What Is an EMI Share Options Scheme?
EMI (Enterprise Management Incentives) is the UK's most tax-efficient share option scheme. Learn how it works and why it is the gold standard for employee equity.
Key Takeaways
- EMI options can be granted with no income tax at grant or exercise if structured correctly
- Employees pay Capital Gains Tax (not income tax) when they sell their shares on exit
- Maximum grant per employee is £250,000; maximum outstanding is £3 million across the company
- EMI is available to companies with gross assets under £30 million and fewer than 250 employees
What EMI is
Enterprise Management Incentives (EMI) is a UK government-approved share option scheme that allows qualifying companies to grant share options to employees with exceptional tax advantages. It is the most tax-efficient employee equity mechanism available in the UK and is widely used by startups and growth businesses to attract and retain talent by giving employees a share in the value they help create. EMI options are granted by the company (not paid for by employees upfront) and give the right to buy shares at a pre-agreed exercise price at a future date.
How the tax treatment works
The exceptional tax advantage of EMI is that options can be structured so that employees pay Capital Gains Tax (typically 10% with Business Asset Disposal Relief) on their eventual profit rather than income tax and National Insurance (which could total 47%+ for a higher-rate taxpayer). This requires: the exercise price to be set at or above the market value at grant (confirmed by HMRC valuation), and the options to be held for at least 2 years before exercise. If structured correctly, there is no tax at grant, no tax at exercise, and only CGT on sale.
Eligibility requirements
EMI is available to companies with gross assets under £30 million and fewer than 250 employees (full-time equivalent). The company must be UK-based, trading (not investment or holding), and not a subsidiary of another company. Certain trades are excluded — banking, insurance, legal and accounting services, property development, and farming. Individual employees must work at least 25 hours per week or 75% of their working time for the company. Each employee can hold options over shares worth up to £250,000 at the time of grant.
Setting the exercise price
The exercise price is the price at which an employee can buy shares when they exercise their options. For the best tax treatment, this should equal or exceed the market value of the shares at grant date, as agreed with HMRC. Many companies seek a valuation from HMRC in advance (an Unrestricted Market Value or UMV agreement) to get certainty on this. For early-stage companies with low current valuations, the exercise price is low — meaning employees get a large benefit when the company is later sold or listed at a much higher value.
Practical implementation
Implementing an EMI scheme requires: a solicitor to draft the option rules (the framework governing all grants under the scheme), a Companies House filing, HMRC registration of the scheme within 92 days of the first grant, individual option agreements for each employee, and an annual return to HMRC. Platforms like SeedLegals and Vestd simplify the process significantly for smaller companies — reducing legal costs and automating much of the administration. Review and update your EMI valuations at least annually to ensure new grants use a current market value.