Employee Ownership Trusts

3 min read

Employee Ownership Trusts (“EOT”) were first introduced in 2014 to facilitate more businesses being wholly or partly owned by employees.

There are some generous tax breaks on offer to encourage business owners to consider the EOT model.

What actually is an EOT?

A trust is set up which will hold all or some of the shares in the company. In order to benefit from the tax breaks the trust must own more than 50% of the shares in the company.

The trust will be operated for the benefit of the employees of the company. The trust is run by its trustees, which could include members of the management team, but given that its purpose is to hold the directors to account, it should be sufficiently independent to enable it to do this. It is necessary to demonstrate to HM Revenue & Customs that control of the business has passed to the EOT and having the trustees dominated by the original shareholders /directors would make this very difficult.

Employee Ownership Trust Model

How does it work in practice?

For new businesses, the EOT model could be put in place from the outset. For existing businesses, the shareholders would sell all or some of their shares to the EOT.

An independent market rate valuation of the business should be obtained which would set the sale price of the shares.

The company would make a contribution to the trust enabling it to pay for the shares. Depending on the funds available, a loan may have to remain between the trust and sellers which would be repaid over a period of time as the company generates future profits.

It may be possible for the company /trust to raise finance to help pay for the shares over a shorter period. The original business owners, post disposal, are able to retain some ownership in the business, keep their posts as directors and also receive market rate remuneration packages.

The company will continue to be run by the management team on a day to day basis, although they will now be answerable to the trustees of the EOT.

Tax breaks

Shareholders are able to sell their shares to the EOT free of Capital Gains Tax. With the recent reduction in Entrepreneur’s Relief this is even more attractive.

Income tax free bonuses of up to £3,600 per year can be paid to each employee.

What are the benefits of an EOT?

There are a number of benefits for the different business stakeholders.

Existing Business Owners

  • Capital Gains Tax free
  • Ready and willing buyer for the business
  • Reassurance that the business will continue as a going concern
  • Able to retain some ownership in the business


  • Tax free bonuses
  • A sense of ownership

The Company

  • An engaged workforce
  • Ensured long term future
  • Can continue with minimal disruption
  • A more innovative and forward thinking culture

The employee ownership model may not be suitable for all businesses, but it is fast becoming a popular choice for businesses who recognise the value of their most important resource.

An EOT is just one type of employee ownership model and other options such as share schemes should also be considered.

If you have any questions, our team of expert Accountants would be happy to assist.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Financing Your Startup – Part 1 working out how much you need

By Athos Louca

2 min read

If a new business is going to stand any chance of surviving then it is essential that you have sufficient financial resources in place to see it through its early stages and beyond.

Those setting up in business have a number of different options available to them when it comes to sourcing funding for their venture.  Understanding what these mean for your business will help ensure you choose the most appropriate type of finance for you.

Working out how much you need

Before talking to any investors you must first establish exactly how much money will be required.

Too often business owners only consider how much they will need to actually set up the business such as buying computer equipment or building a website, it is also vital that consideration is made for the ongoing running costs of the business.  This is known as working capital.  It is likely to take sometime for revenues to grow as the business establishes itself, during this time funds will be needed to fund ongoing costs such as rent, wages, stocks etc.

A cash flow forecast should be put together for the first 12 months of the business which will show the monthly opening and closing cash position of the business based on your budgeted business activity.

There are many free excel cash flow templates available online to use but consideration should be given to taking professional advice to ensure that the forecast is as accurate as possible.

Of course a forecast is just what it says a forecast and until you start trading you do not know how things will work out.  However, if this document is going to be used to establish how much money you need to run your business it is worth doing right.


A few thoughts to help…

  1. Be realistic with your revenue forecasts
  2. Consider any seasonal variations that may affect revenues
  3. Remember if you are going to be offering customer credit terms they may not always pay on time
  4. Ensure you remember to account for all costs
  5. Do not forget about employment taxes and VAT


For some startups it may be necessary to produce a cash flow forecast for longer than 12 months.  This is often the case with tech startups looking to develop technology beyond proof of concept.  A cash flow for 24 or 36 months should be considered.

You should also allow for some contingency funding to cover unexpected events such as a slower start to generating revenues, delayed product launch and even bad weather.  It is far better to be prepared as opposed to having to raise further funds in a very short period of time which will also always be at less favourable terms.

If funding is going to be required at different stages, depending on the type of finance it may be better to arrange the entire funding at the outset.  For example, angel investors may be happy to release further funds when certain milestones have been reached.


In part 2 of the post we look at the different types of funding.

If you are looking to start a new venture or securing additional investment to help grow you business and require any advice about how to do this in the best possible way to suit your circumstances we would be happy to help.

Contact us

T: 01622 758257