Save our Company Share Option Plan (CSOP)

Enterprise Management Incentive (EMI) options remain the most popular share option scheme for SMEs because of their super-flexibility and tax efficiency.

But not all companies can use EMI. If your company employs 250 or more full time employees, or has gross assets exceeding £30m, or if it carries out certain trades (including leasing businesses, or financial services), then you might have to look at other alternatives.

The Company Share Option Plan (CSOP) is probably the next best choice for companies looking to implement discretionary share option arrangements for employees. It is similar to EMI in the following ways:

• Companies may grant options on a discretionary basis – so they can choose to benefit some, or all, employees, and at different levels of reward
• Options can be granted with different vesting conditions, including tailored performance targets
• There will usually be no income tax or National Insurance Contributions to pay when the option is exercised, and on sale the gains are subject to the more beneficial capital gains tax (CGT)regime

CSOP has certain limitations in comparison to EMI:

• Options can’t be granted with an exercise price of less than market value
• CSOP option limits are lower – a maximum of £30,000 of shares under CSOP option per person at any one time
• Options must be held for at least 3 years before tax efficient exercise is possible (subject to certain provisions relating to leavers)
• Entrepreneurs’ Relief isn’t automatically available as it is for an EMI option – although many employees may pay the lowest rate of CGT (10%) in any event

On the other hand, there is no overall company limit as there is for EMI (a maximum of £3m worth of shares under options for the whole company or group).This makes CSOP ideal for option grants across the whole workforce.

CSOP is the longest established tax advantaged share option plan in the UK and has been in place since 1984, so it has an excellent pedigree. HMRC statistics show that its use has dropped off (inevitably) since the introduction of EMI in 2000, but last year the number of companies operating a CSOP increased for the first time since 2012, so possibly its decline has halted.

If you would like to find out more about the CSOP or the EMI, we would love to speak with you. Please call us on 020 8949 5522 or email enquiries@rm2.co.uk