UK: Death, Taxes And Everything – Employee Ownership In 2014

Last Updated: 3 February 2014
Article by Graeme Nuttall

The employee ownership sector should look again at possible changes in non-tax regulations that will help EO and let the Government know of any ideas by 19 February 2014

Employee ownership ("EO") is established as a concept in the UK, and now has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes. In 2014, the Government will tackle death, taxes and everything else, as it continues to help EO become a mainstream part of the UK economy.

Will the law of England and Wales move closer to allowing the perpetual triumph of the dead hand of a settlor for employee benefit trusts ("EBTs")? Will the new tax year's new tax reliefs for EO create a significant increase in the number of UK employee-owned companies? In addition to reviewing the rule against perpetuities for EBTs and introducing new capital gains tax, income tax and inheritance tax reliefs the Government has also asked is there is anything else that can be changed from a non-tax point of view to help EO?

The Nuttall Review One Year On Report contains a new 'health check' to monitor ongoing progress by the Government and the EO sector towards making EO a mainstream part of the UK economy. This will be used to monitor progress on those Nuttall Review recommendations that are only partly implemented and, hopefully, take into account other Government initiatives such as Prof Chris Hams' review of NHS staff engagement. The health check, in particular, asks, is there a commitment from the Government to removing obstacles? The initiatives already underway in 2014 show there is such a commitment, and there is clearly an interest in doing more.

Business Minister Jo Swinson has called for evidence on what more the Government can do to simplify EO. In particular, are there any remaining non-tax regulations that have a disproportionate impact on businesses that want to adopt EO or are already employee-owned (including co-operatives) and that should be changed?

The Nuttall Review identified three main obstacles to making EO mainstream; a lack of awareness of the concept, a lack of resources available to support EO and the actual (or perceived) legal, tax and other regulatory complexities of EO. Considering each of these obstacles in turn, are there non-tax regulatory changes that could make a difference? Several ideas were mentioned in the Nuttall Review that did not become formal recommendations; relating to, for example, regulations and policy concerning Government contracting, insolvency laws, accounting standards and financing EO and EO advice. Should any of these ideas now be taken forward? More importantly was anything missed during the Nuttall Review?

The Nuttall Review considered the impact generally of non-tax regulations on employee-owned companies. Given the lack of awareness of EO it was conceivable that law and regulation may create unintended regulatory burdens. The overall conclusion was that employee-owned companies did not consider themselves disproportionately disadvantaged.

Employees in companies with EO may, in particular, have in addition to their normal employment law relationship with their employer, rights or benefits in their capacity as owners, which in broad terms are:

  • access to dividends or their equivalents such as annual bonuses or additional benefits;
  • voting rights; and
  • a collective stake in their company (which can have a capital value).

Government regulations may fail to take these additional rights or benefits into account.

The Nuttall Review tested the hypothesis that, given the interests of employees and employers are more aligned in employee-owned companies than in other companies, it follows that employment regulations to protect employees from exploitation from the employer could be revoked or lightened for employee-owned companies. The Nuttall Review, however, listened to (and adopted) the view from employee-owned companies that employment rights were integral, and that they did not want to be associated with a de-regulatory approach that removed them. The Chancellor of the Exchequer adopted a different approach when introducing his "shares for rights" tax advantaged share scheme and the strong adverse response to this initiative from the EO sector showed that the Nuttall Review gauged the sector's views accurately when it came to deciding against de-regulating employment law.

Before the EO sector focuses on this year's new tax reliefs, all companies with employee ownership and other stakeholders should look again at possible changes in non-tax regulations that will help EO and let the Government know of any ideas by 19 February 2014. Employee Ownership Association members should share their thoughts with the EOA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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