CSOPs ― employee tax consequences

Produced by Tolley in association with

Employment Tax

Guidance

The tax rules around company share option plans (CSOPs) are extremely generous, subject to a limit of £60,000 in relation to 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 is usually no income tax or NIC charge arising on the granting 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 of the option, and to exercise the option to acquire the maximum number of shares allowed under it, is less than the market value of the same number of shares of the same class as at that date when the option is granted.

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

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Ken Moody

Tax Consultant at KM Tax Consultant

Ken Moody CTA (Fellow), ATT has worked in tax for over 40 years. He qualified as an Associate of the Chartered Institute of Taxation (CIOT) while working for a local firm of Chartered Accountants in his home town Sheffield. Ken then joined a top 30 London firm, managing the tax affairs of a SE-quoted group of companies. As lead tax adviser, this involved complex technical negotiations with HMRC, briefing and meeting with Tax Counsel, group tax planning and advice on corporate transactions. Following a takeover, Ken took on a similar role in Saffery Champness' London office. Since 1995, Ken has worked for firms in the North of England and Scotland, in mainly advisory roles, focussing on the holistic tax affairs of owner-managed businesses (OMBs) and their proprietors. Ken now works as an independent tax consultant advising a number of professional firms of accountants around the North West, where he is based, but also offering nationwide support. Still with an OMB focus, Ken advises across a broad range of UK direct tax issues. Ken's writing career began with articles in Taxation and Tax Journal from about 2000 onwards and in writing in-house tax publications for DTE in Bury, as part of his role as Senior Tax Manager. He has since written numerous articles for professional magazines and other publications. Ken was awarded the Fellowship of the CIOT in 2011 for his work "Employment-Related Securities and Unlisted Companies".

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