Employee Ownership Trusts (EOTs) continue to grow in popularity as a way of engaging with employees while providing an alternative exit strategy for business owners who do not want to pursue a third-party sale.
How do EOTs work?
Business owners transfer a majority stake to a trust benefiting employees, who then also enjoy a tax-free bonus of up to £3,600 each year.
Owners can receive full market value for their shares – generally via a mixture of up-front consideration from existing cash reserves and deferred consideration funded from future profits of the business.
A significant upside is that owners can sell to the EOT without incurring a capital gains tax (CGT) liability. This feature of EOTs will continue to make them popular given the reduction in the lifetime allowance for Business Asset Disposal Relief in 2020 (formerly known as Entrepreneurs’ Relief) and the much-anticipated increase to the rate of capital gains tax in 2022.
EOTs are particularly relevant to businesses where people are the key drivers of the company. They provide the opportunity to increase employee engagement and improve recruitment and retention rates and are also suitable for corporate social responsibility profiles.
When implemented carefully, there are many advantages of EOTs for shareholders, companies and their employees.
How can Moore Kingston Smith help?
As champions of EOTs, we are proud members of the Employee Ownership Association.
We offer a holistic business advisory service around EOTs encompassing tax, legal, corporate finance, HR and accounting services. Having implemented many EOTs already, we are well placed to advise you throughout the whole process: from the initial discussions to determine if it’s right for you, to supporting you with the communication of the completed transaction to your employees and the outside world.
Importantly we use the benefit of our experience to ensure a final EOT structure tailored to your specific needs. We do this via a structured consultative process with you over several meetings before legal drafting begins.
Our full range of services include the following:
- Preliminary restructuring advice where required, e.g. including the incorporation of partnerships or general group restructuring.
- Tax advice on whether the qualifying conditions are met and seeking clearance in advance from HMRC.
- Provision of professional share valuation.
- Financial modelling to give a view of how the consideration will be settled.
- Corporate finance advice on possible part-funding by third-party debt financing.
- Structured consultative process to tailor the EOT to your specific requirements.
- Advice on the identity of the trustees and their appointment.
- Advice on the establishment of an employee council.
- Advice on whether new contracts of employment are required for owners.
- Legal drafting of the EOT trust deed, sale and purchase agreement and ancillary documents.
- Recommendations on shareholder and keyman protection policies, so they remain relevant and valid.
- Assisting with structuring employee bonus model.
- Assisting with communications to employees.
- Post-transaction support, including accounting for EOT transactions and ongoing filing requirements.
Get in touch
Please get in touch with our team if you would like an initial discussion to explore whether an EOT might be right for you.
Meet our team
What our clients say
Lisa Shirtcliffe, FD Brandopus
Moore Kingston Smith recently supported us with our sale to an EOT, and we could not have asked for more knowledgeable advisers for this. We went into the process as novices, but they guided us through every detail. Well-versed in this area, they were well-positioned to anticipate issues before they arose, and we benefitted from full 360 advice. With both the Moore Kingston Smith tax and legal departments working together, the process felt effortlessly joined up and was rounded off with excellent commercial advice from the media team in the West End. All to a tight deadline – thank you!