Employee Ownership Trusts — the UK's Tax-Incentivised Route to Broad-Based Company Ownership

Following the 2012 Nuttall Review of Employee Ownership and a supporting Cass Business School study, the UK's Finance Act 2014 created the Employee Ownership Trust (EOT): a tax-advantaged structure that lets a business owner sell a controlling stake into a trust held on behalf of all employees, deferring or eliminating capital gains tax on the sale and later allowing tax-free employee bonuses up to a statutory cap.

Adoption started slowly — around 38 companies sought EOT clearance in 2019 — before accelerating sharply: roughly 100 in 2020, 383 in 2021, and a cumulative total exceeding 1,650 employee-owned businesses by October 2023, up about 30% year-on-year, with a run rate of roughly 500 new EOTs forming annually.

The October 2023 'People Powered Growth' study, commissioned by the Employee Ownership Association and covering 152 employee-owned businesses matched against 285 comparable conventionally-owned firms, found employee-owned businesses were 8–12% more productive, paid higher bonuses, invested more in training and R&D, and were substantially less likely to have made redundancies in the prior three years.

The comparison, while matched on observable characteristics, is not a randomized design, so firms that self-select into employee ownership may differ from peers in unmeasured ways such as existing culture or owner intent. The sector is also still young — most EOTs are under five years old — so long-run survival, succession and resale outcomes are not yet established.

Read the full analysis: https://employeeownership.co.uk/