guiding you
through EOTs.
emerged as a compelling succession
planning solution for UK businesses.
Employee Ownership: A Strategic Succession Solution.
Established in 2014, EOTs have seen significant growth, with over 1,600 now in operation, encompassing prominent examples such as Waitrose, John Lewis, and Richer Sounds.
An EOT is a trust designed to empower employees by granting them indirect ownership of the company. The trust holds a controlling stake, and trustees are legally obligated to act in the best interests of all employees.
Recognising the significant economic and social benefits of employee ownership, successive UK governments have actively promoted this model, offering substantial tax incentives to encourage businesses to transition.
To qualify for these incentives, the employee ownership structure must adhere to specific criteria.
How the Sale to an EOT Works:
The transition to employee ownership typically involves three key steps:
- Establishment of a Qualifying EOT: A UK resident corporate entity is established as the EOT trustee.
- Shareholder Sale: Shareholders sell their shares to the trustee company. The purchase price creates a debt owed by the trustee to the shareholders, which remains outstanding.
- Debt Repayment: The company generates ongoing profits, a portion of which are used to make contributions to the EOT. These contributions are then used to repay the outstanding debt owed to the shareholders.
The EOT Model: A Proven Path to Success.
Independent research consistently demonstrates a strong correlation between shared ownership and improved business performance. When employees have a stake in the company’s success, they are often more motivated, engaged, and productive.
Benefits of an EOT as a Succession Solution:
Strategic Exit Strategy.
Provides a streamlined and potentially more cost-effective exit route compared to traditional sales, particularly when suitable third-party buyers are unavailable.
Enhanced Employee Motivation and Engagement.
Empowers employees, leading to increased motivation, productivity, and a stronger sense of ownership.
Continued Owner Involvement.
Enables existing owners to retain a non-controlling role, maintaining their involvement while receiving market-rate remuneration.
Attracting and Retaining Top Talent.
Offers a unique and compelling employee value proposition, making it easier to attract and retain high-calibre talent in a competitive job market.
Preservation of Company Culture.
Fosters a strong and enduring company culture by aligning employee interests with the company’s long-term success.
Positive Community Impact.
Contributes to local economic growth by fostering stable employment and supporting the surrounding community.
Significant Tax Advantages:
The UK government actively incentivises EOTs through favourable tax legislation:
Capital Gains Tax Exemption: Shareholders are exempt from capital gains tax on the sale of shares to an EOT.
Employee Bonus Tax Relief: Employees can receive an annual bonus of up to £3,600 tax-free.
Inheritance Tax Relief: Certain transfers of shares into and from the EOT may qualify for inheritance tax relief.
How Mitchells Accountants & Business Advisers Can Help
At Mitchells, we have a proven track record, dating back to 2018, of successfully guiding businesses through the transition to employee ownership. We understand the complexities involved and can provide expert advice and support throughout the entire process.
Many firms talk the talk but have not walked the walk. Use an adviser, such as ourselves, who can navigate the many pitfalls which can catch-out the unwary.
By partnering with our experienced team, you can navigate the transition to employee ownership with confidence and maximise the benefits for your employees, your business, and yourself.
More information?
If you would like to find out more detail about the employee ownership model, refer to these useful guides prepared by the Employee Ownership Association.
Number of EOTs
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Revenue increases after becoming an EOT
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EOTs are more likely to have increased employee satisfaction and motivation compared to non EOTs
Our Services:
Strategic Review and Eligibility Assessment.
We conduct a thorough assessment to determine if an EOT is the most suitable succession option for your specific circumstances, considering alternative structures and their potential implications.
HMRC Clearance.
We assist in obtaining necessary HMRC clearances to ensure compliance with all relevant tax regulations.
Independent Business Valuation.
We provide robust and independent valuations to ensure fairness and accuracy, mitigating potential tax risks and ensuring compliance with trustee obligations.
“We would be lost without Mitchells. Their support is invaluable and they know our business inside out. They work with us to explore ideas and then they go out and get the answers. Mitchells make important business introductions that allow us to gain the right finance through their extensive network of contacts. Their services are an extension of our business and we couldn’t function without them.” – Wendy Waddicor – Hill Care Ltd
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