Benefits to your Business of an EO

There are several benefits to moving your business to an Employee Ownership Trust. To you and your staff, including:

• Retention of Talent – Employee ownership can increase staff retention and loyalty, as employees are more invested in the success of the company.
• Improved Productivity – Employee ownership can lead to improved productivity, as employees are more motivated to work towards the success of the business.
• Tax Benefits for the Business Owner  – There are significant tax benefits available to business owners who correctly set up an EOT, including Capital Gains Tax (CGT) reduced to 12% when 51% or more of the shares are sold to the EOT.
• Tax Benefits to Employees – providing payments are correctly calculated, employees can receive up to £3,600 each per year, free of Income Tax (PAYE).
• Securing an independent future – selling into an Employee Ownership Trust provides a tremendous opportunity for the right leadership team to thrive without the potential threat of an unknown trade buyer, who may not hold the same values.
• Valuation expectations – Selling your business to your employees can achieve a fair valuation that reflects the hard work you have put in to build your business, whilst not over-burdening the future business by debt. This enables your leadership and employees to build on the legacy you are passing onto them.

MD Workshop in 2021 on Financial Aspects of EOTs’ (pre-dates CGT rate payable set at 12% in the Nov 2025 Budget)

EOT Considerations for Business Owners

There are several factors that business owners should take into account when considering an EOT, including:

• Control – The owners will need to be willing to give up a significant amount of control over the business.
• Cost – There will be costs associated with setting up and managing the trust, including legal and professional fees.
• Employee Engagement – The success of the EOT will depend on the level of engagement and participation from the employees.

The small print

We’ve covered the key points to consider, but what else? There are several legal and financial implications associated with setting up an EOT, including:

• Trust Law – The trust will be subject to trust law, which means that the trustees will have legal responsibilities and duties. It is best to work with specialist Employee Ownership Trust lawyers, and the vfdnet VFDs have good experience of scoping the legal work, and project management to complete on time and budget.
• Employee Benefit – The EOT will need to be structured and communicated in a way that provides a clear benefit to the employees.
• Financing – The financing of the EOT will need to be carefully planned, as post transaction there will be many stakeholders whose interests need to be balanced and agreed.