When an EMI scheme won't work - the alternative
Share plans talk in the last few weeks has focused on Enterprise Management Incentive (EMI) options – with relief all round when EU state aid was reconfirmed for this tax advantaged share option plan.
The EMI scheme is the best employee share option plan in terms of flexibility and tax efficiency. But it’s not always available, especially for larger companies with 250 or more full time employees, or those which exceed the EMI gross assets test (£30m), or for companies carrying out particular trades that don’t qualify for EMI.
If you’re in that position, don’t forget the Company Share Option Plan (CSOP). CSOP’s not quite as tax efficient as EMI but it still provides relief from income tax and National Insurance Contributions (NICs) for employees and companies, and gains fall within the more kindly Capital Gains Tax (CGT) regime.
One key advantage for CSOP is that, unlike EMI, there are no overall company limits on the value of options that can be granted. That means that you can choose to use a CSOP as an all-employee option plan if you want. However, CSOP is technically a discretionary plan, which means you can differentiate between staff, including attaching performance conditions.
Key aspects of CSOP options are as follows:
- No income tax or NICs on the exercise of options (as long as they are exercised 3 years or more after options are granted)
- When shares are sold, all the increase in value is charged to CGT (including the ability to take advantage of the annual CGT exemption)
- Options must be granted with exercise price at least equal to the market value of the shares at the date of grant
- Individual limit of £30,000 per individual (once options have been exercised, you can grant options over another £30,000 worth of shares)
CSOP gets forgotten about sometimes because of the undeniable attraction of EMI. But if EMI doesn’t work for your company, it’s well worth considering.