Wider employee ownership for the nervous business owner

Posted by RM2 at 09:21 on 12 Feb 2021

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Employee ownership trusts (EOTs) are becoming increasingly popular across many business sectors. Even the traditionally conservative legal sector (I can say this, because I’m a lawyer!) is starting to embrace this business model pioneered by Aardman Animations and Richer Sounds. Crossland Employment Solicitors recently announced their conversion to employee ownership – RM2 is proud to have advised them on their transition.

Selling your business to an EOT is the perfect exit route for some business owners. But what if you’re keen on the concept of wider employee ownership, but not quite ready to make that significant jump of control passing to your employees?

There’s an alternative plan available for the business owner who likes the idea of all employees benefiting from share ownership without the transfer of control associated with the EOT.

As well as delivering equitable share ownership for employees - what you might call “John Lewis-lite”- the Share Incentive Plan (SIP) carries the potential for significant tax advantages:

  • For selling shareholders:
    • an existing shareholder can sell shares into a SIP trust at market value, and may claim “rollover relief” from capital gains tax (CGT).
  • For the company:
    • upfront corporation tax deduction available If the company has made a payment to enable the trustees to acquire shares in the company;
    • zero employers’ national insurance contributions (NICs) on the award of shares to employees.
  • For the employees:
    • zero income tax and national insurance contributions (NICs) on the award of shares (even if shares are gifted to them);
    • zero CGT on the sale of their shares.

    Employees can be awarded up to £9,000 worth of shares in their company each year, using a mix of free shares, and shares bought out of their pre-tax salary – though that’s a maximum amount, and you can award fewer shares if you prefer.

    If you’ve thought about an Employee Ownership Trust, but the time’s not quite right for you, the Share Incentive Plan might be the first step in your journey towards broader employee share ownership.

    To find out about how a SIP can deliver tax efficient rewards for your employees, email our team at enquiries@rm2.co.uk to arrange a call with one of our expert advisors. Alternatively, you can view our webinars on this share plan or the EOT here.