Employee ownership trust
Where do you see your business in the future?
Perhaps you envision selling to a third party, passing it on to your current management team, or—maybe—entrusting it to the very people who helped you build it. If the latter appeals to you, an Employee Ownership Trust (EOT) might be the perfect option.
Since 2014, the UK Government has encouraged employee ownership by incentivising business owners to sell shares not to a third party, but to an EOT. This structure allows you to reward employees for their loyalty and commitment, while also preserving your company’s culture and legacy.
The basics are straightforward: as a business owner, you sell more than 50% of your shares to an EOT established for the benefit of all employees. This means transferring a controlling interest, ensuring that your business remains employee-focused. Your business will be independently valued to confirm you receive full market value for your shares.
How the EOT funds the purchase:
The EOT can fund the acquisition of your shares through surplus cash within the business, a bank loan, or future trading profits. To encourage employee ownership, the Government offers a significant incentive: payments you receive for your shares, up to their full market value, are entirely exempt from Capital Gains Tax.
How the business operates post-sale:
The trading business continues to run under the existing management team, ensuring continuity. The EOT itself is overseen by a group of trustees, including employee representatives and—if you wish—you, as the outgoing shareholder.
Employee profit-related bonuses:
The EOT can also pay employees profit-related bonuses, provided they are distributed across all employees. Bonuses can be equal or adjusted based on salary, hours, or years of service. The first £3,600 of any bonus is free from Income Tax, providing an attractive benefit to employees.
Ownership without direct shareholding:
Employees do not directly own shares but instead are beneficiaries of the EOT. This allows for flexibility as employees join and leave the business without the need to buy or sell shares. The EOT structure often leads to higher employee engagement, increased productivity, and greater business resilience.
For business owners, selling to an EOT is a meaningful way to honour the people who contributed to their success, creating a legacy that preserves the company culture and rewards employees. However, while EOTs have many advantages, they aren’t suitable for every business.
If you’d like to explore whether an EOT might be right for your company, contact us for an informal discussion. We’re here to help you evaluate your options with no obligation. Email Craig Simpson craigs@batesweston.co.uk or Richard Coombs richardc@batesweston.co.uk to find out more.
This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.
Ready to make a change?
From payroll to tax advice, Bates Weston has got you covered. Contact us to get started.
How is the EOT funded and the shares paid for?
The EOT is a new entity and has no cash of its own. The trading business uses surplus cash, or bank funding to pay all or a portion of the purchase price to the vendor shareholders. Any remaining balance of the purchase price is usually transferred into the EOT from trading profits and paid as deferred consideration to the vendor shareholders over an agreed timescale.
Do all employees benefit equally from an EOT?
Employees do not own the shares in an EOT backed business; they are potential beneficiaries of the Trust. In general, all employees benefit from the EOT on equal terms though the Trustees have the power and flexibility to differentiate between different employees based on factors such as length of service, working hours and salary. These differentiators must be published for the reference of all employees
What will change for me on a day to day basis?
The ethos and culture of the business is what this process is designed to support and maintain so that employees and customers see no tangible changes when an EOT takes ownership of the company shares. It has been reported by employees of companies owned by an EOT that they feel more motivated because they feel a part of the business and feel able to help shape and benefit from the successes of the business.
What happens if I decide to leave the company?
As an employee of the company you will not own shares directly but instead will be a beneficiary of the EOT. Therefore if you decide to leave the company, you will no longer be a beneficiary of the EOT – this will happen automatically upon leaving. There will therefore be nothing you need to do and nothing to report to HMRC.
Speak with a specialist
No question is too big or small. Our dedicated team is here to provide straightforward, personalised advice and solutions for your business. Reach out today to see how we can support you.
More ways we can help
Our experts can assist with payroll, tax, succession planning, and more. Whatever your business needs, we’re ready to provide practical, personalised solutions that make a real difference.
The essentials
From bookkeeping to tax compliance, we handle your daily financial needs with precision and care.
Accounts
Business advisory
Our straightforward advice empowers your business to grow, offering strategic guidance on everything from tax planning to mergers, acquisitions, and succession strategies.
Bookkeeping
We streamline your bookkeeping, ensuring accurate, up-to-date records, allowing you to focus on running your business without getting bogged down in financial details.
Payroll bureau
Our fully compliant payroll services handle everything, from calculations to submissions, ensuring timely and accurate payroll processing, so your team gets paid smoothly and on time.
Management accounts
We provide clear, insightful management accounts, helping you make informed decisions, track performance, and plan for future growth with real-time financial data.
Advanced services
We go beyond the basics, offering strategic guidance to drive your business forward, ensuring long-term success.Â
Tax planning for you and your business
Pension & investment planning
Corporate finance
Wills & probate services
Family offices services
Looking to grow? Take the next step
From compliance to growth, our accounting firm in Derby has you covered. Call us to see how we can help.