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Company Share Option Plan (CSOP)

A Company Share Option Plan (CSOP) is a discretionary scheme that lets companies grant selected UK employees the right to acquire shares. Gains on exercise are normally free from income tax and NICs — a significant advantage over unapproved options. It suits larger or more mature businesses that don’t qualify for EMI.

How it Works

Employees are granted options to buy shares at today’s market value (agreed with HMRC). If the share price rises, they benefit from the growth without an upfront tax charge, provided options are exercised between three and ten years after grant.

Tax Benefits

CSOPs offer clear tax advantages for both employees and employers:

  • Employees: No income tax or National Insurance contributions when options are granted or exercised (provided exercised within 3–10 years of grant). If the options are exercised (turned into shares), when they are sold there will be Capital Gains Tax (CGT) on their growth in value.
  • Employers: Can usually claim a corporation tax deduction equal to the value of the employee’s gains.

These tax incentives make CSOPs a highly efficient way to reward and retain key staff.

Who Can Qualify?

To use a CSOP, both the company and participants must meet certain conditions:

  • Select employees or full-time directors (working 25+ hours/week); non-executive directors and/or 30%+ shareholders will not be eligible
  • Company must be independent, not controlled by another company (unless parent is listed)
  • Shares must be ordinary, fully paid and non-redeemable
  • Options capped at £60,000 value (when granted) per individual (although additional non-tax-advantaged options may be granted)
  • Exercise price must be at or above market value at the date of the grant
  • Options must normally be exercised between 3 and 10 years of grant to secure the tax relief

Leavers

CSOPs can be structured to encourage staff retention. For example you could stipulate:

  • Unexercised options may lapse if an employee leaves or
  • only allow options to be exercisable for “good leavers” (e.g., redundancy, retirement, injury, disability, or company sale) or
  • allow options to be exercised in part depending on certain criteria, for example, length of service

Normally, options exercised within three years of grant are subject to income tax and NICs, except in the above “good leaver” circumstances. Once exercised, employees become shareholders, with rights governed by the company’s articles.

Example

An employee is granted options over 20,000 shares at £3 each. Three years later, the value of the shares has risen to £10 each. By exercising their options, they pay £60,000 for shares worth £200,000 - a £140,000 gain. Under CSOP rules, this benefit is free from income tax and NICs (though CGT will apply when the shares are sold).

CSOPs provide a focused way to reward and retain key staff, offering both motivation and tax efficiency.

Get in touch with our expert team today for a free initial consultation to discuss how we can help design and implement a tailored CSOP for your business and people.