CSOP: A tax-friendly way to retain talent

Growing your business is all about having a solid team.

First, you need to appeal to the best talent in the job market. You then need to build a business culture which keeps staff engaged, productive and happy. Once this is all in place, how can you ensure your employees will stick with you for the long term?

For organisations operating on tighter margins and who can’t promise pay rises or cash bonuses anytime soon, giving employees equity in the business is a good way to keep staff on board and to grow their career with you. CSOPs do just that.

CSOPs – or company share option plans – are flexible, tax-efficient, and authorised by the HMRC. But most importantly for your staff, they provide them the potential to make a profit down the line if your company performs well.

They give your employees the chance to have a real stake in the growth of your business.

What are CSOPs?

Simply put, CSOPs are share option schemes that allow UK companies to grant employees the option to purchase company shares at a predetermined price.

The price of the shares are set at the outset of the scheme by the company itself. Employees can then buy (exercise) the company's shares at this price in the future, regardless of their actual market value down the line.

This is great for staff.

If your company does well and its share price rises above the option price, employees can buy the shares at the cheaper, predetermined rate and make a profit when they sell them.

If they buy the shares 3-10 years after the grant date, they do not even need to pay any income tax or National Insurance.

Recipients only need to pay Capital Gains Tax (CGT) on the profits when they sell the shares (if the profit is more than CGT exemption at the time).

They are tax-friendly for employers too. The gains the employee makes on exercise are deductible from the company’s taxable profits. So, too, are any costs attributed to setting up and managing the CSOP itself.

A CSOP is a great tool for building closer alignment between your staff and the overall vision of the company.

It’s a big incentive for employees to stick around for years, rather than months, and to be invested in the long-term goals of the business.

Why is retaining talent so crucial?

John Hill, senior contributor at Forbes, points to a number of direct and indirect costs that businesses incur when staff leave.

In his article, The Cost Of Turnover Can Kill Your Business And Make Things Less Fun, he points to data found by Employee Benefit News, which puts the direct cost of replacing an employee at around 33% of their salary.

Going off average UK wages today, this would be around £12,000 per staff member that is lost.

These direct costs can be broken down into:

• Recruitment and advertising costs. 
• The costs of running interviews.
• Onboarding and training.

It’s easy to see how this adds up when we start looking at staff turnover benchmarks from the CIPD. Their data from 2022-2023 shows that three out of every 10 employees left to find work at another organisation during this time.

Digging down into their trends from specific industries, we can see even higher rates of churn. The hospitality sector, for instance, has an average turnover of more than 40%. 

Our C-Suite Churn Report 2025 looks at turnover among senior executives across FTSE100 companies. A key takeaway here is that leadership roles are particularly transient today, ue to factors such as “global economic uncertainty, rapid digital disruption, and shifting workplace cultures.” 

CMOs are at the extreme end of this – staying with their organisations for just 3.5 years, on average.

Aside from the direct impact on an organisation’s finances when it comes to replacing staff, employee turnover has indirect costs to businesses too. 

When an employee starts a new job, it can take 2-3 months for workers to get up to full productivity (again, according to Forbes). And when it comes to business culture, staff who see their colleagues leave, and then have to take on extra responsibilities and/or workload because of this, are more likely to see their own morale and productivity wane too.

How can CSOPs help with employee retention?

As we have seen, CSOPs can help build alignment between your employees and your vision for the business.

The goals of the organisation become that of the collective, rather than just the managers. If the business does well, everyone is rewarded.

The 3-10 year window to buy shares without having to pay income tax or National Insurance means there is real incentive for staff to stay with the organisation for at least this long.

They will be more engaged with their work – as well as with helping the business grow.

There’s a real hunger for schemes such as CSOPs among employees too.

We’ve found that a third of people working in the UK want their company to have a share scheme in place. We’ve also seen the rollout of share schemes grow by around 80% in the past decade.

Where CSOPs really help with retention, however, is when they are part of a full compensation and benefits package that reflects the needs of your staff.

According to Avado, 70% of employees say they are more likely to stay with a company that offers well-structured benefits packages.

CSOPs absolutely have a role to play here – in fostering better engagement and productivity, but improving overall business culture and financial wellness too.

This is what really builds a dedicated workforce that will stick with you for the long term.

Take the tax-efficient approach to better employee retention

If you are a UK business with employees on formal contracts, then you are already part of the way there.

With CSOPs (and unlike other share schemes such as EMIs) there are no working time requirements for employees. That said, if you want to offer them to directors, they do need to work at least 25 hours a week to take advantage.

As with any type of share scheme, there is other eligibility criteria too. If you need any help navigating this, or you’d like more information on CSOPs and others that might be available to you, that’s what we’re here for.

We want to simplify and demystify the process of providing your staff with equity in the organisation. So you can appeal to, and retain, the best talent around. And your team can concentrate on the collective goal of growing your business.

See how our platform lets you manage CSOPs seamlessly.