What is a Company Share Option Plan (CSOP)?

CSOP is a tax-advantaged share option scheme available to companies that don't qualify for EMI. It offers no income tax on exercise (if exercise price ≥ market value at grant) and 18% BADR on disposal. The individual limit is £60,000. The Company Share Option Plan (CSOP) is a tax-advantaged share option scheme that allows companies to grant options to employees with income tax and CGT advantages. Key features: (1) Tax advantages — no income tax or NIC on grant, no income tax or NIC on exercise (if the exercise price is at or above the market value at grant), and 18% BADR on disposal. (2) Individual limit — £60,000 per employee (based on market value at grant), doubled from £30,000 in April 2023. (3) Eligibility — available to a wider range of companies than EMI, including listed companies and companies with no gross asset or employee limits. (4) Exercise period — options must be exercised within 10 years of grant (the company can set a shorter period). (5) Share classes — from April 2023, CSOP options can be granted over growth shares and other non-ordinary share classes (previously restricted to ordinary shares). CSOP is the alternative to EMI for companies that do not qualify for EMI (e.g., listed companies, larger companies, or companies in excluded trades). Relevant legislation: Schedule 4 ITEPA 2003 (CSOP rules); Finance Act 2022 (CSOP improvements from April 2023). Example: A listed company grants CSOP options to its senior employees, with an exercise price equal to the market value at grant. Each employee can receive options worth up to £60,000 (at market value at grant). On exercise, no income tax is due. On disposal, the gain is subject to CGT at 18% BADR. Common mistake: Assuming that CSOP is only for listed companies. CSOP is available to any qualifying company, including unlisted companies that do not qualify for EMI (e.g., because their gross assets exceed £30 million or they are in an excluded trade).

What is the CSOP £60,000 limit?

The CSOP individual limit is £60,000 per employee (based on market value at grant), doubled from £30,000 in April 2023. Each employee can hold CSOP options worth up to £60,000. The CSOP individual limit is the maximum value of CSOP options that an employee can hold. Key points: (1) Value at grant — the limit is based on the market value of the shares at the date of grant (not the exercise price or the value at exercise). (2) Per employee — the limit is per employee, not per grant. If an employee already holds CSOP options, the unexercised value counts towards the £60,000 limit. (3) Multiple grants — if an employee has CSOP options worth £40,000 and is granted additional options, the additional options can be worth up to £20,000 before the limit is exceeded. (4) Exceeding the limit — if the limit is exceeded, the excess is not a qualifying CSOP option (the tax advantages are lost on the excess portion). (5) April 2023 increase — the limit was doubled from £30,000 to £60,000 from 20 April 2023, making CSOP more attractive. The £60,000 limit is significantly smaller than the EMI limit of £3 million, but CSOP is available to companies that do not qualify for EMI. Relevant legislation: Schedule 4 ITEPA 2003, Paragraph 3 (individual limit); Finance Act 2022 (increase to £60,000). Example: An employee is granted CSOP options over shares worth £60,000 (at market value on the grant date). The options are within the £60,000 limit and qualify for CSOP tax advantages. If the company grants additional options worth £10,000 to the same employee, the additional £10,000 is not a qualifying CSOP option (the limit is exceeded). Common mistake: Not tracking the total CSOP option value per employee across multiple grants. The £60,000 limit is per employee, and exceeding it can disqualify the excess options.

How does CSOP compare to EMI?

