In brief
The UK Government is making some changes to the legislation governing tax advantaged Company Share Option Plans or 'CSOPs'. Following the UK Chancellor's 'mini Budget' on 23rd September, HMRC has now published its Employment Related Securities ('ERS') Bulletin 45. The ERS bulletin confirms that the limit on the value of new tax-qualified CSOP options that can be granted to an individual employee will be increased to GBP 60,000, up from GBP 30,000. Changes are also being made to the CSOP legislation to allow for them to operate over employee controlled shares.
CSOPs are a type of share option plan that provide tax advantaged treatment for employers and employees. Under tax advantaged CSOPs there is no income tax, employee National Insurance Contributions (‘NICs’), or employer NIC due on the exercise of the CSOP options (which takes place 3 years after the date of grant or in specified good leaver scenarios).
Comments
Key takeaways from the ERS Bulletin;
- Increased limit - The limit on the value of new tax-qualified CSOP options that can be granted to an individual employee will be increased to GBP 60,000, up from GBP 30,000. This will come into effect from 6 April 2023 and reflects a two-fold increase in the limit that has been in place for almost 30 years.
- Relaxed restrictions on share classes - The legislation is going to be changed so that CSOPs can be operated over employee-only class of shares. The removal of the existing requirement is designed to more closely align the CSOP regime with Enterprise Management Incentive (EMI) schemes. The changes will also apply from 6 April 2023.
- Next steps - The ERS Bulletin notes that legislation will be introduced in a future Finance Bill to support the points outlined above. HMRC will be providing further guidance on the changes before they come into effect.
The changes proposed come out of an EMI legislation review. The EMI legislation allows smaller qualifying companies to grant options to an individual employee up to a limit of GBP 250,000. The change to the CSOP limit is welcome in that it allows companies that do not qualify for EMI to grant options over a larger value of shares which qualify for tax advantaged treatment. However, there is still a gap between the EMI and CSOP option grant level. Further, the Government has not yet addressed the issue that only “independent” companies can operate CSOP and EMI plans.
CSOPs popularity has declined since companies have moved to conditional share awards or restricted stock unit plans. It is unclear the extent to which these changes will entice employers to establish new CSOP schemes. Nonetheless, employees should take into account the possibility of granting CSOP options.
If your company currently operates a CSOP, the plan rules should be updated to reflect the increased CSOP limit.
Please see useful links below:
Employment Related Securities Bulletin 45 (September 2022) - GOV.UK (www.gov.uk)
Chancellor announces new Growth Plan with biggest package of tax cuts in generations - GOV.UK (www.gov.uk)
Please reach out to a member of the Employee Benefits team if you have any questions regarding this update.
