EMI share option schemes explained: how UK startups reward staff with equity

Enterprise Management Incentives, EMI, is a tax-advantaged share option scheme created by HMRC specifically for smaller, higher-risk UK trading companies, letting them grant employees the option to buy shares in future at today’s value while giving both employer and employee more favourable tax treatment than an ordinary, unapproved option. It has long been the default way growing UK startups reward staff with equity, and the government substantially widened who can use it with changes that took effect fromundefinedApril 2026.

What is EMI actually for?

EMI exists to help smaller companies compete for talent against larger, better-resourced employers by making equity a genuinely tax-efficient part of a pay package. An EMI option gives an employee the right to buy a set number of shares at a fixed price, called the exercise price, usually set at the shares’ current market value at the date of grant, at a future point, commonly on a sale of the company or after a set vesting period. Because the option is only a right to buy, not an outright grant of shares, the employee has no upfront tax charge simply for holding it, and structured correctly, EMI options can mean an employee pays no income tax or National Insurance at all on the value of the shares, only capital gains tax when they eventually sell them.

Which companies can currently offer EMI options?

Eligibility depends on the company’s size, sector and structure, and the limits changed materially fromundefinedApril 2026. A qualifying company must be an independent trading company, not controlled by another company, and it must be carrying out a qualifying trade, since HMRC excludes certain sectors such as banking, farming, and property development from EMI eligibility.

EMI eligibility limit	Before 6 April 2026	From 6 April 2026
Company gross assets	£30 million	£120 million
Number of full-time equivalent employees	Fewer than 250	Fewer than 500
Unexercised options across the company	£3 million	£6 million
Maximum exercise period	10 years	15 years

The individual employee limit, the maximum value of unexercised EMI options any one employee can hold, remains £250,000 (measured at the market value of the shares when each option was granted), so the Aprilundefinedchanges widen which companies can offer EMI rather than how much any single employee can be granted.

How much can an individual employee actually be granted?

An employee can hold EMI options over shares worth up to £250,000 at the time of grant, taking into account any options already held under EMI or the related Company Share Option Plan (CSOP), and any options granted above this limit lose their tax-advantaged status for the excess. Because this is a per-employee limit rather than a per-grant limit, a company that has already granted an employee options close to the ceiling needs to check the running total before granting more.

What tax treatment does EMI actually give?

If an EMI option is granted with an exercise price at or above the shares’ market value on the day of grant, and it is exercised more thanundefinedmonths after grant (or on an earlier qualifying event such as a sale), there is typically no income tax or National Insurance due on exercise, and any gain is instead taxed as a capital gain when the shares are eventually sold. Many EMI option holders also qualify for Business Asset Disposal Relief, a lower rate of capital gains tax on qualifying business disposals, provided the option has been held for the required minimum period and other conditions are met, which materially reduces the tax bill an employee faces on a successful exit compared with an unapproved option scheme. Companies granting EMI options must notify HMRC of each grant, and the deadline for doing so was extended, for options granted on or afterundefinedApril 2024, from withinundefineddays of grant toundefinedJuly following the end of the tax year in which the grant was made, giving companies materially more time to get the paperwork right.

What does a company need to do to set up an EMI scheme?

Setting up EMI options generally involves agreeing a scheme rules document and individual option agreements, obtaining an independent, defensible valuation of the company’s shares (often agreed in advance with HMRC through its share valuation checking service, “VAL231”), and registering the scheme with HMRC online before options are granted. It is common, though not compulsory, for companies to seek HMRC’s advance assurance that a specific proposed grant will qualify, similar in spirit to SEIS and EIS advance assurance, to reduce the risk of a scheme being challenged later. Because the rules around qualifying trades, valuation and notification are detailed and carry real financial consequences if got wrong, most companies use a specialist share scheme adviser or solicitor to set up their first EMI scheme rather than doing it entirely in-house.

What happens to EMI options if the company is sold?

Most EMI scheme rules include provisions that accelerate vesting, or allow early exercise, on a company sale, so that employees can exercise their options and receive shares (or, more commonly in a share sale, receive the cash equivalent as part of the transaction) at the point of exit rather than losing unvested value. Exactly how this works depends on the specific scheme rules and the structure of the sale, so it is worth an employee checking their own option agreement, or the company checking its rules, well before a sale process begins rather than during it.

How does EMI compare with granting shares outright, or with an unapproved option?

Granting shares outright to an employee, rather than an option, generally creates an immediate income tax charge on the value of those shares at the point they are received, which is why very few companies give employees actual shares directly rather than options over shares. An unapproved option, one not granted under EMI, CSOP or another HMRC-recognised scheme, does not carry the same favourable tax treatment: the employee typically faces income tax and National Insurance on the gain in value between the exercise price and the shares’ market value at the point of exercise, rather than that gain being taxed more lightly as a capital gain on eventual sale. This difference is substantial in practice, which is why EMI, where a company and the specific option grant both qualify, is generally the preferred route for UK startups over granting shares directly or using an unapproved option, and why an unapproved option is typically only used when a company or an individual grant genuinely falls outside EMI’s eligibility rules.

What if a company is not eligible for EMI?

Some companies fall outside EMI’s qualifying conditions even after the Aprilundefinedwidening, for example because they operate in an excluded sector, are controlled by another company, or have grown beyond the gross assets or employee limits, and for these companies the Company Share Option Plan (CSOP) is the other main HMRC tax-advantaged option scheme, generally available to a wider range of companies but with a lower individual limit and a narrower set of qualifying conditions of its own. It is worth checking eligibility for both schemes rather than assuming EMI is the only tax-advantaged route available, since a company that has outgrown EMI, or was never eligible for it, may still be able to offer meaningfully more tax-efficient options through CSOP than through an unapproved scheme.

The practical takeaway

EMI is generally the starting point for UK startup equity incentives precisely because of its favourable tax treatment for both company and employee, and the Aprilundefinedwidening of the gross assets and employee headcount limits means considerably more scaling UK companies can now use it for longer before outgrowing it. Because the qualifying conditions, valuation requirements and notification deadlines are all set out in HMRC guidance and carry real consequences if they are not followed correctly, any company setting up or expanding an EMI scheme should check the current GOV.UK guidance directly and take advice from a specialist share scheme adviser or accountant before granting options.