At this year’s spring statement, the government confirmed that it is considering reforming corporate stock option plans (CSOPs) to support companies when they outgrow the scope of Enterprise Management Incentives (EMI). After much industry lobbying, such reform has come a step closer after September’s “mini-budget” announced measures to increase the CSOP limit and ease share class restrictions.
From April 2023, eligible companies can grant each individual employee CSOP options over shares with a market value of up to £60,000, doubling the current limit. While still well below the £250,000 individual EMI limit, any increase is welcome and will improve the attractiveness of the CSOP. However, it seems unlikely that the current ban on issuing CSOP options to employees who have exhausted their full EMI eligibility will be reversed.
Share Class Restrictions
The government has also announced that it will relax the “valuable” limit on share classes within the CSOP program to better align these rules with EMI legislation and expand access to CSOP for growth companies.
There are alternative tests that must be met in relation to the class of shares used for a CSOP program – the majority of the shares in that class must be either “employee control shares” or “over the counter shares” (unless the company only has Shares). a share class).
Broadly speaking, “employee control stocks” are stocks that give employees and/or directors collective control of the company and “open market stocks” are stocks held by “outsiders”, ie investors who are not employees or directors will.
The removal of this requirement is therefore good news for venture capital-backed companies and others with multiple share classes that otherwise fail these tests. The Government has confirmed that the requirement for stock options granted under a CSOP will be lifted from April 6, 2023.
Legislation will be introduced in a future finance bill to implement the CSOP proposals, with further guidance provided before the changes come into effect.
Other wage tax measures
In addition to improvements to the CSOP system, employees may also benefit from proposed changes to income tax and National Insurance Contributions (NICs). The reduction in the base tax rate to 19% was brought forward by a year to April 2023, although the original proposal to abolish the additional tax rate of 45% has since been scrapped.
The 1.25% increase in NICs will be reversed from November 6, 2022, although recent increases in NIC thresholds will remain in place. The planned introduction of the Health and Social Care Levy from April 2023 (which would have replaced the NICs increase) is also cancelled.
If you would like to discuss the implications of these proposals, please contact a member of the Incentives team or your usual Taylor Wessing contact.