ETASSUM41110 - Schedule 4 Company Share Option Plan (CSOP): General requirements: Main requirements & layout of the CSOP guidance

This section explains the layout of the guidance on the Schedule 4 Company Share Option Plan scheme and gives a brief explanation of the main requirements. These schemes were previously known as discretionary share option plans or executive share option schemes until 1996.

A Schedule 4 CSOP scheme is a scheme which:

  • is established by a company,
  • provides for share options to be granted to employees and directors,
  • is not an SAYE option scheme, and
  • complies with the requirements of Schedule 4 ITEPA.

The legislation relating to Schedule 4 CSOPs was initially introduced by Finance Act 1984 and is now consolidated in Sections 521-526 and Schedule 4 ITEPA which together with Part 3 Schedule 7D TCGA 1992 form the 鈥淐SOP code鈥�.

Under these schemes employees and directors are granted share options which give them rights to acquire shares. If certain conditions are satisfied no liability to income tax arises when the options are exercised. Prior to 6 April 2014, the scheme organiser had to obtain HMRC approval that the scheme met the conditions of Schedule 4 before the company could operate the scheme. From 6 April 2014 鈥榓pproval鈥� is no longer given. Instead, the scheme organiser is required to notify the scheme, within certain time limits, to HMRC and, to self certify that the scheme meets these conditions and is a Schedule 4 CSOP scheme.

Unlike SAYE option schemes, Schedule 4 CSOP schemes are not required to be open to all employees.

The relevant requirements that a Schedule 4 CSOP scheme must meet are concerned with:

  • providing benefits for participants in the form of share options, with no provision for other, or alternative benefits (paragraph 5),
  • setting limits on participation by each participant (paragraph 6),
  • who can participate in the scheme (paragraphs 7 - 14),
  • the nature of the shares over which options can be granted (paragraphs 15 - 18) (paragraphs 15 - 20 for options granted and exercised prior to 6 April 2023),
  • the terms of the options (paragraphs 21A - 25), and
  • the possible facility to exchange options on a takeover (paragraphs 26 and 27).

Statutory provisions and requirements

The statutory provisions (all references are to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and requirements relate to:

Subject Legislation ETASSUM Reference
General requirements Part 2 (Paragraphs 4鈥�6) Schedule 4 40000 - 41230
Eligibility of individuals Part 3 (Paragraphs 7鈥�14) Schedule 4 42000 - 42410
Shares to be used Part 4 (Paragraphs 15鈥�18) Schedule 4, Part 4 (Paragraphs 15鈥�20) Schedule 4 for options exercised prior to 6 April 2023 43000 - 43330
Requirements of options Part 5 (Paragraphs 21鈥�25A) Schedule 4 44000 - 44470
Exchange of options Part 6 (Paragraphs 26鈥�27) Schedule 4 45000 - 45260
Notification, annual returns & enquiries Part 7 (Paragraph 28鈥�28K) Schedule 4 46000 - 46170
Supplementary & defined terms Part 8 (Paragraphs 33鈥�37) Schedule 4 47000 - 47270
Taxation Sections 471 - 484, 521 鈥� 526, 700 鈥� 702 ITEPA 48000 - 48280