CSOPs ― employee tax consequences

Produced by Tolley in association with

Employment Tax

Guidance

The tax rules around company share option plans (CSOPs) are generous, subject to a limit of £60,000 on the total market value of the option shares measured at the time of grant. This note considers them on a step-by-step basis.

HMRC guidance generally is at ETASSUM40000 onwards.

Grant of option

There are usually no income tax or national insurance contributions (NIC) charges on the grant of an employment-related securities option. The exception is where a CSOP option is granted at a discount.

There is a charge to income tax if the total amount that the employee has to pay for the grant and exercise of the option (combined) to acquire the maximum number of shares allowed under it, is less than the market value of that number of shares at the option grant date.

If the total that the employee has to pay is less than that market value, the difference between the two figures counts as taxable employment income of the employee for the tax year in which the

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Helen Wood

Founder, HLN WD TX , Employment Tax

Helen Wood is the founder of HLN WD TX, a share schemes and employee incentives advisory business.She qualified as a CA with ICAS in 2009 and has worked as a specialist reward and incentives advisor for 17 years, spending 13 of those at KPMG followed by 3 ½ years as an Associate Director at RSM. Helen has worked with businesses ranging from start-ups to fully listed companies, spanning owner-managed businesses, private equity portfolio companies, and AIM listed businesses.She advises on a wide range of employee share schemes and employment related securities matters including the design and implementation of effective management and employee incentives; tax valuation of employment related securities, buy and sell side transaction support, HMRC compliance, tax due diligence and employee ownership trust transactions.

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