Company Share Option Plan (CSOP)

By Tolley in association with Grant Thornton
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The following Owner-Managed Businesses guidance note by Tolley in association with Grant Thornton provides comprehensive and up to date tax information covering:

  • Company Share Option Plan (CSOP)
  • Summary
  • Benefits
  • General requirements
  • Self certification of the scheme
  • Disqualifying events
  • 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 at 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. See also Simon’s Taxes E4.581–E4.590 (subscription sensitive).

Benefits

CSOP is a tax advantaged share option scheme which means that, provided certain criteria are met, HMRC allows preferential tax treatment for the employee compared with non tax advantaged share option schemes (formerly known as ‘unapproved’ schemes).

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, retirement, or certain company takeovers), 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 to CGT at a flat rate of 10% for basic rate taxpayers (18% prior to 6 April 2016) and 20% for higher rate / additional rate taxpayers (28% prior to 6 April 2016) with the first £11,300 (2017/18) of total chargeable gains in any tax year being free from tax, regardless of how long the shares will have been held prior to disposal. This is in comparison to income tax and NICs chargeable at up to 47% on any option gains under a non tax advantaged plan.

Where overseas companies operate home country share plans with UK resident participants it may be possible to implement a CSOP in the UK as a sub-plan.

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