TRW & Co · Share plans and incentives
EMI Share Options: The Expanded Scheme Explained
EMI share options let qualifying companies reward employees with options taxed mainly to capital gains tax. From 6 April 2026 the scheme expanded: gross assets of up to £120 million, fewer than 500 employees, a £6 million company limit and a 15-year exercise period. This guide covers eligibility, HMRC valuation, the grant process and disqualifying events.
Key pointThe expansion lets scale-ups that outgrew EMI come back into the regime, but the old traps remain: the working time test, the 90-day life of an HMRC valuation and the notification deadline still decide whether an option qualifies.
At a glance
Larger companies qualify
For grants from 6 April 2026, gross assets of £120 million or less and fewer than 500 full-time equivalent employees, up from £30 million and 250.
Higher company limit
The value of shares under unexercised EMI options a company may have outstanding rose from £3 million to £6 million.
Fifteen-year window
Options can stay tax-advantaged for up to 15 years from grant, instead of 10, subject to the option agreement and scheme rules.
Individual cap unchanged
Each employee can still hold up to £250,000 of EMI options, measured at grant, within a three-year period.
Valuation lasts 90 days
An EMI valuation agreed with HMRC on form VAL231 is valid for 90 days, so grants should be made within that window.
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The short answer: EMI share options after the 2026 expansion
EMI share options are tax-advantaged options that qualifying UK trading companies can grant to employees. If the exercise price is at least the market value of the shares at grant, the employee normally pays no income tax or National Insurance on exercise and only capital gains tax when the shares are sold.
From 6 April 2026 the scheme became available to much larger companies. According to HMRC's guidance, a company can now offer Enterprise Management Incentives if it has gross assets of £120 million or less and fewer than 500 full-time employees, up from £30 million and 250. The total value of shares under unexercised EMI options that a company can have rose from £3 million to £6 million, and options can now remain tax-advantaged for up to 15 years rather than 10.
What did not change is just as important. The individual limit remains £250,000 of options within a three-year period, employees must still meet the working time test, and HMRC still expects the market value at grant to be properly established. Getting those basics wrong is where most problems arise.
Why the expansion matters
Scale-ups that had outgrown EMI, often after a significant funding round, can now come back into the scheme. That lets them offer the same tax treatment to later hires that early employees received, rather than switching to less favourable unapproved options. It also makes EMI relevant to companies preparing for a sale or listing over a longer horizon, given the longer exercise period.
The legal framework for EMI share options
The rules are in Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003, with the tax consequences of exercise and disposal elsewhere in that Act and in capital gains tax legislation. The 2026 expansion was made by the Finance Act 2026, which amended the EMI thresholds and the period for exercise with effect from 6 April 2026.
HMRC administers the regime through the employment-related securities online service. Companies register the scheme, report grants and file an annual return. There is no advance approval of the scheme itself, which places the burden on the company to get the conditions right.
Company conditions
At the date of grant, the company must satisfy each of the following:
- Independence: it must not be controlled by another company. In a group, options are granted over shares in the parent.
- Gross assets: £120 million or less for the company or group, for grants on or after 6 April 2026.
- Employees: fewer than 500 full-time equivalent employees, for grants on or after that date.
- Qualifying trade: it must carry on a qualifying trade, or be preparing to. Excluded activities include banking, farming, property development, the provision of legal services and shipbuilding.
- UK presence: it must have a permanent establishment in the UK.
Employee conditions
The optionholder must be an employee of the company or a qualifying subsidiary. They must work at least 25 hours a week for the group or, if less, 75% of their working time. Non-executive directors, consultants and most part-time staff therefore fall outside EMI.
The employee must not have a material interest, broadly 30% or more of the ordinary share capital, alone or with associates. Founders with large stakes are often excluded for this reason.
The expanded limits at a glance
| Condition | Grants up to 5 April 2026 | Grants from 6 April 2026 |
|---|---|---|
| Gross assets of company or group | £30 million or less | £120 million or less |
| Full-time equivalent employees | Fewer than 250 | Fewer than 500 |
| Company limit on unexercised options | £3 million | £6 million |
| Maximum tax-advantaged exercise period | 10 years | 15 years |
| Individual limit | £250,000 in three years | Unchanged at £250,000 in three years |
Commentary on the reforms indicates that the longer exercise period can benefit options already granted and not yet exercised or lapsed. Whether that happens in practice depends on the option agreement and scheme rules, which may fix a shorter period. Companies wanting to extend existing options should take advice on the drafting and on whether any amendment could be treated as a new grant.
