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Har, Har, Har

Entrepreneurs who give away their companies to their employees are facing a tax crackdown under new Government proposals.

HM Treasury has launched a consultation on employee ownership trusts (EOTs) after it emerged they were being used for “unintended tax planning”.

These trusts allow entrepreneurs who give at least half of a company to employees to benefit from substantial tax breaks themselves

This form of shared ownership has become popular in recent years, most notably when Richer Sounds founder Julian Richer handed control of his hi-fi and TV retail chain to staff in 2019.

Under an EOT, those distributing the shares are exempt from the capital gains tax, while the company can pay its employees bonuses without incurring income tax.

But the Treasury’s consultation – which will be published later this year – could see the tax benefits restricted or removed entirely.

The Treasury said the consultation would aim 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”.

That means that EOTs are now considered to be tax avoidance – or potentially so. Using Spud’s definition that is – tax relief that was not meant even if it accords with the letter of the law. That’s what “unintended tax planning” means there.

Which really does become amusing. Because TaxWatch, the groupuscule which now houses Richard Brooks, the Private Eye journo who has raged on about tax avoidance for donkey’s years, is funded by Julian Richer out of the monies received from the EOT of Richer Sounds. Which is, arguably and using Spud’s determination, tax avoidance – or could possibly be so.

Quite joyous.

11 thoughts on “Har, Har, Har”

  1. Bloke in North Dorset

    It looks like we can legitimately use the term fascist to describe a government policy.

  2. So the employers were given tax concessions to encourage them to give away part of their company. And are now deemed to be criminals for doing what they were encouraged to do.

    Must admit I was also entertained by your reference to compulsory sales of EV’s, Diogenes. I suppose the crucial change will come when petrol stations are forbidden to sell petrol.

  3. It’s starting to become a case of whether you’ll accept this shit. Because it’s you who will be paying the 15k. Car manufacturer’s customers are the only ones with money in this game.

  4. @Diog: maybe a manufacturer should rush out its version of that little toy car that Clive Sinclair sold.

    Then it could sell them for the price of a bicycle and still satisfy the regs. Until the fascists stop it.
    (Or an electric version of the tiny Messerschmitt “bubble car” of yore, or others of that vintage.)

    I wonder whether a manufacturer will announce that it is abandoning the UK market? Or might one strike a deal to sell rebadged Teslas or its Chinese equivalent?

  5. There are certainly examples out there of very successful firms owned by EOTs (or ESOPs in the States). I was once a shareholder of an engineering firm that was over half owned by an ESOP formed when buying out the founder. Some might be set up by a benevolent founder who does want to pass the firm on to his employees out of the generosity of his heart, but most founders nearing retirement would prefer to sell out to a real buyer. Structuring an EOT buyout of a founder often requires long term loans, guarantees by the founder, and which are dependent upon the remaining staff to make good on the payments. There is risk involved for those tax breaks.

    My casual observation is that many employee ownership plans are set up by owners of firms that can’t find a real buyer, and so they structure a plan that gives them them tax breaks for selling a middling company to an employee ownership trust at price where the loans appear likely to be serviceable.

  6. I assume that unlike ICE cars small cars suffer more from being electric as the trade-off being battery size means much more limited range

  7. Why do the clueless morons in the government think that electric cars are better for the environment than ICE cars? Anyone who does even the most cursory bit of research can see that they are far far worse. The batteries are an environmental disaster and they still use energy predominantly generated from fossil fuels but far less efficiently. If CO2 emissions really are a problem, why do governments only promote “solutions” that don’t work? The obvious answer would be a massive expansion of nuclear power along with converting things to run on electricity wherever it is practical. Wherever it is practical being an important caveat.

  8. Stony
    The growth of EV sales can only be met by taking coal fired stations out of mothball. So they could be described as coal fired engines. It0s the effect of increased demand at the margin.

    But there may be method (swank + corruption) in the madness.

  9. TD has it pretty much right.

    Virtually all the EOT situations I’ve come across are where a compatible buyer can’t be found. Compatible including right price and right ethos of the purchaser. Some owners of smaller companies are reluctant to sell to much bigger organisations as they do have concerns that their staff won’t be treated the same under a dramatically different type of management.

    So an EOT lets the seller exit with a clear conscience. And get a tax break. But “unintended”? WTF did the government intend? What are they upset about? This government hasn’t got a clue. I despair.

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