When companies use CSOP
CSOP does not have the gross assets or employee count limits that apply to EMI, and it is open to companies in trades that EMI excludes. It suits companies that have outgrown the size limits on EMI options, or that operate in an excluded sector such as certain financial services or property businesses, while still wanting a tax-advantaged option for employees.
- Companies too large for EMI's 30 million pound gross assets test
- Companies with 250 or more employees
- Companies in a trade excluded from EMI's qualifying trade definition
- Listed companies, which cannot use EMI at all
CSOP's 2023 limit increase
From 6 April 2023, two significant changes made CSOP more attractive. The individual limit on the value of shares an employee can hold under CSOP options doubled from 30,000 pounds to 60,000 pounds. At the same time, the previous requirement that CSOP shares be subject to specific restrictions, or that the company have only one class of ordinary share for option purposes, was relaxed, giving companies with multiple share classes, such as those with separate investor preference shares, more flexibility to grant share options without restructuring.
| Feature | Before April 2023 | From 6 April 2023 |
|---|---|---|
| Individual limit | 30,000 pounds | 60,000 pounds |
| Share class restriction | Worth having provisions or single class often required | Removed |
Income tax versus CGT for CSOP
Provided the option is exercised at least three years after grant, or earlier following certain events such as a takeover, redundancy or retirement, there is no income tax or National Insurance due at exercise. Any gain from grant to sale is taxed as a capital gain instead. Exercising within three years for other reasons generally triggers income tax and NIC on the spread, similar to an unapproved option, as set out on equity tax.
Unlike EMI, CSOP shares do not automatically get the relaxed Business Asset Disposal Relief holding period treatment. A separate 5 percent shareholding and two year holding test generally applies for BADR on CSOP shares, which many employees will not meet.
CSOP compared with EMI
| Feature | EMI | CSOP |
|---|---|---|
| Individual limit | 250,000 pounds | 60,000 pounds |
| Company size limit | 30 million pounds gross assets, under 250 employees | None |
| Qualifying trade restriction | Yes, excludes several sectors | No |
| BADR relaxed holding period | Yes | No, standard rules apply |
| Notification deadline | 92 days | No fixed short deadline, but annual ERS return still required |
CSOP limits and tax questions
- Why would a company choose CSOP over EMI if EMI has a higher limit?
- Because it does not qualify for EMI, usually due to company size, employee count or operating in an excluded trade. CSOP is the tax-advantaged fallback in those cases.
- What changed for CSOP in 2023?
- The per employee limit doubled to 60,000 pounds and the requirement around share class restrictions was removed, making CSOP workable for more companies including those with multiple share classes.
- Do CSOP option holders get the same Capital Gains Tax relief as EMI holders?
- Not automatically. EMI has a relaxed route to Business Asset Disposal Relief. CSOP shares are subject to the standard 5 percent shareholding and two year rules, which most option holders will not satisfy.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.