A CSOP — Company Share Option Plan — is the tax-advantaged share scheme for companies that cannot use EMI: options over up to £60,000 of shares per employee, granted at market value, with no income tax or National Insurance on exercise between three and ten years after grant. Gains are taxed as capital instead of employment income, and the company normally gets a corporation tax deduction when options are exercised. It is less generous than EMI — but EMI has size limits, trade exclusions and working-time rules, and CSOP has essentially none of them.
Since the limit doubled and the share-class restrictions fell away in April 2023, CSOP has moved from consolation prize to first choice for a real class of companies. Here is how it works and where it fits.
The deal in numbers
- £60,000 per employee of options, valued at grant date (doubled from £30,000 in April 2023);
- Options granted at market value — no discount allowed, which is CSOP's defining constraint: employees profit only from growth after grant;
- Exercise between years three and ten for the tax relief: no income tax, no NIC, whatever the shares are then worth. Early exercise generally loses the relief, with limited exceptions for leavers in defined circumstances and takeovers;
- CGT on sale at the normal 18%/24% rates, with base cost equal to the exercise price. There is no EMI-style shortcut to Business Asset Disposal Relief — a CSOP holder needs to satisfy the ordinary conditions, which few employees do;
- Corporation tax deduction for the employing company on exercise, broadly equal to the employees' gains.
The three-year cliff shapes scheme design more than any other feature: CSOP is a retention instrument by construction, and grant timing around expected exit windows matters — an offer landing in year two of a CSOP creates tax friction that the takeover provisions only partly relieve.
Who can use it — and the 2023 opening-up
Any company whose shares meet the conditions can operate a CSOP: no gross-asset ceiling, no headcount ceiling, no excluded trades. Listed groups, large private companies, and — the important cases in practice — businesses disqualified from EMI: property developers, banks and lenders, farms, legal and accountancy firms, hotels beyond a size, and any company that has simply outgrown even the expanded EMI limits.
Eligibility on the employee side is broad too: any employee, or directors working at least 25 hours a week, can participate — no EMI-style 75%-of-working-time test, which makes CSOP workable for part-time staff. A material-interest exclusion keeps large shareholders out of the scheme.
The April 2023 reforms removed the old requirement that scheme shares be of a class that was either "worth having" (employee-controlled or open-market) — a rule that had made CSOP impossible for many venture-backed companies with layered share classes. Growth-capital businesses that ruled CSOP out years ago on share-structure grounds should re-check: the blocker is likely gone.
CSOP against the alternatives
The honest comparison, scheme by scheme:
- EMI — strictly better where available: £250,000 per employee, discounted grants possible, the BADR fast-track, more flexible exercise. Since the 2026 expansion (gross assets to £120m, 500 employees), fewer companies fall out of EMI than before — check EMI first, always. Our EMI guide covers it;
- SAYE (Sharesave) — all-employee by design: staff save £5–£500 a month for three or five years and get options at up to a 20% discount, tax-free at exercise. Cultural broad-based ownership rather than targeted incentives;
- SIP — all-employee share ownership rather than options: free shares up to £3,600 a year, partnership and matching shares, fully relieved after five years in plan;
- LTIPs and unapproved options — no statutory relief at all: awards are taxed as employment income at vest or exercise, through PAYE with NIC. Infinitely flexible, tax-expensive — the default only where the statutory schemes genuinely cannot deliver the design.
The pattern in practice: EMI where it fits; CSOP for the excluded and the outgrown; SAYE or SIP where the goal is every employee, not key people. One trap on combining schemes: EMI and CSOP share the £250,000 individual limit — a CSOP grant that takes an employee's combined outstanding EMI and CSOP options over that line is a disqualifying event for the EMI options (the CSOP option itself stays tax-advantaged), so topping up a maxed-out EMI holder with CSOP needs sequencing advice, not enthusiasm.
Running one without breaking it
CSOP's administration is mercifully standard but unforgiving of neglect. The scheme must be registered with HMRC and self-certified; every grant needs a defensible market-value figure — for private companies, agree the valuation with HMRC in advance rather than defending it years later at exercise; and the annual employment-related securities return is due by 6 July whether anything happened or not, with automatic penalties for silence. The failure cases are rarely design flaws: they are lapsed registrations, grants over unapproved amendments to the plan rules, and valuations done on the back of the last funding round's headline price.
Set up properly, a CSOP is one afternoon of design decisions — pool size, vesting, leaver terms, exercise windows — followed by an hour a year of compliance. Set up casually, it is a due-diligence finding with income tax attached.
Acumon designs and administers share schemes across the statutory family — eligibility analysis, HMRC valuations, plan documents and the annual returns — through our tax planning and valuations teams. If you were told your company "can't do options" any time before 2023, that advice has an expiry date on it — worth an hour to re-run.