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CHAPTER 3: OUR RECOMMENDATIONS

2 The government should continue to create the strongest possible business environment to foster and promote the growth of EOBs. This should be achieved through the tax regime, via measures to: •

Increase, and/or index-link, the current £3,600 per tax year limit on tax-free qualifying bonuses – and consider eliminating National Insurance contributions on those bonuses to incentivise EOT transactions. Ensure that employee buyout costs are deductible for corporation tax purposes in the same way as for other tax-advantaged share schemes. Ensure that any contributions from a company to an EOT – eg, to repay a loan – are tax-deductible, as the contributions are exclusively for the purposes of the firm’s trade, and therefore benefit employees. This would make lending to an EOT no less tax-efficient than lending directly to the company (the route taken by private equity investors, who benefit from taxdeductible interest on their loans to their investee firms – thereby enjoying an unfair fiscal advantage over EOTs). Introduce a finite period of seven years during which the original vendor’s capital gains tax relief can be clawed back by HMRC. That will end a current disincentive, whereby the subsequent sale of a business leaves employee owners repaying tax relief that the original owners were spared. Ensure that vendor loans are eligible for business property relief upon the sale of a business, so that any original owner whose loan is still supporting an EO transition doesn’t lose an important inheritance tax exemption.

• •

Abolish stamp duty on company sales to EOTs, thereby removing a disincentive to ownership transfers in the sector. In cases where a close company lends money to its EOT rather than contributes (ie, gifts) it, as it may do if there are external investors wanting to limit shareholder dilution, that company currently suffers an adverse tax charge. That is because such loans to a significant shareholder (ie, the EOT) are taxed at 32.5%, as if they are dividend distributions. This anti-avoidance penalty should be removed from genuine loans by a company to its EOT. That measure would make it easier to establish EOTs in firms where there are external investors.

TAX

“Removing tax obstacles to EO growth has a powerful, signalling effect upon business owners and their advisers”

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Profile for LID Business Media

The Ownership Dividend  

The Ownership Dividend The report of the The Ownership Effect Inquiry. Copyright 2018 Employee Ownership Association and LID Publishing.

The Ownership Dividend  

The Ownership Dividend The report of the The Ownership Effect Inquiry. Copyright 2018 Employee Ownership Association and LID Publishing.