In total, over the process of acquiring shares for £10,000 and selling them for £125,000, Jane has paid £41,000 in tax (£51,000 in total including the purchase of the shares). What’s more, £36,000 of this is due before she actually has her hands on the cash – which leaves her very vulnerable in the case of a sudden collapse in share value. HMRC must be notified electronically of any grants of EMI options within the time periods set out above.
Setting realistic expectations is key, especially around timelines, potential value, and what needs to happen for employees to realise that value. It’s also helpful to share the financial plan for the business, so employees can see how their efforts contribute to long-term success. This includes the key features, tax benefits, and what it means for each individual. If your company grows to more than 250 employees or to have over £30M in assets, it won’t be seen as a disqualifying event – but it would prevent you from granting EMI share options in the future. If a disqualifying event occurs, the employee’s options must be exercised within 90 days of that event.
An option gives an employee the right (but not the obligation) to buy shares in the future at a fixed price (the exercise price). Employees don’t pay anything when the option is granted—they only pay when they choose to exercise the option and acquire the shares. At SeedLegals we recommend companies issue their employees with EMI share options that convert into non-voting shares. You don’t need to have a scheme that’s been officially approved by HMRC to grant employee options.
Plus, the SeedLegals platform will create all the documents, including the scheme rules, option grants, tax elections, and more. We’ll help you choose the right option scheme for your team, show you the best option vesting and best free porn videos exercise terms for your company and team, and walk you through every step of the process. Unlike when you pitch to investors, for the EMI scheme you’ll want a low valuation. This is because the more the value of the shares increases over time, the higher your employees potential profit will be. If a company is too large to grant EMI options, it may still qualify to grant options under a tax-advantaged CSOP. This would mean the beneficial tax treatment on historic gains would be lost on the subsequent exercise.

An option gives the employee the right to acquire shares for an agreed upon price (the exercise price) at a later date. Under EMI (Enterprise Management Incentive) rules, there is a maximum duration of 10 years from the date the option is granted. After this period, the option will no longer qualify for EMI tax benefits, although it could continue as an unapproved option. With most of the plans that we use, there is facility to relax the performance conditions at the discretion of the board so that options can be exercised. We recommend this flexibility as there is the potential for events outside of the company’s control to impact performance targets. For example during Covid we saw lots of companies trying to relax performance conditions where these related to financial targets for the whole of the company.
The Enterprise Management Incentive (EMI) Scheme is a type of employee share option scheme designed to help attract, retain, and motivate staff and is particularly beneficial for small and medium-sized businesses with growth potential. The scheme incentivises employees to help grow and share in the increased value of the business. This scheme is particularly beneficial for startup companies with limited funds available to pay competitive wages and in situations where owners are planning a future exit from the company but wish to retain key members of staff. Generally, no income tax or national insurance contributions (NIC) liabilities arise on grant or exercise of market value options. Despite the BADR rate increasing to 14% (from 6 April 2025) and to 18% (from 6 April 2026), EMI options are still one of the most flexible and tax-efficient ways to retain and incentive your employees. If a company does not quality for an EMI – perhaps because it is not a qualifying trade such as a hotel or is too large – then a company share option plan (CSOP) can offer a similar tax efficient alternative.

However, CSOPs have a lower limit, allowing up to £60,000 of options at the time of the grant. For companies that don’t meet the criteria for HMRC-approved schemes, such as subsidiaries or those with more complex structures, there are also non-HMRC-approved options like growth shares. While these are not formally approved by HMRC, they are well-established and widely used in practice to align employee incentives with company growth. In an exit scenario, options are exercised at the same time the company is sold. Using our earlier example, if the company’s value doubles to £20m and the employee holds options over 5% of the shares, that stake could be £1m. They will usually fund this on the sale of the company with the proceeds for their shares.

How long can an EMI option scheme last?

Victor owned 50% of the British affiliated Gramophone Company, giving RCA chairman David Sarnoff a seat on the EMI board. Holding options does not entitle an employee to dividends – only holding shares. Performance conditions are conditions that need to be met in order for the options to be exercised. An example would be that certain financial metrics have been met such as EBIT targets. It’s worthwhile considering valuation early in the process and the potential impact.
In contrast, most EMI options are not taxed at exercise and the eventual gain at sale is taxed as a capital gain. An enterprise management incentive (EMI) scheme is a tax-advantaged share option plan designed to help smaller companies attract and retain key employees. In a nutshell, an employee share option is an equity-based compensation incentive. It doesn’t attract tax when granted, and if the company grows and increases in value between when an option is granted and when it is exercised, the employee’s shares will be worth more than they pay for them.

This guide will explain everything you need to know about starting an EMI share scheme. Chris Thomas tells HRNews about the importance of conducting thorough due diligence of potential beneficiaries before making death in service payments. Recent changes were made by HMRC to ease some of the administration of EMI schemes. EMI is available to quoted and unquoted companies with gross assets of £30m or less. In a group, the gross assets test is applied to the group (excluding intra-group transactions).
For the sake of simplicity, we have also not included an explanation of the Income Tax that is payable on the difference between UMV and AMV. Below you can see some simplified examples of how EMI and unapproved schemes work in practice. Please bear in mind that we haven’t taken into account any individual tax-free allowances which vary from person to person. The benefits extend to you as a business owner too – the cost of setting up your scheme is tax deductible against your Corporation Tax as a business expense, reducing your tax bill further. Below we’ll explore why EMI options are so popular with businesses and employees. If you have any questions about EMI options, or any other share plans for your business, please get in touch – our team of specialists will be happy to help you.