Happy New Year - our wish list for employee ownership in 2020

Posted by RM2 at 15:43 on 8 Jan 2020

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Last year we made some predictions about share plans which, looking back, were on the whole pretty accurate. The number of Employee Ownership transactions in 2019 more than doubled from the 2018 level and is increasingly becoming a “must-consider” option for owner managers looking for answers to their succession questions. Professional service firms, in particular in the construction and architecture sectors, are truly embracing this alternative to partnership structures, and even traditional law firms are taking a look, with Doyle Clayton making the transition to employee ownership last year.

Our prediction this year is more of the same, but we also expect additional interest in the area of governance for Employee Ownership Trust (EOT) owned businesses that have got through the initial transition period and now look to develop new management approaches to reflect the fact that companies are now majority owned by their employees.

In the world of discretionary share schemes, we were also correct to predict that the number of companies offering Enterprise Management Incentive (EMI) share options would top 10,000 for the first time. HMRC’s share plan statistics published in June 2019 (for the year 2017/18) recorded 11,320 companies operating EMI. EMI continues to be the plan of choice for companies looking for an employee option scheme offering huge flexibility and the best tax advantages available for a discretionary share scheme.

We’re not going to make any more predictions this year, but we do have a wish list. We hope 2020 will bring the following:

  • The continued growth of EOTs with 2020 level of transactions doubling again from 2019 levels (OK, a bit of a prediction).
  • A bit of love for the Company Share Option Plan (CSOP), the alternative discretionary share option plan to EMI. The £30,000 limit has remained unchanged for many years and is too low, particularly in comparison to the £250,000 EMI limit. Too often we see companies excluded from the flexibility of EMI for what might be described as “minor trading infringements”. The rules relating to the share capital of companies wishing to operate a CSOP are restrictive and can make it difficult for businesses with different share classes to use the scheme.
  • A recognition that the time periods for the all employee Share Incentive Plan (SIP) – five year holding period to achieve maximum tax advantages – are unrealistically long, particularly for younger employees. The SIP is a great way of motivating and rewarding all employees in a business but it’s the time period that puts off business owners more than anything else. What a waste of a fantastically flexible, tax efficient, equitable share plan.

Here’s to 2020!

Give us a call on 0208 949 5522 or email us at enquiries@rm2.co.uk to set up a free call, and perhaps we can make your employee ownership aspirations a reality in 2020.