A CSOP is a kind of share option plan that allows a business to provide tax-free shares to directors and employees.
How come my CSOP is exempt from taxes? #
The market value of your shares is often subject to Income Tax and National Insurance when your employer pays them to you. This is because they are considered supplemental income. When you purchase shares from your firm at a price below their market value, you are also subject to these taxes; in this case, you just pay taxes on the difference.
The difference between the “strike price” (the amount you pay when you acquire) and the market value at the time of purchase is not subject to income tax or national insurance if your firm offers you shares as part of a CSOP.
Enterprise Management Incentive (EMI)-eligible large enterprises often employ CSOPs.
What is the process for a Company Share Option? #
- Being a part of a CSOP requires keeping in mind the following details:
- You should be awarded the choice at market value.
- Up to £30,000 worth of options may be given to you.
- Only after three years of holding the options will any gain between the strike price and the market price be excluded from Income Tax.
- The employer has discretion over CSOPs; as a result, individual workers may be provided various alternatives.
Do CSOPs incur no taxes at all? #
No. Not quite.
If you sell the shares and earn more than the £3,000 capital gains threshold, you may still be liable for paying capital gains tax. In such instance, you need to report and pay taxes on your earnings. A Self Assessment return is the tool for this.
