New lease of life for Company Share Option Plans?

Part of the Chancellor’s “mini-Budget” on Friday 23 September included news that, from 6 April 2023, the longstanding limit on the value of tax-qualified share options, which a qualifying company can offer to its employees under a Company Share Option Plan (CSOP), will double from £30,000 to £60,000 per employee. HM Treasury’s rationale was that “this will encourage employers to offer more shares to their employees, so everyone can share in the success”.

CSOP options generally provide tax favourable treatment for both employees (no income tax and employee NIC) and employers (no employer NIC), but their popularity has declined since the introduction of the Enterprise Management Incentive (EMI) plan, another discretionary tax-qualified option plan, in 2000. One of the reasons for the relative popularity of EMI plans when compared to CSOPs is the more generous individual limit of £250,000, which is significantly higher than the existing CSOP limit of £30,000 that has been in place since CSOPs were first introduced in 1996.

Despite the declining use of CSOPs following the introduction of EMI plans, CSOPs have retained a somewhat steady use by companies that either do not qualify for EMI but nevertheless wish to implement a tax-favourable discretionary option plan, or by companies that have outgrown the qualifying company limit set by the EMI rules but wish to continue to grant tax efficient options as part of their overall reward and remuneration strategy (typically for middle managers rather than senior executives). Whether a doubling of the limit to £60,000 will result in renewed popularity for CSOP plans remains to be seen.