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Employee Ownership Trust is Sweet Music for Richer Sounds

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Employee Ownership Trust is Sweet Music for Richer Sounds

Many successful businesses have been born out of the spark of individual genius but few ever reach their full potential as one-man (or woman) bands.

Entrepreneurs – those responsible for the original idea – often require the insight, experience and industry of others to achieve their objectives.

In recent years, recognition of the collective contribution has become more common among British companies, with a growing number opting to give staff a very real, financial stake in the future of the firms which employ them.

Figures released by HMRC last June showed that the number of businesses operating some form of employee share scheme had increased by 11 per cent in a single year.

Many of those companies have gone further than granting a limited amount of shares and, in fact, have handed over ownership to staff.

Some of those may have been prompted to take that decision following the publication of a Government report in 2012 which concluded, quite succinctly, that “employee ownership is a great idea”.

The reports author, tax lawyer Graeme Nuttall, declared that employee ownership fostered a increased sense of commitment, giving staff a vested interest in driving a company forward.

The concept was so positive, he added, that it “needs to be as familiar as franchising or a management buy out”.

According to the Employee Ownership Association (EOA), more than 350 UK businesses have acted on Mr Nuttall’s suggestion with at least 50 more preparing to do the same.

Research published last year by the EOA detailed that those firms are not commercial small-fry either. It highlighted that the 50 largest of those firms (in sectors as diverse as retail, health, manufacturing and finance) were worth a combined £19.8 billion.

In the previous 12 months, those same businesses had seen productivity rise by 7.3 per cent , giving credence to one reason stated in the Nuttall report.

It’s perhaps worth pointing out that there are significant differences between simply offering staff equity and a Employee Ownership Trust.

The latter involves the transfer of at least 51 per cent of company shares into a trust and is, it seems, more common in the UK than elsewhere in Europe.

The practice might become even more popular if companies choose to follow the latest high profile example set by Julian Richer, the businessman whose has built a hugely successful network of hi-fi and TV stores as part of the Richer Sounds brand.

He has decided to transfer 60 per cent of his shares in the firm which he founded aged 19 just over four decades ago and which turns over almost £200 million a year into an Employee Ownership Trust ().

Mr Richer has explained that he was motivated by wanting to reward “loyal, hardworking colleagues” as well as guaranteeing the chain’s future prosperity and avoid its socially-progressive approach being changed by an “aggressive” outside investor.

His decision might well be regarded by some peers in enterprise as bold but it demonstrates both consideration for his staff and the sort of commercial nous which helped him turn Richer Sounds into a high street success.

Employee Share Ownership is not new, of course, even if the means of doing so have undergone considerable change.

Eighty years before the Nuttall Review saw the light of day, the son of the founder of John Lewis, signed something known as a deed of settlement, putting the company’s shares into a trust which meant its profits being distributed among its employees or partners, as they’re known.

In September 2014, the Government introduced the Employee Ownership Trust in an effort to persuade more business shareholders to follow suit. By doing so, there are generous tax breaks available – including an exemption for Capital Gains Tax (CGT) – for those disposing of a controlling interest, as well as the obvious benefits for staff.

However, in the steadily increasing volume of enquiries about such matters which we receive on a regular basis and the hundreds of other instances which we’ve dealt with over recent years, it’s arguably the guarantee of future commercial prospects and the knowledge that companies are better off in the hands of those who helped build them which spur the move to employee ownership.

If you want to find out more about an Employee Ownership Trust or any other related matters then please get in touch

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