Announced changes from ‘mini budget’ for Company Share Option Plan (CSOP)

The Government Announcement

The Government’s Growth Plan announced on 23 September 2022, also know as the ‘mini budget’ in the media, provides for two changes to the Company Share Option Plan (CSOP), each to take effect in April 2023.

What is a CSOP?

The CSOP is a share option plan under which participants (normally at management level) are granted options to purchase shares in the company they work at are not required to pay income tax or National Insurance (NI) on any gains they make through  exercising their options.  Instead, they pay capital gains tax (CGT) on them when they eventually sell the shares. Because CGT rates are significantly lower than income tax and NI , the CSOP is a tax efficient way to reward participants linked to growth in the value of their company.

Change 1: Limit of maximum value of shares set to double

Currently, the maximum value of shares (measured at the time when options are granted) over which an employee may hold CSOP options is £30,000.  This limit has remained unchanged for three decades and the first of the Chancellor’s proposed changes will double it to £60,000.

Change 2: Making it more accessible for more companies

The second proposed change appears intended to make CSOP options available in more companies.  Currently if a company planning to grant CSOP options has more than one class of shares, the options must be granted over shares which (in the Government’s description) are “worth having”.  Although we do not yet know precisely what change is planned, the intention seems to be to relax this requirement – this may make it more feasible to, for example, create a special class of share only to be used for employee CSOP options.

These changes will make CSOP options more attractive.

Some other CSOP changes the Chancellor could have made but does not plan to

Other changes the Chancellor could have considered, but has chosen not to, would have further aligned the required terms of CSOP options more closely with Enterprise Management Incentive (EMI) options. Although EMI options may only be granted by smaller companies with a qualifying trades, they are very flexible compared with CSOP options: for example there is no minimum period within which EMI options can be exercised to enjoy the tax benefits (with CSOP it is three years);  and more flexibility is possible for optionholders who leave.

Allowing CSOP the same flexibility in these areas would do significantly more to improve their attractiveness.