Tax

CSOP in 2026: The UK Share Option Plan for Companies That Don't Fit EMI

EMI expanded in April 2026, but many UK companies still can't use it. How CSOP works, who it's for, and the HMRC valuation that protects the tax break.

By 409.AI Team - 2026-07-24

When EMI's limits jumped on 6 April 2026, a lot of founders assumed the question of "which UK share scheme do we use" had been settled for good. Bigger companies could now qualify, options could run for 15 years instead of 10, and the whole regime got roomier. But the expansion left two groups exactly where they were: companies in the wrong industry, and companies that are still too big even after the new ceilings. For them, the Company Share Option Plan is the tax-advantaged route that actually works, and it's a better one than it used to be.

CSOP spent years as the scheme people reached for only when EMI was off the table. A 2023 reform changed that math. If you've written CSOP off as EMI's poor cousin, it's worth another look.

The scheme most founders skip past

Start with the numbers, because they explain the reflex. HMRC's most recent statistics show roughly 18,570 companies running an [Enterprise Management Incentive plan](https://www.409.ai/articles/emi-share-options-2026-uk-rules-hmrc-valuation) against about 1,390 running a CSOP. Nearly nine in ten companies with a tax-advantaged scheme use EMI. So when a founder asks their adviser about options, EMI is the default answer, and usually the right one.

CSOP does the same core job. A qualifying company grants employees options to buy shares at a fixed price. Set that price at or above the shares' market value on the day of grant, meet the holding conditions, and the employee pays no income tax and no National Insurance at grant or at exercise. Their only tax event is Capital Gains Tax when they sell. It's the same shape as EMI's tax break, which is the point: CSOP exists so that companies EMI can't reach still get something close to it.

The difference has always been in the fine print, and that fine print used to be punishing.

What changed for CSOP in 2023

Two old rules made CSOP feel cramped. The first was the individual limit. An employee could only hold CSOP options worth £30,000, measured by market value at grant. For a scaleup handing out meaningful equity, £30,000 barely covered a mid-level hire.

The second was subtler and more frustrating. CSOP options could only be granted over shares of a class that was "worth having," a test designed to stop companies creating a throwaway share class purely for the scheme. In practice it tripped up ordinary, legitimate structures and forced companies into advance conversations with HMRC about their cap table.

From 6 April 2023, both problems went away. The individual limit doubled to £60,000, and the "worth having" restriction was scrapped entirely. That second change matters more than the headline number. Companies with multiple share classes, which describes most venture-backed businesses, can now run CSOP without contorting their structure to fit an old rule. The scheme went from "technically available" to "actually usable" almost overnight.

Who reaches for CSOP in 2026

The April 2026 EMI expansion raised the employee cap from 250 to 500, lifted the gross-assets ceiling from £30 million to £120 million, and doubled the total scheme limit to £6 million. Real changes, and they pulled a lot of later-stage companies back into EMI. But three groups still land on CSOP.

Companies in an excluded trade

EMI comes with a list of trades that can't use it. Banking, insurance, and other financial activities are out. So are property development, leasing and hire purchase, legal and accountancy firms, farming, running hotels, and operating care homes. If more than 20% of what your company does falls into an excluded activity, the whole company fails the EMI test, not just that part of the business.

CSOP has no equivalent list. A fintech lender, a property developer, or an accountancy practice can run CSOP even though EMI is permanently closed to it. This is the single most common reason a company that could easily afford EMI ends up on CSOP instead. It has nothing to do with size and everything to do with the trade.

Companies past even the new EMI ceilings

The 2026 limits are generous, but they're still limits. A company with 600 employees, or one that has grown past £120 million in gross assets, has aged out of EMI. That used to mean the equity conversation was over. Now it means CSOP, which carries no company-size cap at all. A profitable, 800-person private company can grant tax-advantaged options under CSOP that it could never grant under EMI.

Individual employees over the line

EMI's per-person limit sits at £250,000 of options. CSOP's is £60,000. So for a single senior hire you want to load up with equity, EMI is more generous. But the two aren't mutually exclusive at the company level, and plenty of firms use CSOP to extend tax-advantaged options to a broader employee base once key people have used up their EMI headroom.

How CSOP is taxed, with the numbers

The tax treatment is where CSOP earns its keep, so it's worth walking through a concrete case.

