Company share option plans: anti-avoidance


The measure

HMRC approved Company Share Option Plans (CSOPs) allow tax-advantaged options to be granted to UK employees. In particular, the gain arising on the first £30,000 of approved options could be exempt from income tax and National Insurance.

Prior to the Budget 2010, in order to qualify for the approved/tax-advantaged status, there were a number of conditions to satisfy. In particular, the company whose shares were subject to the CSOP option had to be:

  1. A listed company;
  2. A company that is not under the control of another company; or
  3. A company that is under the control of a listed company.

The legislation will now be amended so that approved CSOP options may no longer be granted over shares in a company that is under the control of a listed company. It will, however, still be possible to implement a CSOP over shares in a listed company or a company that is not under the control of another company.
 

Who will be affected?

Companies operating, or wishing to operate, an HMRC approved CSOP using shares in a company which is under the control of a listed company.

When?

With effect from 24 March 2010, it will no longer be possible to grant approved options over shares in an unlisted company that is under the control of a listed company.

Our view

HMRC have commented that this amendment was made to combat perceived avoidance arrangements. However, it is disappointing to see that the changes are not 'targeted’. The changes may therefore have a wider impact than HMRC intended.

In particular, we are aware of corporate groups where HMRC approved options are granted over shares in an unlisted subsidiary of a listed parent for genuine commercial reasons, ie with no tax avoidance intended.

Going forward, such companies will no longer be able to grant tax advantaged options and they will need to consider alternative incentive arrangements.