Further simplification has been announced, including removal of the separate notification of each grant for options granted from April 2027, with grant information moving into the annual return. Until then, the existing notification rules continue to apply.
Valuation: agreeing market value with HMRC
The tax advantage depends on the relationship between the exercise price and the market value at grant. For unlisted companies there is no quoted price, so the value has to be established. Most companies agree a valuation with HMRC before granting EMI share options.
HMRC's share scheme valuation guidance explains the process. The company submits form VAL231 to the Shares and Assets Valuation team, proposing both the unrestricted market value and the actual market value where the shares carry restrictions. An agreed EMI valuation is valid for 90 days from the date of agreement, so options should be granted within that window.
Practical valuation points
A valuation is a judgement, not a formula. HMRC will look at recent share issues, trading performance and any transactions in contemplation. A funding round at a high price shortly before the grant usually drives the value up, and pending sale negotiations should be disclosed.
Many companies use a discounted value for minority holdings of ordinary shares compared with the price paid by investors for preferred shares. That is legitimate, but it must be supportable. Companies can grant at a price below market value; the discount is simply taxed as income on exercise.
Plan the grant timetable around your funding round. Agreeing a valuation, holding the board meeting and signing option agreements within the 90-day validity window is straightforward if planned, but easily missed when management is focused on closing an investment.
How to grant EMI share options: step by step
- Check eligibility. Confirm independence, gross assets, employee numbers, qualifying trade and UK permanent establishment at the proposed grant date, and test each employee against the working time and material interest rules.
- Review the constitution. Check the articles and shareholders' agreement for pre-emption, consent rights and leaver provisions. Our guides to articles of association and shareholder agreements explain the usual issues.
- Design the plan. Decide vesting, performance conditions, exit-only or time-based exercise, leaver treatment and the share class. Prepare plan rules and an option agreement.
- Agree the valuation. Submit form VAL231 to HMRC and obtain an agreed value, or document your own valuation carefully.
- Approve and grant. Hold the board meeting, obtain any shareholder consents and sign option agreements with each employee within the valuation window.
- Notify HMRC. Register the scheme on the employment-related securities service and notify each grant by the deadline. At present that is 6 July following the end of the tax year in which the option was granted.
- Keep records and file returns. Keep working time declarations and other evidence, file the annual return each year and monitor for disqualifying events.
Documents to prepare
A well-run EMI grant produces a short, consistent paper trail. Expect to prepare plan rules or a standalone option agreement for each employee, a board minute approving the grant and the exercise price, any shareholder resolutions or investor consents required by the articles or the shareholders' agreement, and the HMRC valuation correspondence.
Each optionholder should sign a working time declaration and receive a clear summary of how vesting, exercise and leaver provisions work. Keep a register of all options showing grant date, number of shares, exercise price and the value used for the individual and company limits. Buyers and their advisers will ask for all of this in due diligence, and gaps can delay completion or reduce the price.
Disqualifying events and what happens next
A disqualifying event ends the tax advantage for growth after the event. Common examples include the company being taken over, the company ceasing to carry on a qualifying trade, the employee ceasing to be a qualifying employee, for example by leaving or cutting their hours, and certain alterations to share capital.
If the option is exercised within 90 days of the event, the full EMI benefit is usually preserved. If it is exercised later, income tax and possibly National Insurance apply to the increase in value between the event and exercise. Leaver provisions in the option agreement should be drafted with that window in mind.
Exits and takeovers
On a sale, most EMI share options are exercised just before or on completion, so the takeover rarely causes a problem. Where a buyer offers replacement options, the exchange rules can carry the tax status across if conditions are met. Our guide to the private equity process for management teams explains how options are handled on a buyout.
EMI compared with other share incentives
| Structure | Who it suits | Tax outline | Key limits |
|---|---|---|---|
| EMI share options | Qualifying trading companies within the expanded limits | No income tax on exercise if granted at market value; CGT on sale | £250,000 per employee; company and size limits |
| Company Share Option Plan | Larger or non-qualifying companies | Tax-advantaged if held for three years | Lower individual limit than EMI; less flexible |
| Unapproved options | Any company, any participant | Income tax, and often NICs, on exercise | None, but less tax efficient |
| Growth shares | Companies wanting immediate ownership | Value taxed on acquisition; growth subject to CGT | Valuation and articles must be robust |
Many companies use more than one structure, for example EMI for qualifying staff and unapproved options for consultants and non-executives. Our share plans and incentives team can help design a combined approach, while investors should read our guide to the venture capital term sheet for how option pools are negotiated.
