At this year's Spring Statement, the government confirmed that it was considering the reform of Company Share Option Plans (CSOP) to support companies as they outgrow the scope of Enterprise Management Incentives (EMI). After much lobbying by industry, such reform is one step closer following the announcement at September's 'mini Budget' of measures to increase the CSOP limit and relax restrictions on share classes.
CSOP limit
From April 2023, qualifying companies will be able to grant CSOP options to each individual employee over shares with a market value of up to £60,000, doubling the current limit. While still considerably lower than the individual EMI limit of £250,000, any increase is welcome and will improve the attractiveness of the CSOP. It seems unlikely, though, that the current prohibition on CSOP options being issued to employees who have used their full EMI entitlement will be reversed.
Restrictions on share classes
The government has also announced that it will ease the 'worth having' restriction on share classes within the CSOP scheme, to better align these rules with the EMI legislation and widen access to CSOP for growth companies.
There are alternative tests to be satisfied in relation to the class of shares being used for a CSOP scheme - the majority of the shares of that class must either be 'employee-control shares' or 'open market shares' (unless the company only has one class of share).
Broadly speaking, 'employee-control shares' are shares which give employees and/or directors together control of the company and 'open market shares' are shares held by 'outsiders', i.e. non- employee or director investors.
The removal of this requirement is therefore good news for venture capital backed companies and others with multiple share classes who do not otherwise meet these tests. The government has confirmed that the requirement will be removed for share options granted under a CSOP from 6 April 2023.
Legislation will be introduced in a future Finance Bill to enact the CSOP proposals, with further guidance provided before the changes come into effect.
Other employment tax measures
In addition to the CSOP scheme improvements, employees also stand to gain from proposed changes to income tax and National Insurance Contributions (NICs). The reduction in the basic rate of income tax to 19% has been brought forward a year to April 2023, although the original proposal to abolish the 45% additional rate of tax has since been scrapped.
The 1.25% rise in NICs will be reversed from 6 November 2022, although recent increases in NICs thresholds will be maintained. The planned introduction of the Health and Social Care Levy from April 2023 (which would have replaced the NICs increase) will also be scrapped.
If you would like to discuss the impact of these proposals, please get in touch with a member of the incentives team or your usual Taylor Wessing contact.
