Employment Tax

Bonuses from company owned by employee-ownership trust

Produced by Tolley
  • 19 Oct 2021 23:17

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Bonuses from company owned by employee-ownership trust
  • Background
  • Conditions to be met by the EOT
  • Conditions to be met by the company
  • The exemption for employee bonuses
  • The CGT relief
  • The IHT relief

Bonuses from company owned by employee-ownership trust

Background

In the 2013 Budget, the Government announced that, following on from The Nuttall Review of Employee Ownership, it would be taking various actions to encourage and support indirect employee ownership in the UK. This was followed up by a consultation on tax measures to encourage wider employee ownership, namely relief from capital gains tax on disposals of shares which lead to a controlling interest in a company being held by a qualifying employee ownership trust (EOT) and, where the company is so held, an exemption from income tax for certain bonus payments made to its employees. To remove another potential barrier to the establishment of EOTs, there is also inheritance tax relief available in respect of property disposed of to a qualifying EOT.

The main focus of this guidance note is on the exemption for bonuses paid to employees of an EOT-controlled company under ITEPA 2003, ss 312A–312I, although, it also briefly covers the CGT and IHT reliefs.

Conditions to be met by the EOT

For the purposes of all of the special exemptions in ITEPA 2003, ss 312A–312I, there are a number of conditions that must be met by the EOT and the company it controls.

The terms of the trust be such that the property settled on the trust may not be applied other than for the benefit of all eligible employees on the same terms. This is known as the ‘all-employee benefit’ requirement.

There can be nothing in the terms of the trust that would allow:

  1. the making of loans to beneficiaries of the trust

  2. the creation of another trust

  3. the transfer of any settled property otherwise than to another trust that meets all the EOT conditions (thus allowing for mergers of one or more EOT-controlled companies)

The EOT must:

  1. hold more than 50% of the ordinary share capital of the company

  2. have a majority of the voting power over the company

  3. be entitled to more than 50% of the

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information

LEARN MORE LEARN MORE

Popular Articles

Class 4 national insurance contributions

Class 2 and Class 4 national insurance contributions (NIC) are paid by self-employed individuals and partners in a partnership on their profits arising within the UK. This guidance note considers Class 4 contributions. For Class 2 contributions, see the Class 2 national insurance contributions

19 Oct 2021 22:37 | Produced by Tolley Read more Read more

Effective tax rate planning

Calculation of the effective tax rateAn international group’s effective rate of tax is usually calculated as the amount of tax it pays divided by its consolidated profits. The effective tax rate depends largely on:•the rate of tax paid by each company in the group•the companies in which profits are

03 Nov 2021 16:11 | Produced by Tolley in association with Anne Fairpo Read more Read more

Share for share exchange

This guidance note considers the capital gains tax implications where shares are sold in exchange for new shares.The consideration paid by a purchasing company to the shareholder(s) for their shares in a target company could be in the form of either:•new shares in the purchasing company in exchange

10 Jan 2022 15:02 | Produced by Tolley Read more Read more