EMI options got twice as big this April. The paperwork that voids them did not change.

Share options are how a startup pays people it could not otherwise afford. A senior engineer taking £20,000 below market rate is lending you that money at no interest, and options are the only instrument most early companies have to pay it back.

The Enterprise Management Incentive is the scheme that makes those options worth having, because it is the difference between a leaver paying capital gains tax on a sale and a leaver paying income tax and National Insurance on a gain they cannot yet spend. On 6 April 2026 the scheme got materially bigger. The administration that voids it if you get it wrong stayed exactly as unforgiving as it was.

What changed on 6 April 2026

Four of the qualifying limits moved, and all four moved upwards.

• The total unrestricted market value of options a company may have outstanding rose from £3 million to £6 million.
• The gross assets test rose from £30 million or less to £120 million or less.
• The employee limit rose from fewer than 250 full-time equivalents to fewer than 500.
• The maximum exercise period rose from 10 years to 15 years from the date of grant.

Three of those four apply only to options granted on or after 6 April 2026. The exercise period is the exception: existing option contracts can be amended to run to 15 years without losing their tax advantages, which matters to any company that granted in 2016 or 2017 and is watching a ten-year clock run down on options nobody has been able to exercise because there has been no exit.

One carve-out. A company registered in Northern Ireland that trades in goods or in the provision of electricity keeps the old limits and the old exercise period, because of the UK's subsidy control commitments. If that describes you, plan against £3 million and ten years.

What did not change

The £250,000 individual limit is untouched. One employee can hold EMI options over shares worth up to £250,000 at the date of grant, measured on unrestricted market value, and any Company Share Option Plan options they hold count towards the same £250,000. There is also a rolling three-year rule: once an employee has been granted £250,000 of EMI options, no further EMI grant can be made to them for three years, even if some have been exercised or have lapsed.

The company still has to be independent, carry on a qualifying trade with a UK permanent establishment, and not be under the control of another company. Several trades are excluded outright, including property development, financial activities, legal and accountancy services, leasing and farming. For most software, hardware, consumer and services startups this is a non-issue, but it is worth reading the excluded-activities list once rather than discovering it at diligence.

Who can hold the options

An eligible employee must work for the company for at least 25 hours a week, or, if they work less, at least 75% of their total working time must be for the company or group. The test is based on average working time, so it accommodates flexible hours, but it genuinely excludes the advisor doing one day a month and the fractional CTO who has three other clients. Those people can still be given options; they just cannot be given EMI options, and the tax treatment is the one described below under "unapproved".

An employee with a material interest — more than 30% of the ordinary share capital — is not eligible. That rules out most founders, which is the single most common surprise in a first EMI conversation.

Why it is worth the paperwork: a worked example

The figures below are illustrative, but the rates are the real 2026/27 ones.

Maya is employee number six at a seed-stage B2B software company. In June 2026 she is granted EMI options over 20,000 shares. HMRC agrees an actual market value of £1.00 a share, and the option is granted with an exercise price of £1.00 — no discount. Unrestricted market value is £1.25, so the grant uses £25,000 of her £250,000 headroom. Her salary is £55,000.

Four years later the company is sold at £9.00 a share. Maya exercises and sells: proceeds £180,000, cost £20,000, so a gain of £160,000.

With EMI

• Nothing is taxed at grant. Nothing is taxed at exercise, because the exercise price was not less than the agreed market value at grant.
• The whole £160,000 is a capital gain. The annual exempt amount is £3,000, leaving £157,000.
• Business Asset Disposal Relief applies: the options were granted more than two years before the disposal, and she was an employee throughout. EMI shares do not have to meet the usual 5% personal company test.
• BADR is charged at 18% for disposals on or after 6 April 2026, against a £1 million lifetime limit. Tax: £157,000 × 18% = £28,260.

