Company share option plans

By Tolley

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

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


Options issued under a company share option plan (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, no income tax or Class 1 national insurance contributions (NIC) arise on the exercise of the options and instead any gains on sale of the shares are chargeable to capital gains tax (CGT).

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 of a Schedule 4 CSOP scheme

A Schedule 4 CSOP scheme is a tax-advantaged share option scheme which means that, provided certain criteria are met, HMRC allows preferential tax treatment for the employee when 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 the Schedule 4 CSOP scheme 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 is payable on the exercise of the option.

Sales of shares acquired through a Schedule 4 CSOP scheme are subject to CGT. This is in comparison to income tax and NICs, chargeable at higher rates than CGT, on any option gains under a non tax-advantaged plan.

Where overseas companies

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