CSOP has a £60,000 limit (vs EMI's £3 million) but is available to listed and larger companies. Both offer no income tax on exercise and 18% BADR on disposal. EMI is preferred for qualifying companies due to the higher limit. CSOP and EMI are both tax-advantaged share option schemes, but they have different features: (1) Individual limit — CSOP: £60,000 per employee; EMI: £3 million per employee. EMI's limit is 50 times higher, making it much more attractive for senior employees. (2) Eligibility — CSOP: available to listed and larger companies, no gross asset or employee limits; EMI: only for unlisted companies with gross assets up to £30 million and fewer than 250 employees. (3) Excluded trades — CSOP: no excluded trades (available to all qualifying companies); EMI: excludes banking, finance, property, farming, and certain professional services. (4) Exercise period — CSOP: must be exercised within 10 years of grant; EMI: no statutory exercise period (the option terms usually specify). (5) BADR — both qualify for 18% BADR on disposal (with a 2-year holding period). (6) HMRC approval — CSOP: requires HMRC plan approval; EMI: requires HMRC valuation agreement (Advance Assurance) but no plan approval. (7) Work commitment — CSOP: no work commitment requirement; EMI: employee must work 25 hours/week or 75% of working time. For qualifying companies, EMI is generally preferred due to the higher limit. CSOP is the alternative for companies that do not qualify for EMI. Relevant legislation: Schedule 4 ITEPA 2003 (CSOP); Schedule 5 ITEPA 2003 (EMI). Example: An unlisted technology company with £10 million gross assets qualifies for both CSOP and EMI. EMI is preferred because the limit is £3 million per employee (vs £60,000 for CSOP). A listed company does not qualify for EMI but can use CSOP, with a £60,000 limit per employee. Common mistake: Using CSOP when the company qualifies for EMI. EMI's £3 million limit is far more generous, and using CSOP instead limits the value of options that can be granted.

Can CSOP options be granted over growth shares?

Yes. From April 2023, the restriction on share classes was removed, allowing CSOP options to be granted over growth shares and other non-ordinary share classes. This makes CSOP more flexible and attractive. Before April 2023, CSOP options could only be granted over shares of a class that was either the highest-valued class or broadly equivalent to the majority of shares. This restricted the use of CSOP for growth shares and other non-ordinary share classes. From 20 April 2023, this restriction was removed. Key changes: (1) Any share class — CSOP options can now be granted over any class of shares, including growth shares, hurdle shares, and other non-ordinary share classes. (2) Growth shares — growth shares are a popular structure where employees acquire shares that only have value if the company grows beyond a certain hurdle. CSOP options over growth shares provide the tax advantages of CSOP (no income tax on exercise, 10% BADR) combined with the commercial benefits of growth shares. (3) Valuation — the market value of growth shares at grant must be agreed with HMRC (for EMI and CSOP). Growth shares typically have a low market value at grant (as they only have value if the company grows), making the CSOP limit go further. (4) Commercial flexibility — the removal of the share class restriction makes CSOP a viable alternative to EMI for companies that want to use growth share structures but do not qualify for EMI. Relevant legislation: Schedule 4 ITEPA 2003, Paragraph 9 (share class requirements, as amended); Finance Act 2022 (removal of share class restriction). Example: A company creates a class of growth shares with a hurdle of £5 million (the shares only have value if the company is sold for more than £5 million). The growth shares have a market value of £0.10 per share at grant. The company grants CSOP options over 600,000 growth shares (total value £60,000 at grant), within the CSOP limit. On exercise, the shares may be worth significantly more if the company has grown. Common mistake: Not obtaining HMRC valuation agreement for growth shares before granting CSOP options. The market value of growth shares can be difficult to determine, and without HMRC agreement, the CSOP qualification may be at risk.

What are the CSOP reporting requirements?

CSOP requires annual returns to HMRC (by 7 July), notification of grants within 92 days, and HMRC plan approval before granting options. The company must maintain records of grants, exercises, and disposals. CSOP has several reporting and compliance requirements: (1) HMRC plan approval — the company must obtain HMRC approval of the CSOP plan before granting options. The plan must meet the statutory requirements, and HMRC reviews the plan documents. (2) Notification of grants — the company must notify HMRC of each grant of CSOP options within 92 days of the grant date. The notification includes details of the employee, the shares, the exercise price, and the market value at grant. (3) Annual return — the company must file an annual return for each CSOP plan by 7 July after the end of the tax year. The return reports the status of the plan, grants, exercises, and releases during the year. (4) Records — the company must maintain records of all grants, exercises, releases, and disposals. (5) Employee notification — the company must provide the employee with a written notice of the grant within 92 days, including details of the options, the exercise price, and the market value at grant. Non-compliance can result in the loss of CSOP tax advantages and penalties. Specialist advice is recommended to ensure the plan is correctly set up and administered. Relevant legislation: Schedule 4 ITEPA 2003, Paragraphs 39-42 (reporting requirements); ITEPA 2003, Part 7 (employment-related securities reporting). Example: A company grants CSOP options on 1 January 2026. It must notify HMRC of the grant by 3 April 2026 (92 days after 1 January). It must file an annual return by 7 July 2027 (for the 2026/27 tax year). The company must also provide each employee with a written notice of the grant within 92 days. Common mistake: Missing the 92-day notification deadline. Late notification can result in the options not being qualifying CSOP options, losing the tax advantages.

