As another Scottish business becomes employee-owned more should follow suit?

Stephen Oates

Accountants French Duncan, who advised on the New Hopetoun Gardens transfer of ownership to its employees, believes that Employee Ownership Trusts (EOT) are a fantastic way for owners to retire from their business and ensure it remains in the hands of those who know it best: it’s employees.

As Stephen Oates, director of tax with French Duncan, explained: “EOTs were introduced in 2014 as a means of encouraging employee ownership while also saving business owners’ capital gains tax (CGT). The system allows owners an exit from the business and enables the existing employees to take control of their destiny and continue to operate a business they understand and know. The EOT must acquire more than 50 per cent of the ordinary share capital and voting rights of the company and must be applied for the benefit of all eligible employees on the same terms.”

In Scotland there are around 110 employee-owned companies employing 7,500 people with a combined turnover of £940m. The Scottish Government established a new body to encourage this under the name Scotland for EO (employee ownership) in September 2018 with the ambition of creating 500 employee owned companies by 2030.

Mr Oates continued: “An EOT is a win-win idea benefitting business owners and their employees. It allows the owner to exit the business without a hefty tax bill whilst leaving it in the hands of people they know well, who understand the company, and will take the business forward under their control.”

“The principle goes far beyond the annual tax-free bonuses for all employee/owners of up to £3,600 and gives them a stake in the company and the opportunity to control their future. It also provides continuity for the business for its customer base as they will continue to deal with the same people, providing the same service or product, in the same geographical location. This system allows more Scottish businesses to remain in Scottish ownership to ensure a more stable future.

“Any change in business can cause instability and uncertainty. An EOT allows for a business to change hands with minimal change although allowing the new owners (the employees) the opportunity to stamp their own ideas on the company.”

Mr Oates added: “While it would be wrong to suggest that EOTs are good for all businesses they are a positive option for a great number and offer the chance for owners to benefit from the tax savings but also ensure that the business they created is carried on by people they know and who know the business. I think considerably more business owners should look at this exit option in the future and I would hope that, rather than 500 employee owned businesses by 2030, we should look at a more ambitious target and be able to get double that number in the next five years.”