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EMI share option schemes set up, valued with HMRC and kept up to date every year.

Enterprise Management Incentive (EMI) options let a startup give staff a share of the company in place of salary it cannot afford yet. A missed deadline can turn those options into a tax bill for your staff. The scheme’s limits rose sharply on 6 April 2026.

Talk to us about EMIHow EMI options are taxed
We set up Enterprise Management Incentive schemes for UK startups: checking the company and employees qualify, agreeing the share valuation with HMRC, drafting and granting the options, notifying HMRC inside the deadline, and filing the annual return every year afterwards.

EMI exists because early-stage companies cannot pay what good people are worth, and it is the most generous share scheme in the UK tax system. When it is set up correctly, an employee pays no income tax on the grant, nothing on exercise if the price was set at market value, and capital gains tax when they eventually sell.

When it is not, the same options become unapproved, with income tax and possibly National Insurance on exercise, on a gain the employee cannot yet turn into cash. The usual cause is a valuation that was not agreed or a notification that went in late.

On 6 April 2026 the company limit on options went from £3 million to £6 million, the gross assets limit from £30 million to £120 million, the employee cap from 250 to 500, and the exercise window from 10 years to 15 (HMRC EMI guidance). Companies that had grown out of EMI, or were about to, should look again.

EMI qualifying conditions from April 2026

Source: HMRC EMI guidance.
ConditionBefore 6 April 2026Now
Company options£3 million£6 million
Company gross assets£30 million£120 million
Employeesfewer than 250fewer than 500
Maximum exercise period10 years15 years
Options per employee£250,000 over 3 years£250,000, unchanged
Working time25 hours a week or 75% of working timeunchanged
The three dates

Three dates decide whether a scheme works. An HMRC-agreed valuation lasts 90 days. Each grant must be notified by 6 July following the tax year of grant. The annual return is due every 6 July after that, including a nil return in a quiet year. If the notification is missed, the options are no longer EMI options, and the employee pays income tax on exercise instead of capital gains tax on sale, on a gain they cannot yet turn into cash.

How we set up an EMI scheme

  1. 1
    Check the company and the people qualify

    We check the company's trade, assets, independence and headcount, and the hours and existing shareholdings of each person you want to include. A problem found now costs less to deal with than one found after options have been promised in an offer letter.

  2. 2
    Agree the valuation with HMRC

    We prepare and submit the valuation and deal with the queries. An agreed value is what protects your employees’ tax treatment. It lasts 90 days, so we time it to match the grants (HMRC share scheme valuations).

  3. 3
    Draft the scheme and the option agreements

    We agree the vesting, what happens when someone leaves, whether options can be exercised at any time or only on an exit, and the exercise window, which can now be up to 15 years. These are commercial decisions with tax consequences, so we make them with you.

  4. 4
    Notify HMRC inside the deadline

    Notification is due by 6 July following the end of the tax year of grant. If it is missed, the options are no longer EMI options.

  5. 5
    File the annual return, every year

    The return is due by 6 July each year, including a nil return in a quiet year. We keep the scheme registered and the returns filed so that it does not build up penalties.

EMI scheme prices

Us

Everything in one price

  • £2,950 + VAT to set the scheme up
  • The HMRC-agreed valuation included in the set-up fee
  • £295 + VAT for the annual return
  • Quoted in writing before we start

Commonly charged elsewhere

Published prices from other UK providers, September 2026

  • £2,000 to £6,500 + VAT to set the scheme up
  • £1,200 to £3,950 + VAT for the valuation, charged separately
  • £155 to £500 + VAT for the annual return
  • A lower set-up fee can cost more in total once the valuation is added

Does your company qualify?

To grant EMI options, your company must broadly:

  • Be an independent trading company that is not controlled by another company
  • Have fewer than 500 full-time-equivalent employees
  • Have gross assets of £120m or less
  • Carry on a qualifying trade (most trades qualify, but some are excluded, such as banking, property development, farming and legal or accountancy services)

The options themselves are limited to £250,000 per employee in any three-year period, measured by the value of the shares at grant, and £6m across the whole company. Options keep their tax advantages if they are exercised within 15 years of being granted. A company with its registered office in Northern Ireland whose trade involves goods or electricity keeps the older limits of fewer than 250 employees, £30m of gross assets, £3m of options and 10 years to exercise.

