Enterprise Management Incentives (EMI) — The Complete Guide for UK Founders (2026)

Why EMI Options Beat Every Other Employee Equity Method

Compare three ways to give a UK employee equity worth £50,000:

1. Direct share gift (at below-market value): Employee pays income tax at up to 45% on the £50,000 value at grant. Plus employee NI (2%) and employer NI (13.8%). Employee receives net approximately £26,000 in value after tax.

2. Unapproved share options (exercise at profit): On exercise: the £50,000 gain is income — income tax at up to 45% plus NI applies. Net to employee: approximately £25,000–27,000.

3. EMI options (exercise price = market value at grant): No tax at grant. On exercise: no income tax (exercise price = market value — no immediate gain). On subsequent sale: CGT at 10% (BADR rate, if held 2 years from grant). Net to employee on a £50,000 gain: £50,000 − 10% = £45,000.

The EMI employee receives £45,000. The non-EMI employee receives £25,000–27,000. Same underlying equity — drastically different outcome.

Additionally: the company gets a corporation tax deduction equal to the gain at exercise (£50,000 × 25% = £12,500 CT saving for the company).

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EMI Qualifying Conditions

• Company requirements:
• Carrying on a qualifying trade — most trading businesses qualify. Excluded: banking, insurance, farming, property development, legal/accountancy services (as the predominant activity), shipbuilding, coal/steel production
• Gross assets under £30 million at the date of grant
• Fewer than 250 full-time equivalent employees
• Must not be a 51%+ subsidiary of another company
• Must be a UK-resident company (or UK permanent establishment)

• Employee requirements:
• Must be employed or contracted to work for the company (or group company)
• Must work at least 25 hours/week for the company, or 75% of their total working time (whichever is less)
• Must not own 30%+ of the company's ordinary share capital
• Must not be participating in any other HMRC-approved option scheme for the same company

• Option requirements:
• Maximum £250,000 of EMI options per employee (measured at grant date market value)
• Maximum £3M of EMI options outstanding company-wide at any time
• Options must be granted within 10 years of the company's first EMI grant
• Options must be exercisable within 10 years of grant
• The agreement must be in writing

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The EMI Process: Step by Step

Step 1: Obtain HMRC Advance Valuation (optional but recommended) You can grant EMI options without first agreeing the share value with HMRC — but without pre-agreed valuation, you risk HMRC challenging your market value figure later. Advance valuation via HMRC's Share Schemes team takes 2–6 weeks and provides certainty.

Submit: company accounts, details of the company's activities, proposed share class, share structure, and your proposed exercise price basis. HMRC confirms whether they agree the market value.

For a startup with no revenue or minimal revenue: HMRC often accepts a nominal exercise price (£0.01 per share). For profitable trading companies: HMRC uses discounted cash flow, earnings multiples, and net asset value methods.

• Step 2: Draft the EMI Option Agreement
• A bespoke legal document covering:
• Number of options granted
• Exercise price per share
• Vesting schedule (standard: 4 years, 1-year cliff)
• Performance conditions (if any)
• What happens on exit (drag-along, good/bad leaver)
• Exercise period

Standard EMI option agreements: £500–2,000 from a UK employment lawyer or specialist equity platform.

Step 3: Grant the Options Directors pass a board resolution approving the grant. Both the company and the employee sign the EMI Option Agreement. Record the grant in the company's EMI register.

Step 4: Notify HMRC (within 92 days of grant) This is critical — and the most commonly missed step. HMRC must be notified of every EMI grant via the Employment Related Securities (ERS) reporting portal within 92 days of the grant date. Miss this deadline: the grant loses its EMI tax advantages and becomes an unapproved option.

Notification is done online: HMRC ERS Online Service → submit an ERS return → EMI grant notification.

Step 5: Annual HMRC ERS Return Every year (by July 6 following the tax year end): file an annual ERS return declaring all option grants, exercises, cancellations, and lapses during the year. This is separate from the 92-day notification.

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What Happens When Options Are Exercised

• On exercise (employee buys shares using the option):
• If exercise price = market value at grant: no income tax or NI event at exercise
• If exercise price < current market value: income tax + NI on the discount (unless the discount existed at grant and was within HMRC-agreed bounds)

• Then the employee holds shares in the company. These shares are taxed on disposal (sale):
• If held 2+ years from grant date (not exercise date — an important distinction introduced in recent HMRC guidance): BADR applies → 14% CGT rate (rising to 18% from April 2026 — confirm current rate) on the gain
• If held less than 2 years from grant: standard CGT rates apply (18%/24%)

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EMI Platforms (Handling the Admin for You)

Managing EMI options manually is error-prone. Several platforms now automate the documentation, HMRC notifications, and annual returns:

Vestd — UK-focused equity management platform. From £99/month. Handles EMI option agreements, HMRC notifications, cap table management.

Seedlegals — Fast-growing UK startup legal platform. EMI package from £1,999 one-time. Excellent for first-time EMI grants.

Carta — US-origin but strong UK presence. Enterprise-grade. More expensive, better for funded startups with complex cap tables.

HMRC directly — You can handle everything manually (HMRC ERS portal, your own option agreements from a template). Time-consuming but free beyond legal costs.

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FAQs

Can a founder participate in EMI? Founders who are employees and meet the qualifying conditions can receive EMI options. However, founders typically already own shares — and the 30% ownership limit applies at grant. If a founder owns 30%+ of the company, they cannot receive EMI options.

What happens to EMI options if the company is acquired? This depends on the option agreement terms. Typically: options vest fully ("accelerate") on an acquisition event. The employee exercises their options and participates in the sale proceeds. If they've held options for 2+ years: BADR rate applies. If less: standard CGT.

Can EMI options be granted to part-time employees? Yes, if they work at least 25 hours/week for the company or 75% of their working time (whichever is less). A part-time employee working 15 hours/week across two employers could potentially qualify if the 75% test is met.

What if the company exceeds £30M gross assets after granting EMI options? Existing EMI options remain valid for employees who already have them. But new options cannot be granted once the company exceeds the £30M threshold. The existing options retain their EMI tax treatment as long as no "disqualifying events" occur.

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