Changes to Company Share Option Plans (CSOP)

Published by Sam Jones on 10 January 2023

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Has your company been told they do not qualify for an Enterprise Management Incentive (“EMI”) share option scheme? This could be where you do not meet the qualifying conditions because you are an investment company, a property developer, or have outgrown the EMI size limits for example.

As part of its Growth Plan, the Government announced some significant changes, which will widen the CSOP option scheme as a more flexible option for companies that do not meet the conditions for EMI.

A CSOP is a tax-advantaged share option plan for eligible companies wishing to incentivise employees and directors by granting options to purchase shares, subject to certain conditions being met. The employees or directors participating in the scheme are not required to pay income tax or National Insurance (‘NI’) on any gains made through exercising their options.

Capital Gains Tax (‘CGT’) is payable when the employee or director eventually sells their shares. As CGT rates are significantly lower than income tax and NI, CSOP is a tax efficient way to reward those linked to the growth in the value of the company.

CSOP’s have become less popular since the introduction of EMI option schemes due to the low value of options that can be awarded and the restrictions on the type of shares to be awarded.

The Chancellor has announced changes to CSOP option plans that will come into effect from April 2023 which will make CSOP options schemes more attractive.

The first proposed change is the £30,000 limit of CSOP options for qualifying companies to issue per employee is to be increased to £60,000 for any new options granted from 6 April 2023. When compared with the EMI scheme, the corresponding limit for EMI options is currently £250,000 per employee.

The second proposed change seeks to make CSOP options available to more companies by relaxing some of the restrictions currently imposed on the class of shares that can be used for CSOP options.

Under the current rules, where a company has more than one class of ordinary share capital, CSOP options can only be granted over shares that are of a share class which meet the “worth having” conditions. These conditions are met by either:

  • being shares acquired by investors (i.e. non-employees or non-directors) on an open market, or
  • by giving employees control over the company.

The Government plans to ease the “worth having” requirement which will better align the scheme rules with that of EMI and will widen the access for CSOP for growth companies.

If both schemes are available, EMI schemes are still preferable, therefore these changes will be most beneficial to companies that do not qualify for Enterprise Management Schemes (“EMI”)

If you would like to discuss setting up a share option scheme or the potential impact of the changes to CSOP options, please do not hesitate to contact a member of the team.

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