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Changes to company share option plans

Changes to company share option plans

Changes to company share option plans (CSOPs) from April 2023 will widen access and offer greater benefits to employees. But for most smaller companies, enterprise management incentive options (EMI) will remain preferable.

A CSOP allows a company to grant taxadvantaged share options to selected directors and employees. The option must be granted at an exercise price that is not less than the market value of the shares at the date of the grant. When the option is exercised, any increase in the value of the shares between the grant and the exercise is free of income tax and national insurance contributions.

The maximum market value of shares over which a company can grant CSOP options to any individual will double to £60,000 from 6 April 2023. The new limit is still much lower than the £250,000 EMI limit but the conditions the company must meet for an EMI scheme are more restrictive.

The current ‘worth having’ restrictions on share classes for a CSOP will also be lifted from 6 April 2023. The restrictions prevent companies backed by venture capital, and others with multiple share classes, from operating a CSOP.

Remuneration benefits

CSOP options can form a useful part of a remuneration package for employees and directors.

  • Options can be limited to selected employees, but directors working fewer than 25 hours a week cannot be included.
  • Employees must exercise their option between three and ten years after the grant except in limited circumstances such as retirement or redundancy.
  • The company could require employees to achieve specified performance targets before they can exercise their options.
  • Employees may be liable to capital gains tax if they hold on to their shares after exercising options.
Allow time to get set up

Companies interested in establishing a new CSOP will need time to formulate the scheme rules and prepare employees, so don’t wait until April to get started. Companies not listed on a stock exchange will also need to negotiate a valuation of their shares with HMRC.

Newsletter Jan/Feb 2023
Newsletter Jan/Feb 2023
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