of this might be to consider over what period of time you might wish to receive payments for your shares.  Employee ownership is often a preferred route for owners who wish to leave the business over a period of time in which case deferred payments can be made to the owner over a period of years by the business for the shares.


Be prepared


Preparing your business for sale to your employees requires.  You may want to consider if the management team has the required skills to take over, and when you inform the rest of the employees of your plans.  Also, when is the most appropriate time to inform your clients and suppliers?  Other questions might include , what form of governance and employee representation is most appropriate, and how well aligned is the current culture with that of an employee owned business?


What might the future hold?


If there might be longer terms plans to sell the business in the future, you will need to consider carefully what form of employee ownership is best.  However, if you wish to protect the business from a future sale, there are useful barriers to reselling the business if it becomes owned by an EOT.


Ensure the safeguarding of the employee interests


The corporate governance regime in an employee owned business is not a nice to have feature. It is central to the model, and especially the case in order to preserve the tax reliefs associated with the EOT.  It is also best practice in employee owned businesses to ensure that the employee voice is represented – often on the Trust, sometimes on the Board and usually as part of an employee council or forum.


More information and advice about becoming employee owned can be found in the EOA’s How to Get Started Guide found here.