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  • CIOT presses for changes to Employee Ownership Trust regime

    29 November 2021

    Andy Wood

    Introduction

    The Chartered Institute of Taxation (“CIOT”) made an interesting intervention in a recently published paper called “Employee Ownership Trusts (“EOTs”): Submission on enhancement and anti-abuse measures, funding and other tax issues”[1].

    The CIOT is a charity and its “primary purpose is to promote education in taxation with a key aim of achieving a more efficient and less complex tax system”.

    There has been some discussion of whether the submission fits in with that “primary purposes”. However, it is clear that the CIOT makes some firm policy suggestions to the Government in this area.

    For an overview of EOTs, then please see our earlier article.

    CIOT areas of concern

    The CIOT identifies several areas where it suggests the rules could be tweaked:

    • Clearances are requested from HMRC as a matter of course where an EOT is proposed. This creates work for advisers and HMRC and a financial cost for clients;
    • Trustees can be non-UK resident for tax purposes. This means that the ‘deferral’ of tax on the sale of the shares to the EOT by the vendor could lead to no tax being paid at all on a subsequent disposal by the trustees;
    • There is no restriction on the vendor(s) or his or her associates forming the majority of the trustee board. This might mean that trustees are more minded to act in the interests of the vendor rather than the employees;
    • Uncertainty over the tax position of contributions paid by the Company which is the object of the transaction to the trustees.
    • Lack of specific code for CGT pages of vendor’s tax return

    CIOT’s proposals

    As a result, the CIOT sets out a number of options addressing these issues. Their preferred options are set out below:

    • Where sums are paid by the Company as a voluntary contribution to the trust to fund payments of consideration for the acquisition of shares by the trust, then not subject to income tax in the hands of the trustee. This should be placed on a statutory footing;
    • That there should be a legislative change such that the trustees should be required to be UK resident for tax purposes;
    • That there should be a requirement for a majority of trustees should not be ‘excluded participators’ as defined under the current legislation;
    • A dedicated code is introduced for claiming the relief on a disposal to an EOT

    Conclusion

    The CIOT’s proposals seem to be unsolicited and they ask for an opportunity to discuss these with HMRC and / or the Government. It is therefore not certain that all or any of the CIOT’s suggestions will result in any changes to the legislation.

    If you have any queries about this article, Employee Ownership Trusts or tax matters in general then please get in touch.


    [1] https://www.tax.org.uk/ref833

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