On 27 April 2023, as part of HMRC’s Summary of Tax Administration and Maintenance Policy paper, the government announced that there will be a consultation later this year on the use and effectiveness of the Employee Ownership tax regime.
Specifically, the government wants to ensure that the reliefs are targeted closely at incentivising EOTs as an employee ownership business model, whilst preventing the reliefs from being used for unintended tax planning.
Is this the first sign that the tax benefits which are currently available to selling shareholders may be on the verge of being trimmed down?
The consultation may determine that the tax-free relief on a sale to an EOT is too generous, or that the criteria to qualify for the reliefs need to be tightened (click here for more information on the current benefits of an EOT).
It is hoped that the consultation will focus on bringing some increased clarity to the EOT rules.
The EOT legislation can be uncertain in some areas. This is particularly relevant in the context of monetary contributions to the EOT from the company that is being sold. Reliance on the tax treatment of those receipts by the EOT is currently based on HMRC’s “stated position,” rather than on any legislation itself.
Therefore, if you are contemplating a sale to an EOT, you should be taking advice as soon as possible.
