Company Share Option Plan (CSOP)

Overview

CSOP share option schemes are a very tax efficient way to reward and incentivise key employees.  They have many similar characteristics to Enterprise Management Incentive (“EMI”) share option schemes.  Whilst they generally offer more flexibility than EMI share option schemes in terms of the companies than can offer options, they are more restrictive in terms of the value of shares that can be offered under option, and are therefore seen as being appropriate for companies which have outgrown EMI share option schemes.   

Is my company eligible to issue CSOP share options

In order to grant CSOP share options to its employees, the company must either be:

• Quoted;
• An unquoted company which is not under the control of another company; or
• A company controlled by an Employee Ownership Trust

A full review would be necessary to confirm a company’s eligibility to offer CSOP share options. 

Can my employee receive CSOP options

In order to be eligible to receive CSOP options, the recipient must either be:

• An employee; or
• A full time working director.

The total value of options that can be offered to a single employee at the date of grant is £60,000.

Tax benefits

The exercise price of the option can be set by the employing company.  As long as the exercise price is set at a value which equal to, or greater than, the market value of the shares at the date of grant, then there will be no tax consequences for the employee at the date of grant or when the options are exercised. 

When the shares are sold, the difference between the sale price, and the amount paid for the shares (the exercise price) which will be subject to capital gains tax at a rate of either 10% or 20% (if a higher rate tax payer).   

The company may benefit from a corporation tax deduction when the employee exercises their share option. 

Other benefits

CSOP share options are very tax efficient, however they also offer a number of commercial advantages which are equally important, such as:

• Employees are granted an option to acquire shares, rather than being issued actual shares.  This means that there is no up front cost to the employee for acquiring the shares, and the founder shareholders are not introducing a minority shareholder into the company and
• The option documentation can include targets which must be met prior to the option being exercised, thereby incentivising the employee in a targeted manner.

How can we help?

The Armstrong Watson tax consultancy team can help:

• Review eligibility for the company to offer CSOP share options;
• Design an CSOP share option scheme suitable for your business needs and objectives;
• Prepare and agree the valuation of the option shares;
• Communicate the benefit of the scheme to the option holders;
• Arrange completion of the option paperwork; and
• Completing and submitting the required filings to HMRC.