The Company Share Option Plan, also known as the CSOP or the Executive/Company Share Option Scheme, is a government-approved, tax-advantaged discretionary share option scheme available to UK companies. It allows businesses to grant share options to selected employees and directors, giving them the right to buy shares at a fixed price in the future, with significant income tax advantages if the scheme rules are followed.
David Craddock Consultancy Services has advised businesses of all sizes on the design and implementation of CSOP arrangements for decades.
What Is a Company Share Option Plan?
A CSOP is a discretionary scheme, meaning the company can choose which employees and directors to include. It is not required to be offered to all staff. This makes it particularly useful for rewarding and retaining key executives and senior employees.
Under a CSOP, the company grants an employee an option to purchase shares at their current market value on the date of grant. Provided the employee exercises the option between the third and tenth anniversary of the grant date, and the conditions of the scheme are met, the growth in value from grant to exercise is free from income tax and National Insurance contributions.
Key Features of the CSOP
| Feature | Detail |
| Scheme type | Discretionary (selected employees) |
| Option limit per employee | £60,000 (increased from £30,000 in April 2023) |
| Exercise window | Between the 3rd and 10th anniversary of grant |
| Exercise price | Market value at date of grant |
| Income tax on exercise | None, provided conditions are met |
| NICs on exercise | None, provided conditions are met |
| CGT on disposal | Payable on gains above the annual exempt amount |
| Company size | No restriction (unlike EMI) |
| HMRC registration | Required |
The £60,000 Option Limit Explained
Since April 2023, each employee can hold unexercised CSOP options over shares with a market value of up to £60,000, measured at the time of grant. This was doubled from the previous £30,000 limit, making the CSOP a significantly more attractive tool for companies that cannot use the Enterprise Management Incentives (EMI) scheme due to size or activity restrictions.
If a company grants options that exceed this limit, the excess will not benefit from the tax advantages of the CSOP regime.
Who Can Participate in a CSOP?
The scheme is available to employees and full-time directors of the company or a qualifying subsidiary. Part-time directors who work less than 25 hours per week for the company generally cannot participate. Unlike all-employee schemes such as the Share Incentive Plan (SIP) or SAYE, the company has complete discretion over who receives options and on what terms.
This makes the CSOP particularly well-suited to:
- Senior executives and management teams
- Key technical or commercial employees the company wishes to retain
- Directors of companies that do not qualify for EMI
- Employees of larger companies where EMI is not available due to the gross assets limit
Tax Treatment of CSOP Options
At the date of grant
No income tax or NICs arise when the option is granted, regardless of the value of the option.
At the date of exercise
Provided the option is exercised between the third and tenth anniversary of the grant date, and the shares are acquired at the original exercise price (market value at grant), there is no income tax or NICs liability. This is the primary tax advantage of the CSOP.
If the option is exercised outside this window, or the scheme conditions are not met, income tax and NICs will typically apply to the difference between the market value at exercise and the price paid.
At the date of disposal
When the employee eventually sells the shares, Capital Gains Tax (CGT) may apply to any increase in value from the exercise price to the sale price. The base cost for CGT purposes is the market value at the time of exercise.
CSOP vs EMI: Which Is Right for Your Company?
The EMI scheme generally offers more generous tax advantages and higher individual option limits (up to £250,000 per employee), but it is restricted to independent trading companies with gross assets of no more than £30 million and fewer than 250 full-time employees. Certain trades, such as financial activities, legal services, and property development, are also excluded.
The CSOP has no such restrictions on company size, gross assets, or trade type, making it the preferred route for larger companies or those in excluded sectors. David Craddock Consultancy Services can advise on which scheme, or combination of schemes, best fits your business objectives.
Setting Up a CSOP: The Process
Establishing a CSOP involves several key steps, each of which requires careful attention to HMRC requirements and company law:
- Agreeing the scheme rules and eligibility criteria
- Obtaining an independent share valuation agreed with HMRC
- Drafting option agreements for each participant
- Registering the scheme with HMRC via the Employment Related Securities (ERS) online service
- Granting the options and issuing option certificates
- Annual ERS reporting to HMRC
David Craddock Consultancy Services manages this entire process on behalf of clients, from initial design through to HMRC registration and ongoing compliance.
Frequently Asked Questions
Can a CSOP be used alongside an EMI scheme?
Yes. Where some employees qualify for EMI and others do not (for example, because they hold more than a 30% interest in the company), a CSOP can be used to provide tax-advantaged options to those excluded from EMI.
Is there a limit on how many employees can be included?
No. There is no statutory cap on the number of participants in a CSOP, unlike some other schemes. However, each individual is subject to the £60,000 per-employee limit.
What happens if the company is sold before the options are exercised?
In most cases, a company sale or change of control will trigger early exercise rights. Provided the options have been held for at least three years, the income tax exemption will typically still apply. If exercised within three years due to a takeover, income tax relief may still be available in certain circumstances under specific HMRC rules.
Do the shares need to be listed?
No. CSOP options can be granted over shares in private, unlisted companies as well as listed companies, provided the shares meet the requirements of Schedule 4 of the Income Tax (Earnings and Pensions) Act 2003.
How is the exercise price set?
The exercise price must be set at not less than the market value of the shares at the date of grant. For unlisted companies, this requires an HMRC-agreed valuation. David Craddock Consultancy Services provides company and share valuations as part of the CSOP implementation process.
Get Expert CSOP Advice
David Craddock is one of the UK’s leading authorities on employee share schemes, with decades of experience advising companies across a wide range of sectors. Whether you are exploring CSOP for the first time or reviewing an existing arrangement, David Craddock Consultancy Services provides clear, practical, and commercially focused advice.
To discuss your requirements, contact us on 01782 519925, email enquiries@dcconsultancyservices.com, or use the contact form.