Check the full list of excluded trades before you promise anyone EMI options, particularly if the company works in property, finance, or legal or accountancy services. Options granted by a company whose trade is excluded do not qualify for EMI.

Do your employees qualify?

EMI options can only be granted to employees. To hold them, a person must:

  • Work for the company (or a qualifying subsidiary) for at least 25 hours a week, or if less, at least 75% of their total working time
  • Not hold more than 30% of the company's shares already

The working-time test means EMI suits full-time employees, including a founding team's first hires. A freelance developer is not an employee, and someone who works for you two days a week alongside another job is unlikely to meet the test.

How EMI options are taxed

This is how an EMI option is taxed at each stage.

  • At grant: no income tax or National Insurance.
  • At exercise: no income tax or National Insurance if the exercise price is at least the market value the shares had when the option was granted. If the option was granted at a discount, income tax is due on the difference between what the employee pays and what the shares were worth at grant, with National Insurance as well if the shares can easily be sold.
  • On sale: any gain is taxed as a capital gain. It often qualifies for Business Asset Disposal Relief, which taxes gains at 18% on sales from 6 April 2026, as long as the option was granted at least two years before the sale. Without the relief, Capital Gains Tax is 18% on gains that fall within the basic rate band and 24% above it.

A cash bonus is taxed as income, at 20%, 40% or 45% in England, Wales and Northern Ireland, plus National Insurance for both the employee and the employer.

In this illustrative example, an employee is granted options over shares worth £10,000, with an exercise price of £10,000. Three years later the company is sold and the shares are worth £110,000. The employee exercises the options, paying £10,000, and sells the shares for £110,000, a gain of £100,000. If the gain qualifies for Business Asset Disposal Relief, the tax is £17,460, which is 18% of £97,000 (the £100,000 gain less the £3,000 annual tax-free allowance for 2026/27). Paid instead as a £100,000 bonus to a higher-rate taxpayer, the same amount would cost the employee at least £42,000 in income tax at 40% and National Insurance at 2%.

Worked example: EMI options compared with unapproved options

The figures below are illustrative. The tax rates are those for 2026/27.

Maya is employee number six at a seed-stage company selling software to businesses. 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 exercise price is also £1.00, so there is no discount. The unrestricted market value is £1.25 a share, so the grant uses £25,000 of her £250,000 limit. 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

  • There is no tax when the option is granted, and none when it is exercised, because the exercise price was at least the agreed market value at the date of grant.
  • The whole £160,000 is a capital gain. The annual exempt amount is £3,000, leaving £157,000.
  • Business Asset Disposal Relief applies, because the options were granted more than two years before the sale and she was an employee throughout. EMI shares do not have to meet the usual requirement to hold at least 5% of the company.
  • The relief gives a rate of 18% for disposals on or after 6 April 2026, up to 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 can be turned into cash straight away (they are readily convertible assets), so the income goes through payroll with PAYE and National Insurance.
  • Added to her £55,000 salary, the £160,000 is taxed partly at 40% and mostly at 45%, and she loses her personal allowance. The extra income tax is £73,521.
  • Employee National Insurance at 2% on £160,000 adds £3,200. Total: £76,721.
  • Employer's National Insurance at 15% is another £24,000. Unapproved option agreements commonly pass this to the option holder through a joint election, and if it is passed to her, Maya's bill is £100,721.
  • There is then no capital gain on the immediate sale, because the £160,000 taxed as income is added to her base cost, making it £180,000.

On the same shares and the same sale, Maya pays £28,260 with EMI and £76,721 without it. If the employer's National Insurance has been passed to her, she pays £100,721 without EMI, which is £72,461 more than with it.

The company gets the same corporation tax deduction in both cases, equal to the employee's gain at exercise of £160,000, which is worth £40,000 at the 25% main rate.

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. If the option is exercised later than that, the growth in value since the disqualifying event is taxed as employment income.

A change of control when the company is bought is normally dealt with in the sale timetable. An employee who cuts their hours to two days a week is easier to miss, and if nobody notices until a sale several years later, the 90 days will long have passed.

How funded startups use EMI

For a company that has raised money or is about to, EMI helps it hire senior people it could not afford on salary alone, and it ties the team's reward to the sale or growth that investors are looking for. Options only pay out if the company does well, and granting them uses no cash. A pool of shares set aside for options is common in venture-backed UK startups, and investors often expect to see one.

