What is EMI2?
Enterprise Management Incentives 2, or EMI2, is the new name being used by the Government for the Company Share Option Plan (CSOP).
The Government announced the EMI2 name on 28 October 2026. Importantly, EMI2 is not a completely new employee share scheme. It is essentially CSOP rebadged and enhanced, with the underlying statutory scheme continuing to be called CSOP in the legislation. This is an important distinction. The existing CSOP legislation continues to provide the framework for EMI2, but significant improvements are intended to apply from 6 April 2027, including a doubling of the individual option limit, a longer option exercise period and removal of the present interaction between CSOP and EMI option limits.
The Government’s intention is that EMI and EMI2 should form a more coherent range of tax-advantaged employee share option arrangements, allowing businesses to select, or potentially combine, the schemes most appropriate to their circumstances.
Important: the changes described below are based on the Government announcements and HMRC guidance published following Budget 2026. The changes due to take effect from 6 April 2027 are to be legislated for in Finance Bill 2026-27. The final legislation should therefore be checked before options are granted in reliance on the new rules.
How will EMI2 work?
Under the rules applying before 6 April 2027, an individual can hold CSOP options over shares with a market value at grant of up to £60,000. From 6 April 2027, the Government has announced that this limit will double to £120,000.
The existing CSOP rules normally allow tax-advantaged exercise between three and ten years following grant, subject to provisions permitting earlier tax-advantaged exercise in specified circumstances.
From 6 April 2027, the maximum exercise period is intended to also increase from 10 years to 15 years for options granted on or after that date. Existing CSOP option agreements may also be capable of amendment to take advantage of the new 15-year maximum without losing their tax advantages, provided the amendment complies with the legislation.
Most significantly where EMI and EMI2 are being considered together, from 6 April 2027 EMI2 options will no longer count towards an employee’s separate EMI individual option limit. The Government describes this as allowing the two schemes to operate independently and is a very important and helpful change to the restrictions which may increase the usefulness of EMI2.
How is EMI2 different from EMI?
Despite the similarity in their names, EMI and EMI2 are different tax-advantaged option regimes.
EMI is specifically targeted at qualifying smaller and high-growth businesses. Following changes applying from 6 April 2026, an EMI qualifying company can have gross assets of up to £120 million and up to 500 employees, with the overall company limit on EMI options increased to £6 million. Certain business activities remain excluded from EMI. An individual employee can generally be granted EMI options over shares worth up to £250,000 in a three-year period, and the employee must satisfy EMI’s working-time requirement, broadly at least 25 hours a week or, if less, 75% of the employee’s total working time.
EMI2 does not have the same company size or qualifying trade restrictions. HMRC expressly describes EMI2 as being available to companies of all sizes and in all sectors. Consequently, EMI2 may be available where a company is too large for EMI, undertakes an activity which prevents it qualifying for EMI, or otherwise fails one of EMI’s company eligibility requirements.
From 6 April 2027, the principal individual EMI2 option limit is expected to be £120,000, compared with EMI’s £250,000 individual limit.
Importantly, EMI2 is much closer technically to CSOP than to EMI. That is because EMI2 is the existing CSOP scheme under a new name, rather than an extension of the existing EMI legislation. The statutory scheme will continue to be referred to as CSOP.
How is EMI2 different from EMI?
Despite the similarity in their names, EMI and EMI2 are different tax-advantaged option regimes.
EMI is specifically targeted at qualifying smaller and high-growth businesses. Following changes applying from 6 April 2026, an EMI qualifying company can have gross assets of up to £120 million and up to 500 employees, with the overall company limit on EMI options increased to £6 million. Certain business activities remain excluded from EMI. An individual employee can generally be granted EMI options over shares worth up to £250,000 in a three-year period, and the employee must satisfy EMI’s working-time requirement, broadly at least 25 hours a week or, if less, 75% of the employee’s total working time.
EMI2 does not have the same company size or qualifying trade restrictions. HMRC expressly describes EMI2 as being available to companies of all sizes and in all sectors. Consequently, EMI2 may be available where a company is too large for EMI, undertakes an activity which prevents it qualifying for EMI, or otherwise fails one of EMI’s company eligibility requirements.
From 6 April 2027, the principal individual EMI2 option limit is expected to be £120,000, compared with EMI’s £250,000 individual limit.
Importantly, EMI2 is much closer technically to CSOP than to EMI. That is because EMI2 is the existing CSOP scheme under a new name, rather than an extension of the existing EMI legislation. The statutory scheme will continue to be referred to as CSOP.
EMI or EMI2: which might be appropriate?
Where a company qualifies for EMI and the relevant employees can satisfy the EMI requirements, EMI is likely to remain an extremely attractive starting point. The £250,000 individual option limit is substantially higher than EMI2’s proposed £120,000 limit. EMI was specifically designed to allow qualifying growth companies to offer meaningful equity incentives to key employees.
