Wider employee ownership for the nervous business owner

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.