Company Share Option Plan (CSOP)

A Company Share Option Plan (CSOP) is HMRC's discretionary share-option scheme for companies that do not meet EMI's size limits. From April 2023 the limit per employee was doubled to £60,000 of share options measured at market value on the grant date. Options must have an exercise price at least equal to market value at grant, and they normally vest after three years.

If the option is exercised between three and ten years after grant, no income tax or NI is payable on the difference between option price and market value at exercise. Only Capital Gains Tax applies on later sale, calculated against the option price as base cost. Exercise inside three years (other than for 'good leaver' reasons such as redundancy or retirement) loses the tax break, and PAYE/NI is then due on the gain at exercise.

Worked example: Samir is granted CSOP options over 20,000 shares at £3 (the market value at grant). Four years later he exercises when shares are worth £8, paying £60,000 to acquire shares now worth £160,000. Because he held for more than three years, the £100,000 paper gain attracts no income tax or NI; CGT applies only when he eventually sells. Companies operating CSOP must self-certify with HMRC and file an annual ERS return (otherwise the tax breaks are lost). Most listed UK companies operating tax-advantaged options use CSOP rather than EMI because they exceed the EMI gross-asset cap.