1. Stabilise & Future-Proof the Employee Ownership Trust

The issue: The Employee Owned Trust (EOT) has been central to the exceptional growth of employee ownership (EO). Its popularity as an exit route for business owners helped drive a 300% increase in the UK EO sector between 2020 and 2025. However, risk caused by a mismatch between changes to the EOT and CGT relief introduced in two successive Labour budgets is significantly slowing transaction momentum.

The proposal: Legislative improvements and consolidated HMRC guidance that maintains the integrity of anti-avoidance safeguards and reduces uncertainty, administrative costs and risks that vendors (i.e. business owners selling their business) can’t reasonably control, including:

• CGT Payments – reduce the uncertainty faced by those wanting to sell to an EOT by establishing a clear route that matches CGT payments to fixed deferred-consideration receipts, rather than relying on case-by-case Section 280 applications post transaction.
• Vendor Clawback Period – reduce vendor risk by returning the clawback period to one year where a disqualifying event is from insolvency / outside of the vendor’s control.
• Governance Breaches - extend the statutory correction period for inadvertent breaches of trustee board independence requirements e.g. an employee trustee leaves business.
• Reduce Repeat Claims - make relief for qualifying company contributions to an EOT automatic, rather than requiring trustee claims, and extend it to contributions supporting employee share schemes.
• Uprate Employee Bonus – The £3,600 tax free employee bonus set in 2013 to £4,750 and exempt qualifying bonuses from National Insurance contributions.

2. Create Tailored Capital Instruments for Employee Ownership

The issue: A structural funding gap means the EOT model isn’t meeting its full potential to offer some high-impact business types a succession plan (or more widely as a growth plan that delivers long-term value creation). The prevalence of vendor (founder / owner) finance for EOT deals relies on having cash within the business and a significant payback period which restricts:

1. business owners / businesses that are asset-intensive industries such as advanced manufacturing or residential care from transitioning to EO
2. EO businesses that are ready to invest in growth at about 3-5 years into their EO journey, because their cash to invest is leveraged to deferred payments to the vendor

The Proposal: Government to work with the British Business Bank and values-aligned investors to develop a dedicated Employee Ownership Finance Programme that supports EO businesses to undertake organic investment and acquisitions without diluting permanent EO:

• Growth & acquisition finance: patient mezzanine capital, such as subordinated loans or redeemable preference shares, that doesn’t require the loss of EOT control and can sit alongside senior bank debt.
• Deferred-consideration refinancing: a facility for established EOBs approaching the end of vendor repayments, to accelerate vendor exit and release cash for investment.
• Targeted transition support: flexible finance, guarantees and funded investment-readiness assistance where there is demonstrable additionality, particularly in high-impact sectors such as residential care.

3. Evolving the EO Models to Encourage Greater Individual Wealth Creation

The Opportunity: The EOT is a proven succession model for founders and employees but is limited in creating individual wealth. Explore the untapped potential of an EO model that learns from the experience of the EOT’s simplicity and permanent ownership with the strongest feature of international ESOP models: systematic accumulation of individual employee wealth.

The Proposal: UK Government to work with the eoa to explore if there is s feasible, scalable and policy-sound way to strengthen broad based employee capital in the UK . This might be achieved by:

• Development of a new employee ownership model
• Evolution of the EOT
• Reform of existing employee share schemes
• A hybrid trust-plus approach

A new or evolved approach should be tested across the full business lifecycle and against potential use cases.

Government should work with the eoa to refine and implement the recommendations from the findings of a scoping study that the eoa is commissioning in 2026-2027.

4. Leverage Public Procurement to Support Employee Ownership

The Opportunity: Encourage businesses to deliver meaningful employee ownership by ensuring the Government Procurement Frameworks recognise social value impacts of employee ownership practices. Teamed with the finance package and complementary interventions in high-impact sectors such as health and social care, EO could support exceptional impact for people, planet, and place delivering public contracts.

The Proposal: Government to use the NPPS and PPN 002 Social Value Model to develop standard criteria that recognises and evidence broad-based profit sharing, employee participation in decision-making, and collective ownership as mechanisms for delivering fair work and shared economic value, plus:

• Amend procurement policy and legislation so that qualifying EOBs can participate in reserved competitions
• PPN 005 should include employee owned businesses within below-threshold supplier reservations
• For reservable light-touch services, section 33 of the Procurement Act should be extended to businesses where more than 50% of voting and economic ownership is held collectively for employees and meaningful employee governance is protected
• Finally, Government should introduce an EO identifier on the Central Digital Platform and require departments to measure and report direct and supply-chain expenditure with EOBs