If a company qualifies for Enterprise Management Incentives, EMI is usually the stronger scheme: each employee can hold up to £250,000 of options, they can be exercised at any time within the permitted period, and the shares can attract Business Asset Disposal Relief without a 5% holding. A Company Share Option Plan suits companies or employees that fail the EMI tests, but it is capped at £60,000 per person, normally needs three years before a tax free exercise, and gives BADR only if the usual 5% conditions are met.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questionsHow the cover worksAccountant? Offer cover to your clientsor call 01795 841 310

How do EMI and CSOP compare at a glance?

Point EMI (Schedule 5 ITEPA) CSOP (Schedule 4 ITEPA)
Company size Gross assets of £120 million or less and fewer than 500 full time employees (from 6 April 2026) No size test
Trade Qualifying trade; excluded activities barred No trading activity test
Control Must be independent: not a 51% subsidiary or controlled by another company Unlisted scheme company must not be controlled by another company; a subsidiary can use its parent’s shares
Who can receive options Employees working at least 25 hours a week or, if less, 75% of their working time Employees and full time directors
Limit per employee £250,000 at grant value, counting CSOP options £60,000 at grant value
Exercise price Can be at a discount, with tax on the discount Not manifestly less than market value at grant
Tax free exercise Within 15 years of grant, with no disqualifying event Between 3 and 10 years after grant, or earlier in limited cases
Telling HMRC Notify each grant by 6 July after the tax year Register the plan by 6 July after the tax year it was set up
BADR on sale No 5% test; option granted at least 2 years before sale Normal personal company tests, including 5%

Which companies can use each scheme?

EMI is targeted at smaller independent trading companies. GOV.UK’s employer guidance says that from 6 April 2026 most companies qualify with gross assets of £120 million or less, fewer than 500 full time employees, and total unexercised EMI options of no more than £6 million. On or before 5 April 2026 the limits were £30 million, 250 employees and £3 million. The higher limits do not apply where the employer company has its registered office in Northern Ireland and trades in goods or electricity, as explained at ETASSUM50500. The company must also meet the independence requirement in paragraph 9 of Schedule 5 (ETASSUM52030) and must not carry on excluded activities such as banking, farming, property development, legal services or shipbuilding.

The CSOP rules are about the shares rather than the business. HMRC’s overview at ETASSUM41110 lists the Schedule 4 requirements, which cover limits on participation, who can take part, the shares used, the option terms and exchanges on a takeover. There is no assets, headcount or trade test. ETASSUM43230 says the shares must not be in an unlisted company under the control of another company, although ETASSUM43220 confirms a subsidiary can grant options over its parent’s shares. A large group, or a company in an excluded sector such as an accountancy practice, may therefore be able to use CSOP when EMI is closed to it.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

Who can be granted options?

For EMI, paragraphs 26 and 27 of Schedule 5 require the employee to be committed to at least 25 hours a week or, if less, 75% of their total working time (ETASSUM53020). CSOP has no working time test for employees. Paragraph 8 of Schedule 4 allows grants to qualifying employees and full time directors, and ETASSUM42130 says a scheme cannot define full time as fewer than 25 hours a week excluding meal breaks. That makes CSOP useful for part time staff.

Both schemes exclude anyone with a material interest of more than 30%, taking associates into account (paragraph 10 of Schedule 4 and ETASSUM53040). Under CSOP the test applies to close companies and looks back 12 months.

How much can each employee hold?

The EMI limit is £250,000 of shares under option, valued at grant (ETASSUM51020). It includes CSOP options from the same company or group (ETASSUM51030), and once someone reaches the limit no further EMI options can be granted for three years after the last grant (ETASSUM51050). The CSOP limit in paragraph 6 of Schedule 4 is £60,000 from 6 April 2023, again valued at grant, with exercised options left out. ETASSUM41230 adds a trap: granting a CSOP option that takes an employee’s combined EMI and CSOP options above £250,000 is a disqualifying event for the EMI options, although the CSOP option stays tax advantaged.

What tax is due when the option is exercised?

EMI. Section 530 removes the income tax charge on exercise if the exercise price is at least the market value at grant. ETASSUM57010 says that from 6 April 2026 the exercise must be within 15 years of grant (10 years for a Northern Ireland specified company, or for any exercise before that date) with no disqualifying event. If the option was granted at a discount, section 531 limits the taxable amount to the discount, measured against the lower of the market value at grant and at exercise. After a disqualifying event, such as the employee leaving, the advantages are preserved only if the option is exercised within 90 days. National Insurance arises on a taxable exercise only if the shares are readily convertible assets (ETASSUM57180).

CSOP. Section 524 gives relief if the option is exercised between the third and tenth anniversaries of grant. Earlier exercise is still relieved for good leavers who stop work through injury, disability, redundancy, retirement or a TUPE transfer and exercise within 6 months, on certain cash takeovers under section 524(2E), and on exercise by personal representatives within 12 months of death (ETASSUM48150). Outside those cases the gain is taxed like an unapproved option.

How does Business Asset Disposal Relief differ?

BADR charges qualifying gains at 18% for disposals from 6 April 2026, within a £1 million lifetime limit. GOV.UK’s BADR guidance gives EMI shares a special route: the shares must have been acquired after 5 April 2013 and the option granted at least 2 years before the sale, and there is no 5% shareholding test. The employee must still be an officer or employee of a trading company or group for the 2 years. ETASSUM57190 adds that BADR is lost if the option is exercised more than 90 days after a disqualifying event. More detail is in our guide to BADR on EMI shares.

CSOP shares get no special treatment. The company must be the holder’s personal company, with at least 5% of the shares and votes, for 2 years before the sale. Most CSOP holders fall well short of that, so their gains are taxed at the main Capital Gains Tax rates.

What does the difference look like on a sale?

Illustration only. A software company with 60 staff and £8 million of gross assets grants a senior developer options over 20,000 shares at the current market value of £3, so £60,000 at grant. Four years later the company is sold for £12 a share. The developer exercises and sells at once, making a gain of £180,000. She holds under 1% of the shares and is a higher rate taxpayer.

  • Under EMI, no income tax arises on exercise and the gain qualifies for BADR because the option was granted more than 2 years earlier: £180,000 at 18% is £32,400, before any annual exempt amount.
  • Under CSOP, exercise after the third anniversary is also free of income tax, but she does not meet the 5% test, so GOV.UK’s 24% higher rate applies: £43,200.

Had the sale come after two years instead, the EMI option would still be fully relieved, while the CSOP exercise would only escape income tax if it met the cash takeover conditions in section 524(2E).

When does CSOP make more sense?

  • The company is above the EMI size limits, is not independent, or carries on an excluded activity.
  • The employee works part time and cannot meet the EMI working time commitment.
  • The company wants a simple plan for many staff with modest grants, and can accept a three year wait.

The two can run side by side, but the £250,000 combined limit has to be tracked. Both need a robust valuation at grant, covered in valuing shares for employee schemes, and both feed the ERS annual return.

What mistakes come up most often?

  • Missing the EMI notification deadline, which GOV.UK warns risks losing the tax benefits.
  • Assuming CSOP shares qualify for BADR without the 5% holding.
  • Letting CSOP options be exercised before the third anniversary outside the permitted exceptions.
  • Granting CSOP options to an EMI holder without checking the £250,000 combined limit.
  • Missing the 90 day window after an EMI disqualifying event.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.