On 15 March 2023, the Chancellor of the Exchequer, Jeremy Hunt, confirmed that the proposed changes to Company Share Option Plans (CSOP) outlined in the Autumn Statement would be implemented, as well as stating that improvements would made to the Enterprise Management Incentives (EMI) legislation.
Company Share Option Plans (CSOP)
Businesses that qualify for CSOP will be able to issue CSOP options over shares with a value up to £60,000 (measured at the date of grant of each option and aggregated) to each employee. Previously, companies could only issue CSOP options over shares with a value up to £30,000. This new rule change will affect new options granted on or after 6 April 2023, with existing options remaining unaffected. This will provide welcome additional capacity for companies to make tax advantaged CSOP awards.
Enterprise Management Incentives (EMI)
The changes to the EMI share option legislation simplify the qualifying conditions for EMI by removing two administrative requirements. The changes apply from 6 April 2023 but affect options granted before that date that have not been exercised. The changes follow responses to a government call for evidence which highlighted that certain requirements for EMI are unnecessarily burdensome and do not promote the policy objective of assisting small and medium sized businesses to recruit and retain staff.
The changes are as follows:
- the requirement for businesses to set out in a share option agreement the details of any restrictions on the shares that may be acquired on exercise of an EMI option will be removed. This requirement was unclear and caused regular problems in due diligence exercises at the time companies are sold.
- the requirement for businesses to declare that an employee has signed a working time declaration when they were issued an EMI option will be removed – however, this does not remove the working time requirement. Again, this requirement was unnecessarily cumbersome because employees routinely agree to meet to the working time requirement as a condition of an EMI option contract.
In addition, From 6 April 2024, the government will extend the deadline for notifying an EMI option within 92 days following date of option grant. In future option grants will need to be notified to HMRC by 6 July following the end of each tax year (i.e. in line with the deadline for filing on-line share scheme returns). This will be legislated separately and the impacts of this will be set out later, but it is further welcome simplification which should help reduce administrative problems which arise when companies overlook the obligation to notify option grants.