The Employee Ownership Association (EOA) has called for employee ownership specialists to be operational in all UK accountancy practices by 2020.
The call springs from an ongoing study of the uptake of employee ownership trusts among UK businesses. The national survey aims to encourage further adoption of the employee ownership trust by highlighting the experience of businesses that have already adopted the model.
The research is a collaboration between the EOA and the RM2 Partnership, which designs and implements employee share schemes for private companies. Initial results show that tax incentives introduced as part of the 2014 Finance Act can stimulate demand for employee ownership. The survey also reveals a need among business owners for accessible professional advice on employee ownership, says the EOA.
Around 50% of the early adopters of the employee ownership trust model took part in the survey, with 90% of respondents citing business improvement, succession planning, retained independence or engaging staff as the reason for choosing an employee ownership structure.
Around 60% said capital gains tax relief was another factor. In addition, 86% of companies with an employee ownership trust model are granting employees income tax-free bonuses of up to £3,600 annually.
Deb Oxley, chief executive of EOA, thinks that while the case for employee ownership is strong, many professional advisers fail to suggest the model as a potential option to their clients.
She said: “Statistics consistently demonstrate that employee-owned businesses outperform their non-EO counterparts in terms of higher levels of profitability; display improved business resilience during times of recession; benefit from increased productivity brought about by higher levels of engagement, and enhance employee wellbeing.
“Clearly, the tax incentives are only adding to the appeal of this well-established model, with the survey findings perfectly illustrating the growing appetite from businesses, and especially owner-managed SMEs, for more innovative and financially viable succession solutions.”
But Ms Oxley warned that despite the obvious benefits for business owners, the majority of professional advisers were failing to communicate employee ownership structures as a potential option for clients. The survey reveals that only 41% of businesses surveyed learned about the model from a professional adviser, with others relying on the EOA and existing employee-owned companies for direction.
Trusted professionals, particularly accountants, were the “first point of contact” for owners considering the long-term future of the company, she said, but added: “In too many practices, it would appear there is such a fundamental knowledge gap with regards to employee ownership that it could be considered to border on the professionally irresponsible.
“Those advisers are not only failing to offer a choice for owners, but those who choose not to explore the potential of employee ownership are missing out on a valuable opportunity to retain a significant proportion of their own client base.”
Employee ownership can take different forms, including a worker co-operative, where employees are also the owners of the business, which operates on the one-member, one-vote principle.
UK employee-owned companies today account for over £30bn contribution to GDP […] it couldn’t be more important for professional advisers to understand and support the growth of a sector which contributes so significantly to the British economy
The most common route to employee ownership is when private owners decide to sell the business to their workforce. It can also occur as a result of growth and expansion or as public service spinouts. Or, in cases of insolvency or closure threat, employees can take over the business, saving it from failure.
One employee-owned business, John Lewis Partnership, tops Co-operatives UK’s list of the country’s biggest co-operatives, with a turnover of £9.7bn in 2015. In this scenario, the founders of the business opt for employee ownership either at the outset of the business or later.
“UK employee-owned companies today account for over £30bn contribution to GDP,” said Ms Oxley. “At a time when off-shoring is making headlines for all the wrong reasons, it couldn’t be more important for professional advisers to understand and support the growth of a sector which contributes so significantly to the British economy.
“We are delighted that we are already collaborating with the Institute of Chartered Accountants of England and Wales (ICAEW) around this challenge. However, we will also be launching a series of targeted awareness raising events, starting with our eleventh annual conference that allow advisers to actively engage with the sector and learn more about this strong and economically balanced business model.”
- Businesses that have chosen the EOT model can share their experience by taking part in the online survey at www.eotsurvey.co.uk