This week's opinion: 21 October 2021

I read the CIOT’s submission on employee ownership regime (tinyurl.com/tj268m8p) with great interest. It highlights a perennial problem with employee share incentives – how to design a system that enables access to the benefits of employee participation in a straightforward, non-bureaucratic way but does not lead distortions in behaviour that undermine the basis on which the policy was designed.  

The submission draws attention to a development (which I too have seen) – the use of the FA 2014 employee ownership trust scheme. This is designed to enable owners to pass businesses into employee control, purely as a tax planning device so that owners can structure an eventual sale largely free of capital gains tax. Essentially the employee ownership requirement is used to create a smokescreen (my word) to disguise the real purpose of the arrangement. Because the scheme was designed to be flexible and not too prescriptive it has certainly been possible to push the envelope, while remaining within the rules, to create outcomes which seem far removed from the stated purpose of the legislation. 

We’ve been here before. The statute book is littered with the ghosts of previous attempts to balance ease of implementation with the need to protect against exploitation of the reliefs. Some initiatives do work: the enterprise management incentive scheme broadly achieves what it was designed to do and does not seem to have been abused. So, tempting as it is to conclude that we should just give up because this is all in the ‘too hard’ box, it is right to continue to look at what is possible in this area. 

The CIOT’s submission here brings some insightful thinking and practical experience to bear. I congratulate all involved in its production.