Workers.coop and Co-operatives UK are calling on the government to extend tax benefits given to employee-owned businesses to worker co-operatives.
The call comes as the government seeks comments on the proposed updates to its tax regime relating to Employee Ownership Trust (EOTs) and Employee Benefit Trusts (EBTs), which currently benefit from capital gains tax and inheritance tax reliefs.
In their response to the consultation, Workers.coop and Co-operatives UK argue that while the EOT regime has been successful in incentivising an increase in transitions to employee ownership since it was implemented with the Finance Act 2014, the exclusion of other models “creates distortion by limiting the options available to businesses and workers”.
“Worker co-operatives are employee owned and controlled enterprises, of the sort that the creators of the EOT regime sought to encourage,” says the response, adding: “Yet the employees in this structure do not benefit from the tax-free bonus. Not only does this unfairly penalise employees of worker co-operatives, but it also creates a perverse incentive for businesses that are already employee owned to adopt the EOT model.”
The response also highlights potential savings that could be made if transitions to worker co-ops were incentivised in the same way as EOTs, since worker co-ops are generally straightforward and low cost to set up.
“A [Common Ownership Workers Co-operative] could be a more optimal and attractive option in some cases, especially for micro businesses, lower value businesses and worker-initiated transitions. Our proposal would provide businesses, business owners and employees with more choice in arrangements. This would unlock opportunities to secure thousands more viable jobs and businesses each year through additional employee ownership transitions.”
Workers.coop’s John Atherton, who was involved in the 2012 Nuttall Review that led to the creation of tax benefits for EOTs, says the co-op movement expressed “dismay” that worker co-operatives were not included.
“Over the last 10 years these tax benefits just by their existence have raised the profile and incentives for converting to employee ownership,” said Atherton.
“We hope that extending these is a fair and reasonable way to enable worker co-operative societies to similarly increase the awareness and incentive to use our model of democratic employee ownership.”
Workers.coop is encouraging all worker co-ops and supporters of their call to action to add their voice to the response to government.
“This is a great example of how workers.coop and Co-operatives UK can work together,” Atherton added.
“Co-operatives UK brings its expertise in policy and the weight of the wider movement alongside our ability to understand the needs of worker co-ops and mobilise them to act.”
The consultation closes at 11:45pm on 25 September. HMRC will publish a summary of the comments it receives later this year.