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Background

The Government encourages and supports indirect employee ownership of their employers in the UK. Tax measures to encourage wider employee ownership include various reliefs in relation to companies where a controlling interest is held by a qualifying employee ownership trust (EOT). Where an EOT holds a controlling interest, there is an exemption from income tax (but not NIC) for certain bonus payments made to its employees. The relevant legislation is called ‘limited exemption for qualifying bonus payments’.

See Simon’s Taxes E4.777A and HMRC guidance from EIM03050. See the Employee trusts ― implications of disguised remuneration and where are we now? guidance note for more on other employee trusts such as EBTs.

There are reliefs for capital gains tax (CGT) and inheritance tax (IHT) which are covered in the Succession planning ― employee ownership trusts (EOTs) guidance note.

The exemption for employee bonuses

There is a limited exemption for bonuses paid to employees of an EOT-controlled company which meets certain requirements.

The bonus must not form part of the employee’s normal