EMI2 becomes particularly relevant where EMI is unavailable. For example, a company may exceed EMI’s £120 million gross assets limit, have more than 500 employees, or conduct activities which are excluded from EMI. In those circumstances, EMI2 could potentially provide access to tax-advantaged employee share options despite EMI being unavailable.
It could therefore be particularly useful to a business which has successfully used EMI during its growth but subsequently outgrows EMI eligibility. HMRC specifically identifies this as one of the intended uses of EMI2.
EMI2 may also have attractions for established businesses which would never previously have considered EMI because of their size or business activities.
Can a company use EMI and EMI2 together?
Potentially, yes. In fact, this is one of the most interesting aspects of the changes announced for April 2027.
Under the present rules, there is an interaction between the CSOP and EMI individual option limits.
From 6 April 2027, the Government intends to remove that interaction entirely. Employees will be able to receive EMI2 options without those options affecting their EMI option limit, including existing EMI options. This creates the possibility of using EMI and EMI2 alongside each other, rather than viewing EMI2 solely as an alternative for companies which cannot use EMI.
For a qualifying company, for example, EMI could potentially be used as the principal incentive for key employees, with EMI2 providing additional flexibility where further tax-advantaged options are appropriate.
Equally, the two schemes could potentially be used for different groups of employees where their respective eligibility conditions make that commercially appropriate. This should allow businesses and advisers to take a more considered approach to the design of employee equity incentives rather than automatically selecting a single scheme for all participants. The precise structure would need to take account of the final legislation, the detailed conditions applying to each scheme, share valuation and the commercial rights attaching to the relevant shares.
Could EMI2 be used on a standalone basis?
Yes.
There is no requirement for a company to operate EMI before it can use EMI2. HMRC describes EMI2 as being available to companies of all sizes and sectors and specifically envisages its use by companies whose activities prevent EMI qualification, or which have grown beyond EMI eligibility.
A standalone EMI2 arrangement could therefore be attractive where a business:
- does not satisfy the EMI company eligibility requirements;
- carries on an activity which prevents EMI qualification;
- has grown beyond the EMI size limits;
- wants a discretionary tax-advantaged option arrangement for selected employees; or
- considers the CSOP/EMI2 framework more appropriate to its particular remuneration strategy.
For businesses which have historically regarded tax-advantaged share options as unavailable because they could not qualify for EMI, the enhanced EMI2 regime may therefore be worth revisiting.
What are the tax advantages of EMI2?
Because EMI2 is based upon the existing CSOP regime, qualifying options can benefit from the existing CSOP tax treatment.
There is normally no Income Tax or National Insurance contribution liability when a qualifying option is granted. Provided the statutory requirements are met, there is also normally no Income Tax or National Insurance charge on the increase in value of the shares between grant and qualifying exercise. Capital Gains Tax may then apply when the employee ultimately disposes of the shares.
This can make EMI2 materially more tax-efficient than a non-tax-advantaged share option under which the increase in value between grant and exercise might instead be subject to Income Tax and, depending upon the circumstances, National Insurance contributions. The actual tax treatment will depend upon the terms of the option, the circumstances of its exercise and whether the statutory requirements continue to be satisfied.
EMI2 from 6 April 2027
Subject to enactment of the proposed legislation, the principal EMI2 changes from 6 April 2027 are expected to be:
EMI2 from 6 April 2027 |
Individual option limit |
£120,000 |
|---|---|
Maximum option period |
15 years |
Company size limit |
None under the CSOP/EMI2 regime |
EMI qualifying trade requirement |
No |
Can operate alongside EMI |
Yes |
EMI2 options count towards £250,000 EMI limit |
No |
The £120,000 limit, 15-year maximum and removal of the interaction with EMI have all been announced by the Government for 6 April 2027.
However, businesses contemplating grants under the enhanced EMI2 rules should wait for and review the final Finance Act provisions before relying upon them, particularly where arrangements are being designed now for implementation immediately after 5 April 2027. The Government’s published material states that the changes are to be included in Finance Bill 2026-27.
Designing an EMI2 share option arrangement
The introduction of EMI2 does not mean that it will automatically be preferable to EMI.
For companies which qualify for EMI, the starting point should generally be to consider EMI first and then whether EMI2 could usefully supplement it. For companies which cannot qualify for EMI, EMI2 can instead be considered as a standalone tax-advantaged employee share option arrangement.
The appropriate approach will depend upon the company’s size and activities, the employees to be incentivised, the value and class of shares to be placed under option, the level of participation required and the company’s intended exit or succession strategy.
For unquoted companies, the valuation of the option shares will also remain particularly important because the relevant individual option limits are measured by reference to share value when options are granted.
Who can help?
The UHY Ross Brooke tax team can assist businesses with assessing whether EMI, EMI2 or a combination of the two is appropriate, as well as share valuation, scheme design, option terms, implementation and the associated HMRC Employment Related Securities requirements.
If you would like to discuss EMI2, EMI or another form of employee share incentive arrangement, please contact Phil Kinzett-Evans or a member of the UHY Ross Brooke tax team
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