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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 4 Company Share Option Plan (CSOP): Notification & Enquiries: Alterations

Paragraph 28B(6) is concerned with alterations made to Schedule 4 CSOP schemes.

Where a company makes an alteration to a “key feature” of the scheme or where there is a variation of share capital within paragraph 22(3) (see ETASSUM44230), it must provide details of this in the annual return for the tax year in which the alteration or variation is made. The company secretary 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 (paragraph 28B(6)).

A “key feature” is any provision of the Schedule 4 CSOP which is necessary in order for the requirements of Parts 2-6 of this Schedule to be met in relation to the Schedule 4 CSOP (paragraph28B(8)). This therefore includes changes to:

  • the eligibility of individuals,
  • eligible shares, or
  • provisions for the statutory limit on options and the determination of the exercise price of options.

Failure to include an alteration or variation in a return will lead to a penalty of up to £5,000. 

Amendments affecting existing options

Unless expressed otherwise, amendments made to scheme rules will generally be intended to apply:

  • from the date of the amendment,
  • to options granted in the future and not to options already in existence.

If amendments are to apply to existing options it is important that such amendments do not alter the rights of subsisting option holders or provide new rights.

**Any amendment to existing options which create new rights or alter existing rights will cause these options to lose their tax advantaged status. **

Amendments to existing options which will likely be acceptable, include alterations to take account of a variation in share capital, where such alterations are permitted by the plan rules at grant (see ETASSUM44230) or the exercise of a discretion to alter performance conditions (see ETASSUM44290) where such exercise is anticipated at grant. Generally specific alterations not anticipated at grant will not be acceptable.