Glossary · UK
What is Company Share Option Plan (CSOP)?
A tax-advantaged discretionary share option scheme allowing companies to grant options over shares worth up to 60,000 pounds per employee, with no Income Tax or National Insurance due on exercise provided the option is held for at least three years.
Full Definition
A Company Share Option Plan (CSOP) is a tax-advantaged, HMRC-approved share scheme that lets a company grant selected employees and directors options to buy shares at a fixed price (usually the market value on the date of grant), up to a limit of 60,000 pounds worth of shares (at the date of grant) held under option per individual at any one time, a limit doubled from 30,000 pounds with effect from 6 April 2023. Unlike an Enterprise Management Incentive (EMI) scheme, which is restricted to smaller companies meeting specific gross asset and employee number tests, a CSOP is available to companies of any size, including larger and listed companies that would not qualify for EMI. Provided the option is granted at an exercise price not below market value at the date of grant, and is exercised between three and ten years after grant (or earlier in specified "good leaver" circumstances such as redundancy, retirement, or the company being taken over), there is no Income Tax or National Insurance due on either the grant or the exercise of the option, meaning the employee only faces Capital Gains Tax on the eventual sale of the shares, calculated on the gain between the sale proceeds and the amount paid to exercise the option. Options exercised earlier than three years from grant, other than in a qualifying good leaver situation, generally lose this favourable treatment and become subject to Income Tax and National Insurance on exercise in the normal way, calculated on the difference between market value at exercise and the option price paid. Companies must self-certify that their CSOP meets the qualifying conditions (there is no longer a requirement for advance HMRC approval, following simplification in 2014) and must file an annual return with HMRC confirming details of options granted, exercised, or lapsed during the tax year. Because a CSOP can be operated selectively -- unlike some all-employee schemes such as Save As You Earn, which must generally be offered to all eligible employees -- it is often used by growing companies to reward and retain key senior staff or specialists with a meaningful stake in future growth, without the cost and administrative complexity of offering options across the entire workforce.