Raising money, hiring and granting share options often happen at the same time. Our pages on SEIS and EIS and your first hire and payroll cover the other two.

Before you grant options

  • Options granted before the April 2026 changes can often have the 15-year window applied retrospectively, so check this if your earliest grants are nearing ten years old
  • A Northern Ireland company whose trade involves goods or electricity is a “specified company”. It keeps the old limits (£30 million of gross assets, fewer than 250 employees, £3 million of options) and the 10-year window, and cannot use the retrospective extension
  • EMI shares are treated differently from ordinary holdings when it comes to Business Asset Disposal Relief on an eventual sale, so plan for it when the options are granted, because it cannot be fixed at exit
  • A raise changes your share value, so the valuation and the timing of grants need planning around a funding round
Talk to us about EMIHow share structures work

EMI questions

What changed for EMI on 6 April 2026?

The company limit on options rose from £3 million to £6 million, the gross assets limit from £30 million to £120 million, the employee limit from 250 to 500, and the maximum exercise period from 10 years to 15. The individual limit stayed at £250,000 of options per employee over any three-year period.

Can we extend our existing options to 15 years?

Often yes. The longer window can apply to live, unexercised options, provided the option is exercised on or after 6 April 2026 and, for fixed-date options, the written amendment is made in time. If your early grants are approaching their tenth anniversary, look at this before they lapse.

How much does an EMI scheme cost?

Setting up a scheme costs £2,950 + VAT, which includes the share valuation agreed with HMRC. After that, the annual return is £295 + VAT a year. We confirm the price in writing before we start.

Do we need HMRC to agree the share valuation?

It is not a legal requirement, but we recommend it. An agreed valuation gives you certainty that the exercise price was right, which is what protects the tax treatment for your employees. Agreed valuations are only valid for 90 days, so the valuation has to be timed to match the grants.

What is the deadline for telling HMRC about a grant?

For options granted from 6 April 2024, notification is due by 6 July following the end of the tax year in which they were granted. If it is missed, the options do not qualify as EMI options. They become unapproved options, with income tax and potentially National Insurance on exercise instead of capital gains treatment on sale.

Does an employee have to work full time?

They must work at least 25 hours a week for the company, or if less, at least 75% of their total working time. The second test means some people who work part time can qualify.

Are Northern Ireland companies treated differently?

Some are. A “specified company” — one with its registered office in Northern Ireland whose trade involves goods, or the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity — keeps the old limits: £30 million of gross assets, fewer than 250 employees, £3 million of options across the company and a 10-year exercise window. It cannot use the retrospective extension either. If that is you, plan against the old numbers.

What do we have to do every year?

Register the scheme and file an annual employment-related securities return by 6 July, including a nil return in a year where nothing happened. A missed return leads to penalties, even for a scheme that had no activity at all.

How much tax does an employee pay on EMI shares?

No tax is due at grant, or at exercise provided the exercise price was at least the agreed market value at grant. Capital gains tax is due on the eventual sale. Where Business Asset Disposal Relief (BADR) applies, the rate is 18% for disposals on or after 6 April 2026, against a £1 million lifetime limit, after the £3,000 annual exempt amount. EMI shares qualify for BADR without meeting the usual 5% personal company test, provided the disposal is at least two years after the option was granted and the holder was an employee or officer throughout that period.

Can founders be given EMI options?

Usually not. Anyone with a material interest in the company, meaning more than 30% of the ordinary share capital, is not an eligible employee, which rules out most founders at seed stage. Founders normally hold ordinary shares from incorporation, which they already own outright. A founder whose holding has been diluted to 30% or less and who still works at least 25 hours a week, or 75% of their working time, for the company can be granted EMI options.

What happens if an employee goes part-time after being granted EMI options?

Dropping below 25 hours a week, or below 75% of their total working time for the company, is a disqualifying event. The employee then has 90 days to exercise with the tax treatment preserved. If they exercise later, the growth in value from the date of the disqualifying event is taxed as employment income. A change in hours is easy to miss and may only come to light at a sale years later, when the 90 days have long passed, so check working time against the test whenever someone's hours change.

Set up an EMI scheme for your team.

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