Mini Budget 2022 – Changes to Company Share Option Plans
A Company Share Option Plan (CSOP) is a tax-advantaged share option arrangement for incentivising employees of eligible companies. These have become less popular recently, due to the introduction of Enterprise Management Incentive (EMI) option schemes, which are, for qualifying companies, generally thought to be more flexible arrangements.
However, there are restrictions in relation to the type and size of companies that can use EMI options, meaning that CSOPs are still useful for larger companies or companies that have outgrown the scope of EMI. But the use of CSOPs by companies has been restricted, as these have been subject to a limit of £30,000 in market value at the time of grant on the value of options that can be granted to an individual employee. The corresponding limit for EMI options has been increased since their introduction to £250,000 per individual.
In a move intended to stimulate share-ownership, it was announced in the mini budget on 23 September that from 6 April 2023 qualifying companies will be able to issue CSOP options of up to £60,000 to individual employees. The hope is that this will enhance the attractiveness of CSOP options, particularly for larger companies.
In addition, the announcement confirmed that, for CSOP options granted from 6 April 2023, restrictions relating to open market shares and employee-control shares will be lifted. These restrictions currently apply to companies where there is more than one class of share, and mean that CSOP options could only be granted over shares of a class where either employees holding that class of shares controlled the company, or where those shares have been acquired by non-employees or non-directors (ie on the open market).
Lifting these restrictions is intended to better align CSOP options with EMI options and to widen access to CSOPs.
It will be interesting to see whether these changes will have the desired effect, but companies considering methods of incentivising their employees should consider whether CSOPs may be a useful method for doing so.