In the first webinar of the 2021 Employee Ownership Explained Webinar series, guest speaker Graeme Nuttall OBE talked about how corporate purpose underpins the successful employee-owned company.
You can watch Graeme’s presentation here.
Graeme Nuttall OBE is dual qualified as a solicitor and chartered tax adviser, and is a partner in international law firm Fieldfisher. He served as government adviser on employee ownership with the Coalition Government, which commissioned and supported the landmark report the Nuttall Review, which set up the road map on how to get employee ownership into the mainstream of UK business. The introduction of the Employee Ownership Trust (EOT) in 2014 is a result of the findings of the Nuttall review and has led to a 300% increase in the number of UK employee-owned businesses. The Nuttall Review demonstrated that employee ownership delivers better business outcomes and improves employee well-being.
The EOT brings significant tax benefits both to the company owners who sell their business to an EOT, and to the employees in companies where a majority of the shares are held by the EOT. If the company’s shareholders sell a controlling interest in the company to the EOT, then the transaction is exempt from Capital Gains Tax, a saving of up to 28%. When the company is profitable, employees can benefit from a tax-free bonus subject to an annual threshold of £3600.
Uptake has accelerated in recent years, with a further 30 Scottish companies predicted to become employee-owned in 2021. Graeme congratulated CDS on their efforts and praised Scotland’s record in increasing the number of employee-owned businesses headquartered here.
Graeme’s presentation focused on the following key points:
- The EOT is more than a financial benefit for employees.
- Employee ownership is far more effective when there is also employee voice and involvement, with employees having a real say in the company’s direction and goals.
- Advisers must consider the purpose of the Trust, and not regard it simply as a tax effective exit strategy.
- The EOT is intended to provide long-term employee ownership and all the planning and design decisions taken during the transaction need to be based around this purpose.
Graeme explained how the EOT was being adopted internationally, with countries such as Australia, Canada, Denmark and the US seeing a growing interest. The tax regimes in some countries made implementation of an EOT structure a challenge, but there appears to be a growing appetite to find a means to make it possible. This is largely down to the success of employee ownership in delivering benefits not only to the business, but to the wider economy.
Graeme is proposing some changes to the legislation to enhance employee voice and engagement, and limit any potential abuse. He would like to see a ruling that EOTs cannot be off-shored, and that there are strict guidelines in place about who can be in control of the Trust. He is requesting that there is a requirement for the EOT to be viewed as a vehicle for long term employee ownership. Graeme welcomed the Scottish government’s ambition of 500 Scottish employee-owned businesses by 2030, and urged that focus is on quality, not quantity. The engagement and economic benefits are delivered when the EOT is in place for the right reasons.
Sign up to our next event
Our Employee Ownership Explained series continues online and you can sign up to future events here.
Topics include, financial planning and the role of the bank in an EOT.