Without EMI — the same options, unapproved

• At exercise, the £160,000 difference between market value and what she paid is employment income. Shares in a company that is being sold are readily convertible assets, so it goes through payroll with PAYE and National Insurance.
• Stacked on her £55,000 salary, that £160,000 is taxed partly at 40% and mostly at 45%, and it wipes out her personal allowance entirely. The extra income tax is £73,521.
• Employee National Insurance at 2% on £160,000 adds £3,200. Total: £76,721.
• Employer National Insurance at 15% is another £24,000, and it is standard practice for unapproved option agreements to transfer that liability to the option holder by joint election. If it is transferred, Maya's bill is £100,721.
• There is then no capital gain on the immediate sale, because her base cost has been uplifted to £180,000.

Same shares, same price, same exit. £28,260 against £76,721 — or against £100,721 if the employer's National Insurance has been passed down the agreement, which is a difference of £72,461 on a single employee's options.

The company is not worse off for using EMI, either. In both cases it gets a corporation tax deduction equal to the employee's gain at exercise: £160,000, worth £40,000 at the 25% main rate.

The two deadlines that quietly destroy the relief

EMI is not lost by companies that fail the qualifying tests. It is overwhelmingly lost by companies that qualified perfectly well and missed a filing.

1. The valuation expires after 90 days

You do not have to agree a share valuation with HMRC before granting EMI options, but you should, because the agreed actual market value is what protects the employee from an income tax charge at exercise. An HMRC valuation agreement letter is valid for 90 days, and only for as long as nothing material changes in the company's circumstances in the meantime. Close a funding round inside that window and the valuation is gone.

The practical failure is a company that gets a valuation agreed in February, spends four months negotiating option terms with a lawyer, and grants in July against a letter that expired in May. Get the valuation when the paperwork is nearly finished, not when the idea is first raised.

2. The notification deadline is 6 July after the tax year of grant

Every EMI grant must be notified to HMRC through the Employment Related Securities online service. The deadline is 6 July following the end of the tax year in which the option was granted — so options granted at any point in 2026/27 must be notified by 6 July 2027. Miss it and the option is not a qualifying EMI option, and the whole tax treatment set out above collapses into the unapproved column.

Two things trip companies up here. The scheme has to be registered on the ERS service before any notification can be made, and registration is not instant. And a separate annual ERS return is due by 6 July every year for every live scheme, including nil returns for years in which nothing happened. Late annual returns attract automatic penalties starting at £100.

Disqualifying events and the 90-day rule

Certain events stop an option qualifying from the date they happen. The common ones are the company ceasing to meet the independence or trading tests, a change of control, and an employee dropping below the working-time requirement. Once a disqualifying event occurs, the employee has 90 days to exercise with the tax advantages preserved. Exercise on day 91 and the growth in value since the disqualifying event is taxed as employment income.

A change of control on an acquisition is the version that matters most, and it is normally handled inside the deal timetable. Someone going part-time to two days a week is the version nobody notices until an exit, four years later, when it is far too late to fix.

What to do this month

1. If you granted options in 2025/26, confirm every one of them was notified by 6 July 2026, and check your annual ERS return for the year was filed on the same date.
2. If you have options granted in 2016 or 2017 approaching a ten-year expiry, look at amending the contracts to the new 15-year period before anyone's options lapse unexercised.
3. List every current option holder against the 25 hours or 75% working-time test. Anyone who has gone part-time since grant needs a conversation now, not at exit.
4. If you are close to the old £3 million ceiling and had capped your pool because of it, re-model the pool against £6 million before your next hiring round.
5. Check whether your last funding round pushed gross assets over £30 million. If it did and you stopped granting EMI for that reason, you are almost certainly eligible again.
6. Before the next grant, get the HMRC valuation agreed and then diarise the grant date inside the 90-day window — and put 6 July in the calendar as a standing annual task.

Where we help

We handle the parts of EMI that companies lose the relief on: agreeing the valuation with HMRC, registering the scheme, notifying grants inside the deadline, and filing the annual return so the £100 penalties never start. We also model what a grant is actually worth to the person receiving it, which is the conversation that makes an option offer land. If you are weighing options against cash, our post on the real cost of a first hire covers the other half of the equation, and SEIS and EIS covers the investor side of the same cap table. Fixed fees from £49 + VAT a month. Get started.