Why an HMRC-approved valuation is needed on the grant and exercise of CSOPs.
As the Company Share Option Plan (CSOP) is a government-backed scheme with attractive tax benefits, an HMRC-approved valuation should be obtained before granting options to employees.
The great news is that you can get a valuation easily through Vestd. Simply answer a few questions about your company, its finances and details of the CSOP grant, and we’ll provide a valuation report for you to send to HMRC.
In terms of CSOP valuations themselves, the outcome is to determine the Unrestricted Market Value (UMV) of the shares that will be granted.
The UMV values all the shares as if they had no restrictions and could be bought and sold at the prevailing worth of the company at that time.
Unlike EMI which can be granted at any value, CSOPs must be granted with an exercise price at or above the UMV to qualify for the tax benefits. This is what makes it a CSOP – and why it’s important to get an HMRC-approved valuation before granting, as it ensures you set the right exercise price and provides more tax certainty for your employees.
CSOP options granted without a valid valuation could be rejected by HMRC later down the line, which could make the scheme void.
Is a valuation needed when a CSOP is exercised?
HMRC recognises valuations for up to 90 days – unless there is a material change in the business in that time – so you may already have a valid and suitable valuation when an employee exercises their CSOP.
If you process the exercise request through Vestd, the platform will tell you if you have a suitable valuation. If not, request an exercise valuation and we’ll get to work.
It’s worth adding that if an employee is exercising a qualifying CSOP, no tax liability is created on exercise, so a valuation isn’t essential – but it could be handy as you will need to know the UMV and AMV at the time of exercise for your annual notification to HMRC.
If you get an exercise valuation through Vestd, we can pre-populate your annual spreadsheet with the UMV and AMV. If not, you will need to determine these values and add them manually.
For non-qualifying CSOPs, a valuation should be obtained on exercise as the employee will be liable to Income Tax (and potentially National Insurance) on the difference between the exercise price and the UMV at the time of exercise. Learn more about the tax liabilities when exercising a non-qualifying CSOP.
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