Employee Ownership Trusts - Through the Looking Glass

John Cairns | 21 November 2018

Employee Ownership Trusts - Through the Looking Glass

A lot has been written about the advantages of employee ownership trusts where the focus has been on the capital gains tax advantages to the vendor in not paying any capital gains tax at all.

To a lesser extent, mention has been made of employees of the company being able to receive tax free bonuses from the company each year of up to £3,600.

There are much wider issues here however, other than tax.

When ownership changes, it is almost inevitable that there will be a change in culture or a change in procedures which may not be for the better. Employees may become unsettled and either move on or cause unrest among their colleagues.

Where the ownership changes to that of a trust for the benefit of all employees then there should be a very much lower risk of this happening and a togetherness of purpose. By all accounts, morale within the John Lewis Partnership, where employees are “partners” is high with the business having a good reputation and doing well compared to some other major national retailers.

Many businesses are sold to new owners who are geographically distant, whether in another part of the UK or abroad. This can lead to a transfer of work abroad and, at the extreme, complete closure of the business which has been acquired, in its traditional location, with a loss of jobs. Do you remember Terrys of York, the renowned chocolate manufacturer? The company was bought by Kraft and the York factory closed about ten years ago. Would a Terrys of York, owned by an Employee Ownership Trust still be manufacturing chocolate in York today? Sadly, we will never know, but they did make lovely chocolates there.

If you are interested in finding out more about Employee Share Ownership please visit our Corporate Tax page here.

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