Employee Share Schemes

Quick Insights: Company Share Option Plans (CSOPs) & Share Incentive Plans (SIPs)

Series 3: Choosing the Right Scheme for You

Discover the various employee share schemes available for startups, including EMI, CSOPs, SIPs, SAYE, and non-approved schemes, to effectively incentivise and retain talent.


Choosing the right employee share scheme is crucial for startups looking to incentivise and retain talent. In this Quick Insight, we’ll explore Company Share Option Plans (CSOPs) and Share Incentive Plans (SIPs), comparing their features and suitability for startups.

What are CSOPs and SIPs?

Company Share Option Plans (CSOPs)

CSOPs allow companies to grant share options to employees at a fixed price. These options can be exercised after a set period, typically three to ten years, allowing employees to purchase shares at the grant price, even if the market value has increased.

Share Incentive Plans (SIPs)

SIPs are flexible schemes that allow companies to offer shares directly to employees, which can be held in a trust. There are four types of SIP shares: Free Shares, Partnership Shares, Matching Shares, and Dividend Shares. These shares can provide immediate ownership benefits to employees.

Benefits for Startups


Tax Efficiency

CSOPs are tax-efficient for employees, as there is no income tax or National Insurance contributions on the difference between the grant price and the market value at the time of exercise, provided certain conditions are met. Instead, employees will only pay Capital Gains Tax (CGT) on the profit when they sell the shares.

Employee Incentives

CSOPs can be an excellent way to reward key employees and align their interests with the company’s long-term success. Offering share options can help motivate employees to contribute to the growth and success of the startup.


CSOPs offer flexibility in terms of setting performance conditions and vesting periods. This means you can tailor the scheme to fit your startup’s specific goals and timelines.


Immediate Ownership

SIPs provide immediate ownership of shares to employees, which can boost their sense of belonging and commitment to the company. This immediate benefit can be a powerful motivator.

Tax Advantages

SIPs offer significant tax advantages. Employees can receive up to £3,600 worth of Free Shares each tax year without paying income tax or National Insurance. Additionally, employees can buy Partnership Shares out of pre-tax salary, receive Matching Shares from the company, and reinvest dividends in more shares, all with tax benefits.

Long-Term Engagement

SIPs can be designed to encourage long-term engagement. For example, shares held in the SIP trust for at least five years can be sold tax-free. This encourages employees to stay with the company longer to maximise their benefits.

Choosing the Right Scheme

Consider Your Goals

When choosing between CSOPs and SIPs, consider your startup’s goals. If you want to reward key employees with the potential for significant financial gain, CSOPs might be the right choice. If you aim to provide broader employee ownership and immediate benefits, SIPs could be more suitable.

Evaluate Your Workforce

Understand the preferences and needs of your employees. Some employees may prefer the potential for long-term gains through CSOPs, while others might value the immediate ownership and tax advantages of SIPs.

Compliance and Administration

Consider the compliance and administrative requirements of each scheme. CSOPs might be easier to manage for smaller groups of key employees, while SIPs, with their multiple types of shares, could require more extensive administration but offer broader employee participation.

👉 Ensure clear and accurate equity tracking with our Cap Table template!

By carefully evaluating CSOPs and SIPs, you can choose the scheme that best aligns with your startup’s goals and employee needs, fostering motivation and long-term growth.

Next, we’ll delve into “Save As You Earn (SAYE),” exploring how this scheme can benefit startups and their employees.  

Considering your employee share scheme options? We’re here to help you untangle the specifics. With expertise in financial strategy and a track record of supporting startups, our friendly UK team can provide you with the insights you need to make informed decisions. Book your free, no-obligation chat today!

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