In today’s dynamic and competitive employment market, attracting and retaining top talent is paramount to long-term success. Employee share schemes have emerged as powerful tools for insurance intermediaries looking to foster loyalty, reward exceptional performance, and align their teams’ interests with business growth. Two of the most effective and popular HMRC-approved share schemes are the Company Share Option Plan (CSOP) and the Enterprise Management Incentive (EMI).
Here, we explore the benefits of each scheme for insurance intermediaries, compare their key features, and highlight why the recent 2023 legislative changes have made CSOPs more attractive than before.
The benefits of CSOP and EMI Schemes for insurance intermediaries
Both CSOP and EMI schemes enable insurance intermediaries to offer employees the opportunity to acquire shares in the business in the future, often crystallising solely on an exit.
- Aligning interests: By giving employees a direct stake in company performance, both schemes encourage staff to think and act like owners, ultimately driving growth and innovation. However, by structuring awards as Options, rather than outright issuances of shares, tax points are deferred until the Options are ultimately exercised, where a liquidity event provides the funding to settle these amounts.
- Rewarding performance: Share options can be structured as rewards for meeting targets, exceptional service, or length of service, ensuring that the most valuable team members are recognised and retained. However, these objectives do need to be clearly defined at the outset for the taxation benefits of the schemes to be realised.
- Competitive edge: In a sector known for its mobility and poaching of skilled people, offering a share of the future upside can help secure key talent.
- Tax advantages: Both schemes offer substantial tax benefits to other unapproved option arrangements, reducing Income Tax and National Insurance contributions for employees, and often still allowing businesses to claim Corporation Tax relief.
CSOP vs EMI: comparing the two schemes
While both CSOP and EMI have much to offer, they are designed with different types of businesses and employees in mind, and their features reflect this.
- Eligibility: EMI schemes are aimed at smaller, high-growth companies and come with specific qualification criteria, including limits on gross assets (£30m) and the number of employees in the group. CSOPs, by contrast, are open to a broader range of companies — including larger and more established insurance intermediaries. EMIs would likely be blocked if there is an Insurance Carrier in the group, but this is not an issue under CSOP.
- Time limits: Under both schemes, tax benefits only arise on exercise if this occurs within ten years of Grant. With CSOP, Options may only be exercised and qualify for relief once held for three years; however, this limitation may not apply if the shares are immediately sold for cash in a takeover situation. There is no qualifying period for EMI.
- Option limits: Under EMI, employees can be granted options over shares worth up to £250,000 (including any options under CSOP), while the CSOP limit was historically lower but increased to £60,000 per employee (as of April 2023).
- Tax treatment: Both schemes provide tax-free gains on the increase in share value between grant and exercise (subject to meeting holding periods for CSOP). However, a CSOP based Option must be issued with an exercise price of at least Market Value (at date of Grant) – an EMI option can be granted at a lower value, although an Income Tax exposure would arise on that initial gain at the time of exercise.
Why CSOP schemes are more attractive since 2023
The landscape for employee share incentives shifted significantly with the 2023 legislative amendments to the CSOP regime. Most notably, the individual option limit was increased from £30,000 to £60,000, doubling the potential reward for employees. Until these changes, even when companies outgrew EMIs, the limits on CSOP meant that this value limitation made the scheme unattractive. This enhancement allows insurance intermediaries to offer more substantial incentives, making CSOPs a serious alternative to EMIs for many firms.
Moreover, the relaxation of certain restrictions around the types of shares that can be used has increased the scheme’s flexibility, making it easier to design plans that fit the unique specific needs of insurance intermediaries, especially those with complex share structures.
Finally, whilst the EMI Scheme provides “automatic” access to Business Asset Disposal Relief (BADR) (CSOP does not), changes to BADR itself mean that the value of this benefit has significantly reduced, with the applicable CGT rate of 10% increasing to 18%, compared to a main CGT rate of 24%. With BADR gains subject to a lifetime limit of £1m, this reduces the potential level of BADR benefit to £60,000, not the relief it once was.
Together, these changes mean that larger businesses — and those who may not qualify for EMI — can still offer highly attractive, tax-efficient share incentives to a wide base of employees. For insurance intermediaries, the modernised CSOP offers a compelling solution to the perennial challenge of attracting, motivating and retaining the very best talent.
Conclusion
For insurance intermediaries, the battle for talent is won not just with competitive salaries, but with meaningful incentives that inspire long-term engagement and a shared vision for success. EMIs remain preferable where an intermediary still qualifies for the scheme; but with recent enhancements, CSOPs now stand as a particularly attractive, accessible, and future-proof option for larger intermediaries who wish to build and retain teams.
For more information, please contact Chris Riley.
