New law: Multi-share class SMEs consider introducing Company Share Option Plans

CSOPs can give companies a competitive advantage in recruiting and retaining staff – especially against a background of rising inflation and staff shortages. Under CSOPs, selected employees are granted an option to acquire shares in their employer company (or another company in the group). If certain conditions are met, any gain made on exercise of an option is subject to capital gains tax rather than income tax. This usually results in a lower tax bill.

A CSOP can also benefit the company, which can deduct the option gain when calculating corporation tax payable. No national insurance contributions are payable by either.

The changes allow companies with more than one class of share to grant CSOP options – which was not previously allowed. This enables many more small and medium-sized enterprises – which often have multiple share classes for founders, different third-party investors, employees, etc – to consider a CSOP.

This will be particularly helpful for such companies which do not meet the criteria for an Enterprise Management Incentive scheme (for example, because of their size, number of employees or the activity they carry on).

The changes take effect from April 2023.

Operative date

• 6 April 2023

Recommendation

• Companies with multiple share classes should consider whether the new relaxations enable them to introduce a CSOP and whether it is appropriate to do so.