Hiring and keeping good employees is one of the biggest challenges for small businesses. Offering a higher salary is not always enough, especially when a business is still growing. Enterprise Management Incentives (EMI) give employers another option. They allow businesses to offer share options to employees, giving them a chance to benefit from the company’s future growth while receiving tax advantages.
From 6 April 2026, the EMI scheme is open to larger companies. The gross asset limit has increased from £30 million to £120 million, and the number of full-time employees allowed has increased from 250 to 500. Businesses still need to follow HMRC’s rules when valuing shares, preparing option agreements and reporting the options.
TAJ Accountants shows how the scheme works, which businesses qualify, and what you need to know before offering share options to your employees.
What Are Enterprise Management Incentives (EMI)?
Enterprise Management Incentives (EMI) is a government scheme that allows qualifying companies to offer employees the option to buy shares at a fixed amount in the future. If the company’s value increases, employees make a gain when they exercise their options and sell their shares. The scheme also offers tax advantages for both the company and its employees.
To offer an EMI scheme, a company needs to meet certain requirements:
- The business must be an independent trading company and not controlled by another company.
- Its gross assets should not exceed £120 million.
- The company must have fewer than 500 full-time employees (from 6 April 2026).
- Companies involved in excluded activities, such as banking, farming, property development, legal services or shipbuilding, cannot offer EMI options.
Employees eligible for EMI options have their own requirements. They must work for the company at least 25 hours a week or spend at least 75% of their total working time working for it. Their shareholding or voting rights must also be no more than 30%.
Each employee can receive EMI share options worth up to £250,000 over three years.
How Does an EMI Share Option Scheme Work?
An EMI scheme gives an employee the right to buy company shares at a fixed price in the future. The employee does not own the shares when the option is granted; they only have the right to buy them later, which may become valuable as the company grows.
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Grant: The company grants the option and sets the exercise price, usually based on the shares’ market value on that date. No Income Tax or National Insurance is due when the option is granted.
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Waiting period: The option agreement sets out when the employee can exercise the option. This may be immediately, after a set period, once performance targets are met, or when the business is sold.
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Exercise:Â The employee buys the shares at the agreed price. The option must usually be exercised within 15 years, although certain Northern Ireland companies remain subject to a 10-year limit. If the employee pays at least the market value agreed on the grant date, no Income Tax or National Insurance is due, even if the shares are now worth much more. If the shares were granted at a discount, tax is due on the difference.
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Sale: If an employee sells the shares, any profit is usually subject to capital gains tax. If the employee meets the necessary conditions, they may qualify for ‘Business Asset Disposal Relief’ and pay tax at the reduced rate of 18%, effective from April 2026.
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For the company: No National Insurance is due when qualifying EMI options are granted or exercised. The company can claim Corporation Tax relief when the employee exercises the option.
Who Qualifies for an Enterprise Management Incentive Scheme in the UK?
To offer an EMI scheme, both the company and the employees receiving options must meet HMRC’s conditions.
Qualifying companies
- The company must be independent, meaning no other company can control it.
- From 6 April 2026, the gross asset limit is £120 million. Previously, it was £30 million.
- The company must also have fewer than 500 full-time employees. The previous limit was 250.
- Some business activities are excluded from the scheme. These include banking, insurance, leasing, farming, property development, legal services and shipbuilding.
Qualifying employees
- Employees must work at least 25 hours a week for the company.
- If they work fewer hours, at least 75% of their total working time must be spent with the company.
- Employees must not hold more than 30% of the voting rights or the company’s shares.
- The company decides which employees receive options. Each employee can receive options worth up to £250,000 over three years.
Benefits of Enterprise Management Incentives for UK SMEs
An EMI scheme offers tax advantages to both employees and the company. Employees can also own shares in the business. This gives them a financial interest in its growth without the company having to increase salaries or pay large cash bonuses.
Benefits for employees
- No Income Tax or National Insurance is due when the options are granted.
- When employees exercise their options, there is normally no Income Tax or National Insurance if they pay at least the market value of the shares on the grant date. This is subject to there being no disqualifying event.
- Employees may be charged capital gains tax if they make a profit when they sell their shares. If they meet the necessary conditions, they will be entitled to pay tax at 18% or lower under ‘Business Asset Disposal Relief’ from April 2026.
Benefits for the company
- Employers do not normally pay National Insurance on the grant or exercise of qualifying EMI options.
- The company can claim Corporation Tax relief when employees exercise their options.
- EMI gives businesses another way to attract and retain key employees without offering higher salaries.
- Employees also have a financial interest in the company’s growth. This helps align their interests with the business’s.
- The company has flexibility when setting up the scheme. The company can offer options to selected employees or link them to performance targets. They can also be made exercisable when the business reaches certain goals.
