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A Guide to the Employee Benefit Trust (EBT)

 

1. Why talk about EBTs on a job board?

Hiring great people is only half the battle; keeping them inspired is the other half. An Employee Benefit Trust (EBT) lets you ring-fence company wealth, often in shares, so that employees share directly in future success. Used well, an EBT can turn your “open roles” page into a “lifetime with us” journey, boosting both retention and your employer brand. ocorian.com

2. What exactly is an EBT?

An EBT is a discretionary trust set up by an employer for the long-term benefit of employees (and sometimes former employees or their dependants).
Key traits

Feature Why it matters
Independent trustees Legal title sits with a professional trustee, keeping assets safe even if the company runs into trouble. ocorian.com
Wide beneficiary class Flexibility to cover current staff, alumni, and even future hires.
Typical funding Cash, newly-issued shares, or a company loan repayable from future share sales/dividends.

3. How does an EBT work in practice?

  1. Set-up & deed – Board passes a resolution, appoints trustees, and drafts a trust deed spelling out purpose and powers.

  2. Funding – Company contributes cash or shares (often using a limited-recourse loan to manage cashflow).

  3. Holding period – Trustees sit on the assets until vesting or plan rules trigger a release.

  4. Distribution – Shares or cash are allocated to employees via share option plans, growth-share schemes, or all-employee awards. ocorian.com

4. The benefits (for recruiters, HR and founders alike)

Stakeholder Win Real-world colour
Employees Tangible stake in growth; potential capital-gains tax (CGT) treatment on exits BT’s employee share hand-out built buzz long before shares actually vested. theguardian.com
Employer Retention, succession-planning and inheritance-tax efficiency when owners exit A 250-person distributor shifted 75 % of equity to an EBT as part of exit planning—keeping jobs local. step.org
Investors/Founders Can transfer shares using CGT hold-over relief; no seven-year IHT clock BlueBond notes EBTs place assets outside the estate instantly, handy for founders with large gains. bluebond.co.uk

5. Common pitfalls (and how to avoid them)

Pitfall Prevention tip
Founders try to benefit directly HMRC will strike down any “round-tripping”; founders must be excluded beneficiaries. bluebond.co.uk
Too narrow a beneficiary class Make eligibility broad enough to pass the “all or most employees” test in UK rules.
Failing payroll & reporting Share awards still need PAYE/NIC compliance where applicable.
Loose trustee governance Choose experienced, independent trustees and set clear distribution policies. ocorian.com

6. A 90-day action plan for smaller digital businesses

Day range Milestone
0-15 Board workshop: agree goals (talent retention? exit route?) and sketch basic trust deed outline.
16-30 Hire an independent professional trustee; draft deed & employee communication plan.
31-60 Obtain share valuation, structure funding (cash vs loan), file any HMRC clearance letters.
61-90 Launch pilot award (e.g., 5–10 key staff), integrate statements into Voceer job adverts (“Join us, earn real equity via our EBT”).

7. EBT vs. Employee Ownership Trust (EOT)

While both give staff equity, an EOT must acquire a controlling 50 %+ stake, unlocking CGT relief for selling owners. An EBT is more flexible: it can hold any proportion of shares and support multiple incentive plans over time. Think of an EOT as a “whole-company transfer” and an EBT as a “toolbox” for ongoing incentives.gov.uk

8. Compliance snapshot (UK-focused)

  • Inheritance Tax (IHT) – Transfers of qualifying shares into an EBT can be exempt under IHTA 1984 s.86.

  • Corporation Tax – Company contributions are usually deductible if they qualify as staff costs.

  • PAYE/NIC – Employment-related securities rules still apply at award or vest.
    Always run proposals past a tax adviser; legislation was updated again on 30 Oct 2024 to tighten IHT conditions.gov.uk

9. Final takeaways for Voceer readers

  1. People power – An EBT turns passive employees into committed co-owners.

  2. Flexibility – Scale awards up or down without re-drafting the deed each time you hire.

  3. Competitive edge – Advertising “equity via EBT” can lift response rates on Voceer listings.

  4. Do it right – Independence, broad eligibility and clean reporting keep HMRC (and future investors) happy.

Disclaimer: This guide is general information, not legal or tax advice. Always seek professional counsel before acting.