Enterprise Management Incentives (EMI)

What is an EMI share scheme?

Enterprise Management Incentives (EMI) are a tax-advantaged share option arrangement designed to help growing companies recruit, retain and motivate key employees.

An EMI option gives an employee the right to acquire shares in the company at a future date, usually at a price fixed when the option is granted. This can give employees a meaningful stake in the future growth of the business without requiring them to buy shares immediately.

EMI is particularly attractive because, where the statutory conditions are met, employees can benefit from generous tax treatment while the company may obtain a corporation tax deduction when the options are exercised.

Which companies can qualify?

EMI is available to independent trading companies carrying on qualifying activities. Certain activities are excluded, and there are detailed requirements concerning the company’s independence, subsidiaries and trading activities.

For EMI options granted on or after 6 April 2026, the principal company limits have been significantly increased. Broadly, a qualifying company or group can now have:

• gross assets of up to £120 million; and
• fewer than 500 employees.

The total value of shares under unexercised EMI options can be up to £6 million. These increases, from the former £30 million gross-assets, 250-employee and £3 million option limits, considerably widen the range of businesses able to use EMI post 6 April 2026.

The rules are different for certain Northern Ireland companies, so advice should be taken where those provisions may apply. Finance Act 2026 EMI provisions contains the statutory amendments.

Who can receive EMI options?

A company can select which employees receive options and can make awards subject to appropriate performance, service or exit conditions.

To qualify, an employee must generally work for the company for at least 25 hours each week or, if less, at least 75% of their total working time. An employee with a material interest in the company, broadly more than 30%, will not normally qualify.

An individual can hold EMI options over shares with a value of up to £250,000, measured at the time the options are granted. HMRC EMI guidance confirms the current £250,000 employee limit and working-time requirement.

How are EMI options taxed?

One of the main attractions of EMI is its favourable tax treatment.

Normally, there is no Income Tax or National Insurance contribution charge when a qualifying EMI option is granted.

If the exercise price is at least equal to the shares’ market value at the date the option was granted, there will also normally be no Income Tax or National Insurance liability when the option is exercised. If the option was granted at a discount to market value, an Income Tax charge can arise on the amount of that original discount.
When the employee ultimately sells the shares, any increase in value is generally subject to Capital Gains Tax rather than Income Tax, assuming the EMI conditions have been satisfied.

In appropriate circumstances, Business Asset Disposal Relief (BADR) may also be available. The EMI rules contain important relaxations compared with the normal BADR conditions, including the treatment of the period for which the qualifying option has been held. Whether BADR is available should, however, be checked against the employee’s circumstances and the legislation applying when the shares are sold.

The company may also be entitled to a corporation tax deduction when EMI options are exercised, broadly by reference to the difference between the market value of the shares acquired and the amount paid by the employee.

Valuing the shares

For private companies, establishing an appropriate market value for the shares is an important part of implementing an EMI scheme.

It is normally advisable to agree the valuation with HMRC before options are granted. This provides greater certainty over the tax treatment and can be particularly important where options are being granted at market value.

Different classes of shares can be used, and the rights attaching to the EMI shares can be structured to reflect the commercial objectives of the shareholders, provided the statutory EMI requirements are satisfied.

Building EMI around your commercial objectives

An EMI arrangement does not need to give employees an immediate unrestricted shareholding. Options can be structured so that they become exercisable after a period of service, when performance targets are achieved, or on the sale of the company.

For many owner-managed and growth businesses, exit-only EMI options can be particularly useful. Employees participate in the value created when the business is sold without becoming shareholders significantly in advance of an exit.
Careful drafting of the option agreement and the company’s Articles is important, particularly where there are leaver provisions, performance conditions, different share classes or restrictions on employee shares.

How long can EMI options last?

For options granted on or after 6 April 2026, the maximum EMI option period has increased from 10 years to 15 years for most qualifying companies.
The 15-year period can also apply to certain existing EMI options that had not already been exercised or expired, and qualifying existing contracts can be amended accordingly without losing EMI tax advantages. HMRC’s 2026 EMI policy paper confirms the extension and its potential application to existing options.

Setting up an EMI scheme

A successful EMI arrangement involves more than simply preparing an option agreement. Typically, we will consider:

• whether the company and proposed employees qualify;
• the appropriate share class and option terms;
• the value of the shares and, where appropriate, agreeing that value with HMRC;
• the commercial conditions attaching to the options;
• the company’s Articles and shareholder arrangements;
• the tax consequences for both the company and employees; and
• the required HMRC notifications and ongoing reporting.

Getting these points right at the outset is important. Changes in the company’s activities, employee working arrangements, corporate transactions or amendments to option terms can affect the tax treatment.

How UHY Ross Brooke can help

Our tax team can advise on the design and implementation of EMI arrangements from the initial planning stage through to exercise or an eventual company sale.

We can help determine whether EMI is suitable, value the shares and seek HMRC agreement where appropriate, work with your lawyers on the option documentation, advise on the tax consequences for the company and employees and assist with the relevant HMRC compliance requirements.

Where EMI is not available, we can also advise on alternative ways of providing employees with an equity incentive.

If you are considering an EMI scheme, or already have EMI options in place and are planning a transaction, speak to Phil Kinzett-Evans or a member of our tax team to discuss the options.