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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 4 Company Share Option Plan (CSOP): Requirements relating to options: Adjustments permitted

Paragraph 22(3) permits schemes to provide that the acquisition price, the number of shares which may be acquired and the description of shares may be adjusted “so far as necessary” to take account of a variation in the share capital of the company concerned.

Where they do, the adjustment must secure that:

  • The total market value of the shares subject to the option is substantially the same immediately after the variation as it was immediately before the variation, and
  • The total acquisition price immediately after the variation is substantially the same as it was immediately before the variation.

It will normally be necessary, if an equitable result is to be achieved, for the number and even the description of shares subject to an option to be varied.

There is no authority to adjust the class of shares under option.

Where there is an adjustment of options following a variation in the share capital of the company, it is recommended that the agreement of HMRC’s Shares and Assets Valuation should be secured.

Alterations to subsisting options may be key feature alterations, and so these must be reported in the annual return for the tax year in which the alteration is made. The company must also certify in the return that the alteration does not result in the plan no longer meeting the requirements of Parts 2-6 of Schedule 4.