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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): Requirements relating to options: Flotations

A company which is undergoing a public flotation will often wish to grant options with a subscription price equal to the price at which the shares are being offered to the public. Unless the options are to be granted unconditionally no later than the day before the shares are admitted to the official list of the Stock Exchange, HMRC is not normally prepared to agree to any earlier date than the date of grant for determining the market value under paragraph 22(2). The consequence is that the acquisition price of options granted on the flotation date must be based on the market value of the shares on the date of grant. That is the listed price determined in accordance with Section 272(3) TCGA 1992.

Scheme rules which define the option price as the offer price will meet the requirements of Schedule 4 only if the following conditions are satisfied and there are no unusual features which would make this inappropriate:

  • the flotation is by way of an offer for sale to the public at a fixed price (see below),
  • the options are granted within 30 days following the opening of the public offer,
  • the potential scheme participants have completed all the necessary formalities for participation in the scheme before the closing date for the public offer, and
  • the options are unconditionally granted no later than the day before the shares are admitted to the Official List of the Stock Exchange (see below).

It is possible for a placing to constitute an offer for sale to the public at a fixed price. But whether a particular placing does so, will depend on the facts of each case. The main test is whether the placing is being used as a mechanism to get shares into the hands of the general public, rather than confining them to a select group. Where a significant proportion of the shares (at least 50%) are being brought to the market are offered to the public, it may accepted that this condition is satisfied.

In cases which do not involve offers to the public, the scheme rules must define the option acquisition price of all options by reference to the market value of the shares, and require the market value used in pre-flotation grants to be agreed with HMRC Shares & Assets Valuation.

In practice, it will only be possible for Schedule 4 CSOP scheme options to be granted unconditionally before the company is admitted to the Stock Exchange, if they are granted on the day before admission. Following a change to the Stock Exchange procedures in 1993, dealings may now commence immediately upon listing rather than there being, as in the past, a short space of time between admission to listing and the official commencement of dealings.

It is acceptable for the exercise of Schedule 4 CSOP scheme options granted pre-flotation, to be made conditional on flotation taking place.