- Since April 2023, specific share restrictions no longer need to be included in the option agreement to qualify for EMI tax relief.
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How to Set Up an EMI Scheme for Your SME
Setting up an EMI scheme involves several steps. Both the company and employees must meet the requirements, and the necessary paperwork must be completed.
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1. Agree the share value with HMRC
Most companies obtain a valuation agreement before granting options. This agreement confirms the market value of the shares on the grant date.
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2. Prepare the option agreement
The option agreement sets out the share details and the price employees will pay. It also covers any discount and explains what happens if an employee leaves the company. The agreement should also make clear when the employee can exercise the option. This could be after a certain period, once they meet specific targets, or when the business is sold.
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3. Complete the formalities
Before the company grants any options, it should check its articles of association to see whether EMI options are allowed. Shareholder approval may be needed as well. Once everything is in place, the board can approve the grant, and the agreement can be signed by both parties.
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4. HMRC Notification Deadline
Companies offering EMI options should be aware of the HMRC notification. It must be filed by July 6 of the year after the year in which the options were granted. This deadline applies to options issued on or after April 6, 2024. If HMRC is not notified in time, the company will lose the tax breaks it could have received under the Enterprise Management Incentives (EMI) scheme.
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5. The employee exercises the option
Most companies now have a 15-year exercise period. If the employee pays at least the market value on the grant date, there is normally no Income Tax or National Insurance to pay, provided no disqualifying event has occurred. A discount could result in a tax charge.
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6. The employee sells the shares
Capital Gains Tax may apply to the profit. Business Asset Disposal Relief can reduce the rate to 18% from April 2026, subject to the qualifying conditions.
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The company can also claim an exemption from corporation tax when the employee exercises the option. Employer National Insurance is not normally due on the grant or exercise of qualifying EMI options.
How Can an Accountant Help Your Business Manage an EMI Scheme?
An EMI scheme involves several steps, and getting the details right is important to keep the tax advantages. From checking whether the company qualifies to dealing with HMRC, an accountant can manage the process and ensure you meet the requirements.
- Checks whether your company and the employees you have chosen qualify for the scheme.
- Helps agree the share valuation with HMRC before the options are granted.
- Advises on how to arrange the scheme, including which employees to include and whether to set performance targets.
- Works with your solicitor when preparing the option agreement to make sure the tax requirements are covered.
- Handles the HMRC notification and makes sure it is submitted before the deadline.
- Looks after ongoing reporting to HMRC once the scheme is running.
- Explains the tax implications when employees exercise their options or sell their shares, including the rules for Business Asset Disposal Relief.
TAJ Accountants is a small business accountants firm helping SMEs across London with EMI scheme setup and ongoing support. Book a consultation to discuss whether an EMI scheme is right for your business.
Frequently Asked Questions
Independent companies that another company does not control. From 6 April 2026, the gross assets must be £120 million or less. It must also have fewer than 500 full-time employees. It must also avoid excluded activities such as banking, farming, property development, legal services and shipbuilding.
An employee can receive EMI options worth up to £250,000 over three years. When the options are granted, the value is measured. The number of shares they receive depends on the market value of the shares at that time.
EMI options receive favourable tax treatment, but they are not completely tax-free. No Income Tax or National Insurance is due when the option is granted. The same applies when the employee exercises it, provided they pay at least the market value of the shares on the grant date. If they receive the option at a discount, tax is due on the difference. Capital Gains Tax applies when they sell the shares, and Business Asset Disposal Relief may reduce the rate to 18% if they meet the qualifying conditions.
Only employees who meet the eligibility conditions can receive EMI options. They must work at least 25 hours a week, or spend at least 75% of their total working time with the company. They must also hold no more than 30% of the company’s shares or voting rights. The company can then decide which eligible employees receive options and how many.
The option agreement sets out what happens when an employee leaves. It should explain whether the option will lapse and how much time the employee has to exercise it. The company should agree these terms before granting options, as leaving the company can affect tax treatment.
HMRC does not need to approve the scheme before options are granted. The company must notify HMRC by 6 July following the end of the tax year in which the options were granted. This deadline applies to options granted on or after 6 April 2024. If the company misses it, the options will not qualify for EMI tax relief. Most companies also ask HMRC to agree the share valuation before granting options, so the market value is clear from the start.
Final Thoughts
EMI is one of the most tax-efficient ways for a small company to reward and retain its key employees. The wider limits from April 2026 also mean that more SMEs can now qualify for the scheme.
To get the tax relief, you must meet the requirements. The company and employees must qualify, the share valuation needs to be agreed, and the option agreement must be prepared correctly. The company must also notify HMRC by the required deadline. It is best to plan everything before granting the options. So, why are you late? Contact us to meet your requirements.
