What is a Company Share Option Scheme (CSOP)? What are the tax benefits of a CSOP? 

A freeview At a glance guide

  • A Company Share Option Scheme (CSOP) is a tax-advantaged share option scheme suitable for company employees and directors.
  • This type of scheme has some complexities which often makes it seem unsuitable and impractical for use by smaller companies on grounds of costs and the complexity of administration.
  • A CSOP can be useful as unlike an EMI share option scheme, CSOP does not impose a trading company requirement, or staffing limit nor is there any upper limit on the value of CSOP options granted.
  • This is a statutory scheme that is self-administered and assessed by the company running the scheme.

Key features

  • CSOP options are granted at market value, noting that the rules so allow leeway for error and options may be granted at up to 15% less than the market value.
  • No person may hold CSOP options over shares with an unrestricted value of more than £60,000 (£30,000 up to 5 April 2023) at grant.
  • The company has discretion as to whom it awards CSOP options.

Tax benefits

  • CSOP options are granted Income Tax and NICs free.
  • Capital Gains Tax (CGT) potentially applies to the gain on disposal.
  • The company may obtain Corporation Tax relief on the grant of CSOP options.

Grant and exercise

  • The option must be exercised within 10 years of the grant but after the third anniversary of the grant.
  • Options can be exercised earlier:
    • On cessation of employment if the employee is a 'good leaver', 
    • On death.
    • Within six months of a take-over.

Other key requirements

  • A CSOP must be set up to provide benefits only in the form of share options.
  • CSOP shares must be ordinary, non-redeemable and fully paid up.
  • There are restrictions as to the type of shares on offer.

The issuing company: 

  • Must not be under the control of another company.
  • This rule does not apply if the company’s shares or the controlling company’s shares are listed on a recognised stock exchange.

Share classes

Up to 5 April 2023 CSOP shares had to either be employee-controlled:

  • A class of shares where the majority of them gave employees and directors control.
  • Open market shares: a class of shares whereby other persons control the company.

From 6 April 2024, the requirement that only certain classes of shares can be used in a CSOP is removed. This may make the CSOP a more attractive scheme for smaller companies too.

Useful guides on this topic

Employment Related Securities: share schemes for smaller companies
What are the tax consequences when a company gives shares to an employee or director? What are employment-related securities? What is best: shares or share options? How do you set up a share scheme?

EMI: Enterprise Management Incentive Scheme
What is the Enterprise Management Incentive (EMI) scheme? What's the difference between EMI and an unapproved share scheme?

EMI: Checklist
EMI share option checklist for employers. What are the rules for setting up an EMI share option scheme? What does an employer need to do to create an EMI share option scheme?

EMI: Designing an EMI share option scheme
This is a freeview 'At a glance' guide to designing an EMI share options scheme.