EOTAdviser.co.uk
Independent Employee Ownership Trust Advice for UK Business Owners

What Is an Employee Ownership Trust?

An Employee Ownership Trust (EOT) is a government-approved model that allows business owners to sell a controlling stake (51% or more) to a trust established for the benefit of their employees. It’s an increasingly popular exit route for SMEs, offering:• 0% Capital Gains Tax on qualifying EOT sales• A secure way to protect your business culture and team• Flexible sale terms paid from future company profits• Enhanced staff motivation and retention• Full compliance with HMRC guidelines for business salesMore than 1,800 UK businesses have already made the move to employee ownership – and the number is growing each year.

Our Advisory Services Include:

• Independent EOT feasibility assessments• HMRC-compliant business valuations• Strategic EOT transition planning• Support with trust structure and trustee appointment• Guidance on tax reliefs and sale documentation• Coordination with accountants, solicitors, and employee engagement advisersWe work with founders, shareholders, and leadership teams to ensure every step of the process is carefully planned, commercially viable, and compliant.

Why Work with EOT.co.uk?

• ✔ Independent and confidential advice• ✔ Experienced in UK EOT and SME transactions• ✔ Fully aligned with HMRC requirements• ✔ No pressure, no sales pitch – just expert guidance• ✔ Access to a trusted network of legal, tax, and trustee professionalsWhether you're early in your thinking or ready to move forward, we're here to support you through each stage of the journey.

Download Your Free Guide

"The UK Business Owner’s Guide to Selling to an Employee Ownership Trust"

What’s inside:What is an EOT and how it worksPros and cons of employee ownershipTax benefits explained in plain EnglishCase study: a real UK business that successfully transitionedStep-by-step process to assess your businessKey questions to ask before you proceed

5 - Key Considerations Before Selling to an EOT

1. Is Your Business Suitable for an EOT Sale?

✔ Assess the fundamentals to determine EOT feasibility

Not every business is suitable for transition to an Employee Ownership Trust. The EOT model is best suited to established, profitable trading businesses with a stable structure and long-term growth potential.To qualify for the tax reliefs available, including the 0% Capital Gains Tax exemption, the company must meet specific HMRC criteria.These include:• Being a trading company (not an investment or property business)• Being UK-based and independent• Having a minimum of 51% of shares transferred to the trust• Ensuring the number of employees exceeds the number of connected persons (e.g. family members)We help business owners review these requirements and assess whether their company is eligible for EOT tax benefits and structurally suitable for an employee ownership transition.

2. How Much Is Your Business Worth?

✔ Get a fair, HMRC-compliant valuation to guide the transaction

An independent valuation sets the foundation for the EOT price, tax compliance, and trust affordability. We help you get it right.

An accurate business valuation is essential for any Employee Ownership Trust transaction. This valuation determines the price paid by the trust to the selling shareholders and underpins the tax compliance of the deal.EOT valuations must be based on fair market value, using commercial valuation methods such as:• EBITDA or earnings multiples• Discounted Cash Flow (DCF)• Sector comparisons• Asset-based or hybrid models (where appropriate)The valuation must be independent and credible, particularly in the eyes of HMRC. Overvaluing the business can trigger a tax challenge, while undervaluing may short-change the selling shareholders. At EOTAdviser.co.uk, we connect clients with experienced valuation professionals who understand the unique dynamics of EOT sales.

3. Can the EOT Afford to Buy the Shares?

✔ Understand how the trust will fund the deal and repay you

Unlike a traditional business sale, an EOT is usually funded over time through the company’s future profits. The trust typically does not raise external finance but instead makes deferred payments to the exiting shareholders using post-tax profits.Key financial considerations include:• How long it will take the business to repay the agreed price• The impact of repayments on working capital and operations• Whether the company has sufficient ongoing profitability to fund the trust• Whether an initial upfront payment is possible from reservesWe work with business owners and their advisers to model EOT affordability and structure repayment terms that are sustainable, tax-efficient, and achievable.

4. What Are the Tax Implications of an EOT?

✔ Maximise reliefs and avoid unexpected tax liabilities

One of the many attractions of selling to an EOT is the potential for 0% Capital Gains Tax on the sale of qualifying shares. However, HMRC sets out clear criteria that must be met for this relief to apply. Failure to meet any requirement can void the relief and create significant tax exposure.In addition to CGT relief for the seller, the business may also benefit from:• Tax-free annual bonuses of up to £3,600 per employee• Corporation Tax deductions on EOT repayments in certain cases• No need to pay Stamp Duty on shares transferred to the EOTWe help owners understand the full tax position, including the treatment of seller loans, benefit-in-kind implications, and potential risks if HMRC rules are breached after the deal.

5. Who Will Manage the Trust and Engage the Employees?

✔ Plan for long-term governance, communication, and employee engagement

An Employee Ownership Trust is not a passive entity. It must be governed by trustees who are legally responsible for acting in the best interests of employee beneficiaries. Choosing the right trustees and setting up proper governance processes is critical.Governance structures can include:• Independent trustees to bring impartial oversight• Employee trustees to represent staff views• Founder trustees (usually in a minority) to ensure continuity• Trust board meetings, annual reports, and beneficiary communicationsIn parallel, effective employee engagement is vital. Staff must understand what ownership means, how they benefit, and what’s expected of them. Many businesses establish employee councils or forums to facilitate open dialogue.We support clients in shaping their trust board, engagement strategy, and employee communication plans to ensure the EOT is set up for long-term success.

Final Thought: A Smart Exit with a Lasting Legacy

An Employee Ownership Trust can deliver an exceptional outcome for the right business – combining a tax-free sale, staff empowerment, and legacy protection. But it’s not a one-size-fits-all solution.The key to success lies in careful planning, expert guidance, and open communication with all stakeholders.Let EOTAdviser.co.uk help you explore whether employee ownership is the right path for your business.