The Enterprise Management Incentive (EMI) scheme is a share scheme that employers can use to motivate key staff. Aside from the tax benefits, an EMI scheme is often used by companies in their early stages, who may not have the funds to pay bonuses or cash rewards to staff, but who still need to recruit and retain the best people to help the company grow and develop. 

How an EMI scheme works

An EMI scheme allows an employer to give an employee the option to buy shares in the company at a pre-agreed price over a set period of time. 

The employer does not have to offer the scheme to all employees, and generally will focus on key staff who have an important role in the business. The maximum period to exercise EMI options was previously 10 years, but this increased to 15 years for EMI contracts granted on or after 6 April 2026.

Under an EMI scheme, there is no Income Tax or National Insurance payable when a qualifying option is granted to an employee as long as the exercise price to be paid for the shares is at least their market value when the option is granted. Any discount on the market value will result in Income Tax and National Insurance being charged on the difference between market value and the price to be paid. In most cases, when the employee later exercises their EMI option, any gains are then subject to Capital Gains Tax rather than Income Tax, which normally results in lower rates of tax. 

As long as at least two years have passed between an EMI option being granted and the shares being sold, they will generally qualify for Business Asset Disposal Relief (BADR), as long as the other BADR criteria are met. From 6 April 2026, this means that the rate of Capital Gains Tax is 18% on gains above the Capital Gains Tax annual exemption (currently £3,000). BADR is restricted to a lifetime limit of gains since April 1998 of £1 million.

The employee can have up to 10 to 15 years to exercise  the option depending on the agreement. Often the employee will sell some of the shares issued to pay the exercise price and any Capital Gains Tax due on any disposals. 

Advantages for the employer

An EMI scheme can help companies incentivise staff for the long term, particularly during periods of growth when cash flow may be challenging. It can be attractive for the employer as there is a direct incentive for the employee to support the growth of the business, as they will personally benefit from the increase in value of the shares they have options to purchase. 

Criteria to set up an EMI scheme

To set up an EMI scheme, the company has to be a ‘qualifying company’ and there are several conditions that must be met. This includes the company not being a 51% or more subsidiary of another company or controlled by another company. The nature of the company’s business is also crucial, as certain trades (such as banking, farming, professional services, property development and ship building) are excluded.

There are restrictions on the size of company that can offer EMI options, both in terms of gross assets and the number of employees. From 6 April 2026, the gross assets limit increased from £30 million to £120 million, and the limit on the number of full time equivalent employees increased from fewer than 250 to fewer than 500.

An employee must also be an eligible employee working for the company for at least 25 hours per week or, if less, 75% of their available working time. The employee cannot already have a ‘material interest’ in the company, classed as more than 30% of the shares in the company or the right to receive more than 30% of the assets of the company if it was wound up. 

There is also a limit on the value of EMI options that can be issued by a company. From 6 April 2026, this increased from £3 million to £6 million. An individual employee is only allowed to hold unexercised EMI options of up to £250,000 at any time.

HMRC offer advance assurance so a company can confirm it qualifies to grant EMI options. It is also possible for the employer to ask HMRC to agree the market values of the shares before any options are granted, which can give comfort that the values should not be challenged at a later date.

Reporting requirements

Employers must complete returns to HMRC when options are granted to employees – since 6 April 2024, this must be done by 6 July following the end of the tax year the option is granted. An employer offering a share scheme for the first time must register the Employment Related Securities scheme with HMRC in order to obtain a scheme reference number to use when completing the initial and annual returns whilst the scheme is in place.

Our previous article on Employment Related Securities returns explains more about the process of completing returns to HMRC on employee share schemes.

The rules behind EMI schemes can be a complex area, so employers considering introducing an EMI scheme may wish to seek specialist advice from both a tax and legal perspective ahead of proceeding with a scheme.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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