2022 Autumn Statement – CSOP expansion
Further to our blog earlier in the year regarding the Company Share Option Plan (“CSOP”) review (mentioned in the Spring Statement 2022), RM2 are pleased that the Government announced as part of the “mini budget” on 23 September 2022 that it is expanding the availability of the CSOP by way of two changes to the CSOP regime. The accompanying Government commentary notes that as a result hundreds more companies are expected to benefit from the CSOP each year.
What are the CSOP likely changes and when will they take effect?
Firstly, from 6 April 2023, new CSOP options may be granted to an individual over shares with a market value of £60,000 (valued at the date of grant of the option). This represents a doubling of the previous limit of £30,000 (which has been in place since 1995 and has been eroded in real terms by inflation). Existing CSOP options are understood to be unaffected by this change.
Naturally this is a welcome change. However, by contrast the individual limit for Enterprise Management Incentives (“EMI”) is currently £250,000 (again valued at grant) so the change to the CSOP limit is still arguably not particularly generous by comparison.
Secondly, according to paragraph 4.7 of the Government’s “Growth Paper” the ‘worth having’ restriction on share classes within CSOP will be “eased”, better aligning CSOP requirements with EMIs and widening access to CSOP for growth companies.
By way of explanation/background, amongst other things CSOP qualification requires certain additional hurdles to be cleared if the company whose shares are being placed under option has more than one class of share (a common occurrence where there are founder, investor and/or employee shareholders). These tests could often stop a company from being CSOP qualifying where share class rights were required to be commercially different across those categories of shareholders. Indeed, it was not felt necessary to introduce the same hurdles under the EMI code when introduced in 2000.
According to HMRC guidance the current requirement for CSOP shares to be “worth having” will be met by either:
- being “open market shares” – i.e. where a majority of that same class is held by outside investors; or
- being a class of shares that gives employees/directors control of the company.
Quite what is meant by “easing” this requirement is unclear at this stage, but it is expected that we will see a removal of it in its entirety. This would align the share capital requirements much more closely with that applying to EMIs. Any such changes to the worth having requirement will apply for CSOP options granted 6 April 2023.
Maybe we are being a little greedy, but it is a pity that the Government felt that they could not reduce the period for holding CSOP options that is necessary to achieve full tax advantages. In the absence of certain leaver/takeover circumstances these tax benefits are only normally available where the options have been held for a period of at least three years from grant. This can be seen as lengthy given modern working practices (and no such requirement exists for EMI).
As always “the devil is in the detail”, however if properly implemented by HMRC (likely to be by way of legislation in a future Finance bill with supporting HMRC guidance) then these changes would be very welcome in opening up the use of CSOPs to many more companies and doubling the capacity for individual CSOP grants.
If you would like to learn more about the CSOP join us for our CSOP Webinar on 8th November 2022 where we will look at how the generosity of the CSOP is being expanded and how it measures up against other discretionary share incentives. Alternatively drop us a line at firstname.lastname@example.org and we can schedule a time for you to speak with one of our specialist advisers.