Consultation on tax break for worker shares follows evidence businesses owned by staff are up to 19% more productive
The Treasury is hoping to encourage a wave of John Lewis-style businesses by launching a consultation on £50m worth of tax breaks for employee-owned companies.
The government wants to make it easier for entrepreneurs to hand ownership of their companies to employees amid evidence that businesses owned and influenced by workers, such as the department store group, have proved more resilient during the economic downturn.
Chief secretary to the Treasury Danny Alexander said: "The employee ownership sector has huge potential and the government wants to support it as much as possible. Employee ownership is of significant benefit to the wider economy, through increased growth and business success and this business model will also add greater diversity to our economy."
Employee-owned businesses outperformed the UK economy in 2012 as they benefited from a measured approach that led to more investment, greater productivity and lower staff turnover. The Cass Business School concluded in 2010 that employee-owned businesses are up to 19% more productive than traditionally structured companies.
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| The John Lewis Partnership (JLP) is owned via thousands of employees through a trust.Chancellor George Osborne announced in this year's budget that the government would provide £50m in 2014, and the same amount in 2015, to support employee ownership. Alexander will say on Thursday that the government will provide tax relief that is "supportive and effective". |
The Treasury will consult on offering capital gains tax relief when a controlling stake in a business is sold to employees collectively, rather than to individual shareholders.
A second tax break would allow employee-owned companies to pay staff a tax- and national insurance-free bonus each year. At present, payments such as the annual John Lewis staff bonus are taxed at up to 40%, the same level as the rest of their pay, whereas dividend payments to shareholders in publicly listed companies are taxed at 20% and are not subject to National Insurance. Alongside the Treasury consultation, the department for business, innovation and skills is launching national employee ownership day.
The recent success of The John Lewis Partnership (JLP), which is owned via thousands of employees through a special trust, has helped drive new interest in employee ownership with a 10% increase in the amount of companies converting last year.
Sir Charlie Mayfield, chairman of JLP and president of the Employee Ownership Association (EOA) which represents over 150 businesses controlled by their staff, welcomed the government support. He said: "Employee ownership is not just a nice thing to do but a better way of doing business." Mayfield added that the business model could help solve "some of the biggest issues in society and some of the biggest economic problems."
An independent review of employee ownership carried out last year found that growth in the sector was hindered by poor awareness of the potential for employee ownership and the complexity involved in handing a business over to staff.
At the moment, employee-owned businesses make up just 3% of the UK's GDP but the EOA believes this could be built up to 10%.
The EOA says a tax incentive might help combat concerns about potentially lower valuations for sellers and the complexity of converting to employee ownership, which can take several years to complete.
"The government's fantastic and welcome support for employee ownership has yet to be reflected in incentives for companies to move from family ownership to employee ownership. It seems logical to make a mild bit of tax reform to achieve that," said Iain Hasdell, chief executive of the EOA.
Mike Warburton, tax director at accountancy firm Grant Thornton, warned that the government would have to set a minimum level of staff ownership in order to avoid abuse of employee benefit trusts, which are often used as vehicles for staff ownership. In the past, these trusts have been used as a means to avoid tax by unscrupulous business bosses.
However, he said: "This is a very interesting idea and shows the government is thinking about ways to stimulate the economy."
Mayfield said that employee ownership would allow the UK to develop more medium-sized businesses by adding an alternative option to being acquired by private equity firms or taking the stock market flotation route.
Article Source : http://www.guardian.co.uk
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