Employee ownership in the UK – who is owning it?

In a speech this week, Treasury Secretary Danny Alexander is reported as saying that there was “more to be done” to enhance the profile of employee ownership and “we as a government have to constantly keep under review what we can do to help”.

We couldn’t agree more.

We suggest that one thing the Government could do is some more joined-up thinking on this issue.

Some time back, BIS asked for firms to volunteer to produce a “toolkit” of model documents for setting up an employee ownership company through the medium of an employee benefit trust (EBT), the route described in the Nuttall Report.  Pett, Franklin & Co stepped up to the plate and produced, pro bono, a set of model documentation for this purpose, including a deed in the usual form for establishing an EBT, which was published in July last year.

There was good news in the draft Finance Bill, which provides for an exemption from capital gains tax on the disposal of a majority stake in a trading company to an “employee ownership trust” (EOT).  Unfortunately, as pointed out in the Winter 2013 News Bulletin attached to “Employee Share Schemes” (the practitioners’ bible), the terms of an EOT are required to be much more restrictive than is usual for an EBT, leading to the comment that “the form of ‘model trust deed’ settled with HMRC at the behest of the Department for Business, Innovation & Skills … will not qualify as an EOT”.  Oh dear – back to the drafting board?

The other big stumbling block to making employee ownership more widespread is funding.  The proposed new tax relief requires an owner to sell a majority stake in the company to an EOT, rather than the more manageable approach of drip-feeding shares into the trust as and when the company has sufficient profits to fund the EOT to make purchases.  We await news on whether Baxendale has been able to gain support from prominent financial and other institutions to establish a suitable fund for this purpose.