The CIOT has made a proactive submission on potential problems with the current legislation on employee ownership trusts (EOTs).
The EOT legislation, enacted in FA 2014, introduced tax reliefs to remove a tax obstacle to the sale of a company to an EOT, and was intended to create a more level playing field in which the benefits of long-term employee ownership of trading companies might be realised.
The CIOT considers that the EOT provisions appear to create costs for all parties, risks to tax collection and give only limited stimulus to the employee engagement from which many of the benefits of employee ownership are derived. In particular it notes that it seems typically necessary to seek a non-statutory HMRC clearance on the proposed structure of the transaction, creating unnecessary work for all parties.
The submission urges formal consultation on the following proposals:
confirmation in the legislation that contributions paid by the target company to fund the acquisition are non-taxable in the hands of the EOT trustees, thereby removing the need for unnecessary clearance activity;
legislative amendments in relation to who might be EOT trustees – in particular, a requirement for them to be resident in the UK, and a prohibition on former owners forming the majority on the trustee board; and
introduction of a dedicated designatory code for making the claim for CGT relief for the disposal of shares to an EOT on the self-assessment tax return, which would assist compliance and help HMRC to track claims and numbers of EOTs.
The CIOT has made a proactive submission on potential problems with the current legislation on employee ownership trusts (EOTs).
The EOT legislation, enacted in FA 2014, introduced tax reliefs to remove a tax obstacle to the sale of a company to an EOT, and was intended to create a more level playing field in which the benefits of long-term employee ownership of trading companies might be realised.
The CIOT considers that the EOT provisions appear to create costs for all parties, risks to tax collection and give only limited stimulus to the employee engagement from which many of the benefits of employee ownership are derived. In particular it notes that it seems typically necessary to seek a non-statutory HMRC clearance on the proposed structure of the transaction, creating unnecessary work for all parties.
The submission urges formal consultation on the following proposals:
confirmation in the legislation that contributions paid by the target company to fund the acquisition are non-taxable in the hands of the EOT trustees, thereby removing the need for unnecessary clearance activity;
legislative amendments in relation to who might be EOT trustees – in particular, a requirement for them to be resident in the UK, and a prohibition on former owners forming the majority on the trustee board; and
introduction of a dedicated designatory code for making the claim for CGT relief for the disposal of shares to an EOT on the self-assessment tax return, which would assist compliance and help HMRC to track claims and numbers of EOTs.
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