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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Schedule 4 Company Share Option Plan (CSOP): General requirements: Unacceptable features

Unacceptable features of Schedule 4 Company Share Option Plans include, but are not limited to:

  • payment for shares by instalments or payment in advance;
  • payment of option price in shares (the provision is often included in US plans where it may secure a tax advantage);
  • exercise of options in return for cash rather than shares (stock appreciation rights);
  • exercise of options resulting in payment to the employee of only the rise in value of shares over the option period, in cash or shares;
  • the grant of an option being made conditional on the participants entering into “put” options (by which they could be compelled to acquire shares at the specified, possibly disadvantageous, price);
  • the grant or exercise of options being made conditional on employees giving up rights to participate in other approved schemes; or
  • certain loan arrangements.

Part 2 of Schedule 4 ITEPA also sets out the monetary limits on the provision of share options determined in relation to the market value of the shares to be acquired.