What You Need to Know About the Latest Employee Ownership Trust Guidance

HMRC has recently released updated guidance on Employee Ownership Trusts (EOTs), marking a significant step forward in the evolving landscape of employee ownership.

The new guidance reflects ongoing engagement with the sector and introduces important clarifications, while also highlighting a few areas where further updates may emerge. Whether you’re contemplating an exit through an EOT,  in the process of transitioning to an EOT or already running an employee-owned business, understanding the latest guidance can help you make informed, future-focused decisions.

Progress and Points to Keep in Mind

Following consultation with key stakeholders, including the Employee Ownership Association (EOA) and the Chartered Institute of Taxation (CIOT), the new guidance offers enhanced clarity on several elements of EOTs. While some questions remain, these represent opportunities for further refinement as employee ownership continues to grow and mature in the UK.

1. Trustee Independence: Strengthening Governance

The emphasis on trustee independence underscores the importance of strong governance within EOTs. While some details still need to be clarified, this shift encourages businesses to take a thoughtful approach when appointing and supporting trustees. Planning for trustee succession and ensuring alignment with your business’s long-term goals can help safeguard your EOT and support a stable future.

The focus of the guidance is to ensure that the trustees are independent of the former owners. In addition, the former owners cannot indirectly control or influence the company going forward through family members.

2. Distributions and Employee Bonuses: Encouraging Fair Reward

The guidance clarifies how distributions should be handled, reaffirming the importance of fair and transparent reward mechanisms. These are laid down by legislation and the scheme rules with the points based system needing to be adhered to.

While the income-tax-free bonus cap remains at £3,600, which is welcomed, it is important for employers to regularly review bonus and reward structures to recognise and reward your employees within the existing framework.

3. Practical Guidance: Building Resilience Through Planning

Although not all practical scenarios, such as unexpected trustee changes, are fully addressed yet, this presents a valuable opportunity for businesses to proactively put contingency plans in place. By anticipating potential challenges and building flexibility into your EOT structure, you can reduce uncertainty and ensure smooth day-to-day operations.

4.Government Perspective: Sustainable Business Ownership

The guidance and legislation reflect the government’s intention that EOTs are for long term employee ownership. As a result, they are looking closely at transactions where EOT ownership of businesses is short term due to a subsequent sale of the business.

 

What This Means for Your Business

Now is a great time to take stock and strengthen your EOT model. Here are some practical steps to help you make the most of the latest guidance:

• Stay Informed: Regularly review guidance updates and industry commentary to remain compliant and ahead of any future changes.
• Enhance Governance: Take the time to assess trustee roles and independence, ensuring your governance framework is robust and adaptable.
• Review Employee Bonus Structures: Keep the £3,600 cap in mind and consider how to optimise overall reward strategies in light of the current guidance.
• Seek Expert Advice: Engaging with specialists can help you navigate any uncertainties and position your business for long-term success.

We’re Here to Help WITH EOTS

At TC Group, we specialise in supporting businesses on their journey to employee ownership. Our experienced team understands the evolving EOT landscape and is here to guide you through both opportunities and complexities with practical, tailored advice. Whether you’re establishing an EOT or adjusting to new regulations, we’ll provide tailored advice to ensure your structure is designed for long-term success.

To find out how we can support your business, speak to our EOT experts.

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If you’re still considering the best route for your succession, our team work closely with business owners to expertly prepare and execute all types of exit strategies – which often starts with an Options Review.

Our Options Review cuts through the guesswork, comparing your succession options based on real financial and commercial insights. We’ll take you through the benefits and risks of sales to a third-party corporate or private equity (Trade Sale), Management Buyouts (MBO) and EOTs, to ensure your chosen exit route is right for you, your leadership team, and your employees.

LEARN MORE ABOUT AN OPTIONS REVIEW