The Employee Ownership (EO) team at Stephens Scown attended the annual EO conference and one of the key messages was how the EO model is fast becoming a commercially viable mainstream succession option for many businesses.
What is Employee Ownership (EO) in Healthcare?
Employee ownership is where employees buy the business from the owners with payment over a period of time. Usually, the healthcare business pays for this exit not the employees. There are also certain tax reliefs for the Sellers. To get the beneficial tax treatment, the Seller of a healthcare business need to sell a majority, so 51% or more of their shares. If this is the case, the Seller does not have to pay Capital Gains Tax (CGT). For a Seller who does not have an annual salary and has made £50,000 profit from a sale of shares, the savings could be circa £10,000 – a big saving.
The shares are normally sold to an Employee Ownership trust (EOT) and the EOT holds the shares for the benefit of the employees. If any employees leave, they lose their right to return on capital or profit share. A key motivation is keeping employees involved and within the business.
Why consider Employee Ownership in Healthcare?
One of the benefits of EO within the Healthcare sector is that sustainability and employees are a key consideration for business founders when making the decision to transition to EO. Yes, there are tax advantages for the Seller, however EO draws strength from the Seller’s desire to protect the business as a whole, the long-term values they have created and to maintain the culture they have nurtured for the benefit of future generations. In recent years, the EO sector has grown substantially. By the end of 2024, there were over 2,200 EO businesses. Compare this to 2020 where there were fewer than 500 in the UK.
Another ancillary benefit may be enhanced patient care. Employees who are also owners of the business providing care may feel a stronger sense of responsibility towards the business and patients. Employees who are business owners may be less likely to leave a healthcare business too. It is also believed that employee-owned business outperform some of their competitors due to increased engagement of their employees and sustained profitability.
Key Features of Employee Ownership
One of the main impacts for employees when a business becomes employee owned is the underlying principle of their voice being heard and their engagement with the business, but there are also potential financial benefits. If a business becomes majority employee owned, that is the EOT owns 51% or more of the healthcare business, the employees can be awarded a £3,600 bonus which is free from income tax (not National Insurance Contributions). This is known as profit sharing and is one of the many benefits for employees if a business is majority employee owned. It sounds too good to be true, but IT IS true!
This is why the owners of a Healthcare business should consider EO as a succession option. It can aid them in retaining capacity and building long-term resilience in the sector. By doing so it can also build productivity and resilience in the local economy. Ownership of the business remains within the local area, rather than being sold to organisation which could potentially be run by a management team located far away.
Considerations for Implementation
A sale to the employees can be smoother than a sale to a third party buyer. An EO transition can foster a decision-driven environment for the employees who may feel more engaged with the mission of the healthcare business. They may also feel more secure in their employment. The Seller can benefit from CGT relief. The employees can benefit from income tax fee bonus and there can be a sense of shared success between the employees when the business is successful.
EO can be the saviour of a sector that has people as its cornerstone – people who provide the care and people who need it. One can say that people-centred succession planning is an obvious choice, but more is needed to get this information to owners in the Healthcare sector.
If you would like to find out about whether Employee Ownership is for you, please contact George Demirev on 07512 332519 or G.Demirev@stephens-scown.co.uk