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UK Relief For Employee Ownership Structures Welcomed

Friday, December 13, 2013

The Chartered Institute of Taxation (CIOT) has welcomed the UK Government's decision to provide capital gains tax (CGT) relief to owners of limited liability companies who transfer a controlling interest in a trading company to an employee-owned structure.

The Government has also announced proposals to allow employee-owned companies the ability to pay up to GBP3,600 (USD5,900) per annum free of income tax to employees. The measures, announced on December 10, 2013, will, if approved, be included in the next Finance Bill.

John Barnett, Chairman of the CIOT Capital Gains Tax sub-committee, said: "We are pleased with the Government's commitment to supporting and encouraging employee ownership. The proposals also include a generous income tax exemption in respect of a bonus or similar payment to employees from the business and we welcome the commitment to keep the operation of the exemption as simple as possible. However, it should be noted that National Insurance Contributions (NICs) will be payable on the bonus payments: this is a change from the original proposal. Also, it is not clear to us why indirectly employee-owned businesses are to be favoured with this exemption and not, for example, directly owned employee businesses."

"While these changes are designed to encourage employee ownership of companies, the continuing attack on employee benefit trusts generally, and the disguised employment proposals which will affect partnerships bringing employees in as partners, sends mixed messages to employers who want to grow their business through greater employee involvement," Barnett pointed out, concluding that: "While anything which improves employee-ownership is to be welcomed, the CIOT does have some concerns that these measures only address half the story as they would have benefited from a more wide-ranging and better thought-out approach to the whole area of employee engagement."