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.