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Company Share Option Plan (CSOP)

CSOP is a tax-advantaged share option scheme available to companies that don't qualify for EMI. Understand the £60,000 limit, tax advantages, and how CSOP compares to EMI.

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The Company Share Option Plan (CSOP) is a tax-advantaged share option scheme available to companies that do not qualify for EMI (e.g., listed companies, larger companies, or companies in excluded trades). CSOP was significantly improved in April 2023, with the individual limit doubled to £60,000 and the restrictions on share classes removed. Understanding CSOP and how it compares to EMI is essential for companies considering share option schemes.

What CSOP Provides

CSOP is a tax-advantaged share option scheme that allows companies to grant options to employees with income tax and CGT advantages. Like EMI, there is no income tax or NIC on grant or exercise (if the exercise price is at or above market value at grant), and the gain on disposal is subject to CGT at the BADR rate of 10%. However, CSOP has different eligibility requirements and limits compared to EMI.

The £60,000 Limit

From April 2023, the CSOP individual limit was doubled from £30,000 to £60,000 (based on the market value of the shares at the date of grant). This is per employee — each employee can hold CSOP options worth up to £60,000. Unlike EMI's £3 million limit, the CSOP limit is much smaller, but it is available to companies that do not qualify for EMI.

Eligibility

CSOP is available to a wider range of companies than EMI: (1) Listed companies can use CSOP (EMI is only for unlisted companies). (2) There is no gross asset limit or employee limit (EMI has a £30 million gross asset limit and 250-employee limit). (3) The company must be a qualifying company (independent, UK presence). (4) The shares must be fully paid up, irredeemable, and not redeemable for at least 3 years (for unlisted companies). From April 2023, the restriction on share classes was removed, allowing CSOP options over growth shares and other non-ordinary share classes.

CSOP vs EMI

The main differences between CSOP and EMI: (1) Limit — CSOP: £60,000 per employee; EMI: £3 million per employee. (2) Eligibility — CSOP: available to listed and larger companies; EMI: only for unlisted companies with gross assets up to £30 million. (3) Exercise period — CSOP: options must be exercised within 10 years of grant; EMI: no statutory limit (but the option terms usually specify). (4) BADR — both qualify for 18% BADR on disposal. For qualifying companies, EMI is generally preferred due to the higher limit. CSOP is the alternative for companies that do not qualify for EMI.

Key Points

What You Need to Know

CSOP is a tax-advantaged share option scheme for companies that don't qualify for EMI
The individual limit is £60,000 (doubled from £30,000 in April 2023)
Available to listed companies and companies with no gross asset or employee limits
No income tax or NIC on exercise (if exercise price ≥ market value at grant)
18% BADR on disposal — same tax treatment as EMI

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EMI Eligibility & Qualifying Companies EMI Tax Advantages Company Share Option Plan (CSOP)Growth Shares Business Asset Disposal Relief (BADR)Share Schemes on Exit Save As You Earn (SAYE / Sharesave)Unapproved Options & RSUs Share Incentive Plan (SIP)Employee Ownership Trusts (EOTs)Share Valuation for EMI & CSOP HMRC EMI Notification & Reporting Phantom Shares & Cash-Settled Awards Share Schemes on IPO

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