Company share option plan (CSOP)

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Company share option plan (CSOP)
  • Summary
  • Benefits
  • General requirements of a Schedule 4 CSOP
  • Self-certification of a Schedule 4 CSOP
  • HMRC enquiries
  • Tax implications for the employee
  • Reporting requirements for the employee
  • Tax implications for the employer
  • Reporting requirements for the employer

Summary

Options issued under a CSOP provide employees with a right to acquire shares at a set point in the future for their market value as of the date of grant of the option. Provided that certain qualifying criteria are met throughout the period from grant to exercise then no income tax or NIC arises on the exercise of the options and instead any gains on sale of the shares are chargeable to CGT at beneficial rates.

As a result of a review into tax-advantaged employee share schemes by the Office of Tax Simplification (OTS) in 2012, a number of changes were made to CSOPs by FA 2013 and FA 2014 to simplify the administration of the scheme and harmonise some of the rules with that of other tax-advantaged schemes. One of these changes means that from 6 April 2014, a qualifying CSOP is known as a ‘Schedule 4 CSOP scheme’.

Benefits

The company will qualify for a corporation tax deduction when the employee acquires shares by the exercise of an option even though the employee is not subject to tax at that point. The amount of relief the company can take is the difference between the market value of the shares on exercise and any consideration given in respect of grant or exercise. For more details on the corporation tax position, see the Relief for employee share acquisitions guidance note and Simon’s Taxes D1.330 (subscription sensitive).

Provided the employee and the company continue to meet the relevant qualifying conditions for CSOP and the employees exercise their options at least three years after the date of grant (or if they exercise earlier by reason of ill health, disability, redundancy or retirement), no income tax or NIC will be payable on the exercise of the CSOP option.

Sales of shares acquired through a CSOP will be subject

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