The government is launching a consultation on providing two new tax reliefs to encourage and support the creation and growth of employee-owned companies.

It is considering:

  • Capital gains tax relief which would apply when the controlling share of a business is sold into an indirect employee ownership structure. This would encourage individuals wishing to sell their business to consider an indirect employee ownership structure, leading to the creation of new indirect employee ownership structures.
  • An income tax and national insurance contributions (NICs) exemption. This would allow indirectly employee owned companies to pay their employees a certain amount per annum, free of income tax and NICs. There would also be an employer NICs exemption for the company.

The consultation is focused on indirect employee ownership forms: such where shares are held via employee benefit trusts. The measures are not intended to apply to direct shareholdings.

Employee benefits trusts have declined in popularity following the introduction of Part 7A ITEPA 2003 which introduced measures to curb the practice of paying employees via third party loan arrangements.

Views are sought on the two tax reliefs which the government has decided to introduce in order to encourage, promote and support indirect employee ownership structures. The Nuttall Review of Employee Ownership in 2012 highlighted that employee-owned companies can provide numerous benefits to the economy, including faster job creation, resilience during the economic downturn and increased commitment from staff. Following the review, the government announced at Budget 2013 that it will provide £50 million annually, from 2014-15, to support employee ownership models.

Chief Secretary to the Treasury Danny Alexander said: “ The employee ownership sector has huge potential and the government wants to support it as much as possible. Employee ownership is of significant benefit to the wider economy, through increased growth and business success and this business model will also add greater diversity to our economy.”

“ We want to encourage greater use of employee ownership in UK businesses and want to ensure that we provide reliefs that are supportive and effective. Views are invited from both people inside and outside the employee ownership sector.” This stage of the consultation will run until 26 September 2013.

Links: Consultation - Supporting the employee-ownership sector