Partnerships play a crucial role in the UK’s business landscape as they offer shared responsibilities and flexibility among members, and are often a blend of individual and corporate members (i.e., a company is a member).

Although historically associated with early-stage businesses with restricted cash flow, recent changes to the Company Share Option Plan (‘CSOP’) option scheme have highlighted it can be a positive remuneration tool for employers of all sizes within the wider Financial Services (‘FS’) sector.

Why are equity plans favourable?

1. The lack of up-front cash layout for the business is appealing, particularly where cash is generally squeezed.
2. The interests of the employees are better aligned with those of the owners.
3. Employees have a higher potential upside compared to cash-based incentives.
4. Equity incentives can be more tax efficient compared to cash-based incentives.

Positive changes for CSOP options as an alternative to EMI

Whilst Enterprise Management Incentive (‘EMI’) schemes are popular for many companies, the qualifying criteria may prevent many financial services businesses from using them if, for example, they provide loans or insurance.

For companies that are not EMI qualifying, a CSOP should be considered as an alternative way to award tax-advantaged employee options.

Advantages of CSOP:

• Growth in value can be free from income tax and NIC.
• Exercise of options generates a corporation tax deduction for the employer company (even where no corresponding income tax charge arises for the employee).
• Ability to agree a share valuation with HMRC in advance to help set the exercise price.
• Flexibility regarding vesting and performance conditions (beyond needing exercise within 3 and 10 years of grant to secure tax advantages).

Since 6 April 2023, CSOP options have become even more attractive due to the following:

• Doubling the limit of value of shares under CSOP option from £30k to £60k per participant (though note there is no cap on eventual payout qualifying for tax relief).
• Abolishing restrictions on the class of share that can be used.

How haysmacintyre can help

haysmacintyre has extensive experience designing and implementing CSOP and other employee option schemes, and can provide a full, ‘one-stop-shop’ service for CSOP. For more information, contact David Bareham, Share Schemes Director.