Say you grant an employee options over 10,000 shares at an exercise price of £2, which is the market value you've agreed for the shares at grant. Nothing is taxed at that point. Four years later the shares are worth £9 and the employee exercises, paying £20,000 to acquire shares now worth £90,000. Because the exercise falls inside the tax-advantaged window, there's no income tax and no National Insurance on that £70,000 of built-in gain. Later they sell at £15. The chargeable gain for CGT is £13 per share, the difference between the £15 sale price and the £2 they paid, or £130,000 in total. After the £3,000 annual exempt amount, that's taxed at the CGT rate, which HMRC set at 18% or 24% depending on the employee's income band following the Autumn Budget 2024.

Now run the same grant as an unapproved option. The £70,000 gain at exercise is employment income, taxed at up to 45% with National Insurance on top, before CGT even enters the picture on any further growth. That's the same broad trap a US employee meets with a non-qualified option, where the spread at exercise is [taxed as ordinary income](https://www.409.ai/articles/iso-vs-nso-how-stock-options-are-taxed) rather than at capital gains rates. The gap between those two outcomes is the entire reason tax-advantaged schemes exist.

The catch is the holding window. To keep the income-tax relief, a CSOP option generally has to be exercised at least three years after grant and within ten. Exercise it earlier and, outside a handful of good-leaver and takeover situations, the option loses its advantaged status and the gain at exercise becomes taxable as income. The three-year clock is the condition founders most often forget to design their vesting around.

The valuation is the load-bearing part

Every tax advantage above rests on one number: the market value of the shares at grant. Set the exercise price below that value and the discount is taxable as income, which quietly undoes the point of the scheme. Set it too high and you've handed employees an option that may never be worth exercising.

This is the same principle US companies meet through [409A valuations](https://www.409.ai/articles/understanding-409a-valuation-for-employees), where an option's strike price has to reflect the fair market value of common stock. The mechanics differ, but the discipline is identical, and it's worth remembering that market value is [not the same thing](https://www.409.ai/articles/409a-valuation-vs-fair-market-value) as the headline number from your last funding round. Preferred shares carry rights that common shares don't, so the ordinary shares under a CSOP option are usually worth meaningfully less than the price a VC paid.

For CSOP, HMRC will agree the valuation in advance if you ask. You submit the proposed value on form VAL230, the CSOP equivalent of EMI's VAL231, and once HMRC signs off you have certainty that the exercise price holds. Skipping that step is a false economy. A valuation HMRC later disputes can strip the tax advantage from every option in the grant. Getting an independent, defensible number, and agreeing it up front, is the cheapest insurance in the whole process. It's exactly the kind of work 409.ai's [CSOP valuation](https://www.409.ai/products/csop-valuation) is built to produce.

There's also an accounting consequence that catches finance teams by surprise. CSOP options are share-based payments, so they generate a charge in the company's accounts under IFRS 2 or FRS 102, measured from the fair value of the options at grant. That's a separate exercise from the tax valuation, and it works much the way an [IFRS 2 or ASC 718 charge](https://www.409.ai/articles/ifrs-2-vs-asc-718-share-based-payment) does for any option-granting company. Budget for both.

Running CSOP and EMI together

For companies that qualify for EMI, none of this is an either-or decision. A business can run both schemes at once: EMI for the employees and grant sizes that fit its limits, CSOP for everyone and everything that spills over. A senior hire who has exhausted their £250,000 of EMI options can receive further options under CSOP. It's more administration, but it lets a company push tax-advantaged equity further down and across the organisation than either scheme could alone.

It also future-proofs the cap table. A company approaching the EMI gross-assets ceiling can start layering in CSOP grants before it ages out, so the transition to a CSOP-only world is gradual rather than a cliff edge the year it crosses £120 million.

The bottom line

EMI is still the first scheme most UK founders should look at, and the 2026 expansion made that even more true. But "look at EMI first" was never the same as "EMI is the only answer." If your company trades in an excluded sector, has outgrown even the new limits, or wants to extend tax-advantaged options past what EMI allows, CSOP is not a consolation prize. Since 2023 it's a real, workable scheme with a £60,000 individual limit and no share-class trap. The one thing it won't tolerate is a shaky valuation. Agree the market value with HMRC before you grant, and CSOP does everything you need it to.