EMI — Enterprise Management Incentives — is the most tax-efficient way a UK company can give employees a stake in its growth. Options are granted over shares at today's value; if the company takes off, the employee exercises and sells, pays no income tax or National Insurance on the growth, and is taxed at capital gains rates instead — often the 18% Business Asset Disposal Relief rate. For the company, the scheme usually generates a corporation tax deduction at exercise. No other UK share scheme combines those outcomes.
And from 6 April 2026, far more companies qualify than most founders realise: the eligibility limits were roughly quadrupled, deliberately opening EMI to scale-ups that had outgrown it.
Who qualifies now
The company tests, following the April 2026 expansion:
- Gross assets: up to £120 million (previously £30 million)
- Headcount: fewer than 500 full-time equivalent employees (previously 250)
- Total unexercised EMI options: up to £6 million (previously £3 million)
- Option life: up to 15 years (previously 10 — and existing options can be amended to the longer life without losing EMI status)
The company must be independent (not a 51% subsidiary), have a UK permanent establishment, and carry on a qualifying trade — banking, farming, property development, legal services and shipbuilding are among the excluded activities, per HMRC's rules.
On the employee side: each option holder can hold up to £250,000 of options, measured at grant-date share value, over any three-year period, and must work for the company at least 25 hours a week or 75% of their working time (the old signed working-time declaration was abolished in 2023, but the underlying test lives on). It matters after grant too: an employee whose hours fall so that neither limb is met has had a disqualifying event whether anyone noticed or not — a day a week can still qualify, but only where it genuinely represents three-quarters of their total working time. A material-interest check runs alongside: employees already holding (with associates) more than 30% of the company are outside EMI.
If you were told a few years ago that your company was too big for EMI, that answer may simply be out of date. A scale-up with £80 million of assets and 400 staff was excluded in 2025 and qualifies today.
How the tax works
Nothing happens at grant. At exercise, provided the exercise price is at least the shares' market value when the option was granted, there is no income tax and no NIC — the entire gain since grant has been moved out of employment income. Grant options at a discount and the discount (not the growth) is taxed as employment income at exercise; everything above grant-date value still escapes.
At sale, the employee pays CGT. Here EMI carries a quiet superpower: Business Asset Disposal Relief normally demands a 5% shareholding, which excludes almost every employee option holder — but EMI shares qualify without the 5% test, provided the option was granted at least two years before disposal and the holder remains an employee or officer of the (trading) company through that period. BADR now means 18% (the rate rose from 14% on 6 April 2026, having been 10% as recently as 2024/25), against a main CGT rate of 24%. On a £500,000 gain that difference is £30,000, for the price of granting options two years early. Start the clock sooner rather than later.
The company, meanwhile, generally receives a corporation tax deduction at exercise equal to the employees' gain — a substantial real-cash saving in an exit year that founders routinely forget to model.
Valuation: agree it with HMRC first
Because the whole structure keys off market value at grant, serious schemes agree the valuation with HMRC in advance using form VAL231. HMRC will typically accept a well-argued discounted value for a minority stake in a private company — often dramatically below the last funding round's headline price, since preference stacks and illiquidity are real. A lower agreed value means a lower exercise price and more upside inside the tax wrapper. The agreement holds for 90 days, so line the valuation up with the grant, not months ahead of it.
Disqualifying events and other ways schemes quietly die
EMI status is fragile in specific, well-mapped ways. A disqualifying event — the company being acquired, the trade changing into an excluded activity, the employee's hours falling below the working-time test — starts a 90-day clock: exercise within it and the EMI treatment is preserved; sit on the option and growth after the event falls back into income tax.
The other classic failures are administrative. Options granted over the wrong share class, board authorisations missing, the £250,000 or company-level limits breached by a later grant — these surface in exit due diligence, years too late, as price chips against the sellers. An annual scheme health check against the ERS return costs almost nothing by comparison.
On filing: EMI grants must currently be notified to HMRC by 6 July following the tax year of grant. From April 2027, per HMRC's ERS Bulletin 65, separate grant notification is abolished and grants simply go on the annual employment-related securities return — one less trap, but the annual return itself remains mandatory, nil or not.
If EMI doesn't fit
Companies outside the limits or in excluded trades usually look at a CSOP (up to £60,000 per employee, tax-advantaged but stricter on option pricing), growth shares (a fresh share class participating only above a hurdle value), or unapproved options (flexible, but the gain is income-taxed at exercise). Each has its place; none matches EMI's headline economics, which is why checking EMI eligibility properly — especially under the new limits — comes first.
Setting a scheme up well
A good EMI implementation is a short project with a long tail: eligibility confirmed, valuation agreed, plan rules and grant documents that match the cap table, notifications filed, and then a light annual routine of ERS returns and eligibility checks. Done in that order, it is one of the highest-value pieces of planning a growth company can buy. Done from a template at midnight before a funding round, it is a due-diligence finding in waiting.
Acumon advises on scheme design, HMRC valuations and ongoing compliance — start with our tax planning team, or the valuations page if the sticking point is what the shares are worth. And if an exit is what the options are for, our selling your business guide covers the other side of that journey.