Employee ownership – an entrepreneur’s dream or a tax nightmare?

Posted by Vanessa Williams in Excello Law Blogs on Monday, November 12th, 2012

The recession has taken away the concept of job security for most people. The risk therefore of starting up on your own, by comparison, is substantially reduced. With household names like Comet going under and others cutting staff costs dramatically, we are relying heavily on new small businesses to play a major part in pulling us back into growth.

So what are we doing to encourage this? The government has recently been promoting employee ownership. John Lewis is a shining example of the success of this concept. The proposal is to create an off-the-shelf model for setting up an employee owned business, to publicise it through the Institute for Employee Ownership and to create an implementation group to oversee it and provided feedback to government.

This is all very positive. However, we seem to have ignored the main reason why businesses have not generally embraced employee ownership in the past – the tax system is too complex and time-consuming and therefore acts as a deterrent. It is difficult to see how this initiative can be a success without simplifying the process.

Further confusion has been created by the simultaneous promotion by the Department for Business, Innovation and Skills of the new employee owner contract. Under this different initiative, the employee gives up some of their employment rights in return for shares. There is therefore the risk that employees will perceive that share ownership always comes at the cost of employment rights.

Raising awareness of employee ownership is undoubtedly a positive step. For it to have any real impact, the tax and procedural barriers need to be removed.

This article was written by Vanessa Williams
Vanessa Williams

Vanessa is a business lawyer with 20 years experience, 13 of which have been spent as a partner in leading London law firms. She has established and grown corporate/commercial departments and sat on the management board overseeing the running of the firm with particular responsibility for finance and HR strategy. You can email Vanessa at [email protected] or add her on

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