An illustrative scenario
This example is illustrative only and uses generic parties. A London software company completes a large Series B round. With gross assets of around £60 million and 320 employees, it exceeded the old EMI limits and had granted unapproved options to new hires for two years.
Under the expanded regime it qualifies again. The board agrees a valuation with HMRC, grants EMI share options to key staff within the 90-day window and notifies HMRC. Employees who already hold unapproved options keep them on their existing terms; any replacement would need separate advice on tax and investor consents. The company adopts an exit-based exercise structure and documents leaver terms clearly.
Two years later a trade buyer acquires the business. Employees exercise on completion. Because the options were granted at market value and held for more than two years, gains are subject to capital gains tax, and Business Asset Disposal Relief may be available, rather than income tax and National Insurance.
Common mistakes with EMI share options
Granting to someone who does not meet the working time test
An employee who works fewer than 25 hours a week, and less than 75% of their working time for the company, cannot hold qualifying EMI options. This often catches part-time staff, those with outside roles and founders who have stepped back. Options granted to them are not EMI options, whatever the paperwork says.
Ask each optionholder to confirm their working time in writing at grant, keep the declaration and recheck when contracts change.
Missing the notification deadline
An option that is not notified to HMRC on time does not qualify as an EMI option. The current deadline is 6 July following the end of the tax year of grant. Late notification is a common and costly error, especially where grants are made shortly before the year end.
Notify promptly after grant, keep evidence of submission and diarise the annual return. Monitor the planned removal of grant notifications from April 2027.
Relying on a stale or unsupportable valuation
An agreed HMRC valuation lasts 90 days. Granting after it has expired, or after a significant event such as an offer for the company, can lead HMRC to argue that the exercise price was below market value, producing an income tax charge on exercise.
Time grants within the validity window, disclose material events to HMRC and refresh the valuation if circumstances change.
Overlooking investor consents and the cap table
Shareholders' agreements commonly restrict new share issues and set the size of the option pool. Granting options without the required consents can breach the agreement and create disputes on exit. Poorly drafted leaver provisions also cause friction when employees leave.
Check consent requirements early, align the pool with the investment documents and agree clear good and bad leaver rules.
Cross-border considerations
EMI is a UK tax regime. A foreign parent company can grant EMI share options to UK employees if it meets the conditions, including having a UK permanent establishment and a qualifying trade. Employees working partly abroad may face tax in more than one country on exercise, depending on where the work that earned the option was performed.
Groups with operations in Bangladesh, the Gulf or Singapore often run a single global plan with a UK EMI sub-plan. That works well if the local securities and exchange control rules are checked in each country. Our employment law team can coordinate the UK side with local counsel.
What to do next
- Recheck eligibility against the new £120 million and 500-employee limits.
- Review existing option agreements and decide whether to use the 15-year period.
- Agree a valuation with HMRC before each grant round.
- Confirm working time and material interest for every optionholder.
- Calendar the notification deadline and the annual return.
- Align the option pool and leaver terms with your investment documents.
TRW & Co's London office is authorised and regulated by the Solicitors Regulation Authority. We draft EMI plans, option agreements and the corporate approvals behind them. To discuss EMI share options for your business, contact us at info@trw.co or +880 1779 127165.
Frequently asked questions
01What are EMI share options?
Enterprise Management Incentives are tax-advantaged share options that qualifying independent trading companies can grant to eligible employees. If the exercise price is at least the market value of the shares at grant and the conditions are met, there is normally no income tax or National Insurance when the option is exercised. Capital gains tax is then payable when the shares are sold, and Business Asset Disposal Relief may reduce the rate if the shares are sold more than two years after grant.
02What changed for EMI in April 2026?
For options granted on or after 6 April 2026, the gross assets limit rose from £30 million to £120 million and the employee limit from fewer than 250 to fewer than 500 full-time equivalents. The company limit on unexercised options doubled from £3 million to £6 million, and the maximum period for a tax-advantaged exercise increased from 10 to 15 years. The individual limit of £250,000 did not change.
03Do I need HMRC to agree the valuation?
It is not compulsory, but it is strongly recommended for unlisted companies. You apply to HMRC's Shares and Assets Valuation team using form VAL231, proposing the unrestricted and actual market values. An agreed EMI valuation is valid for 90 days. Without agreement, HMRC can challenge your figure later, and if the exercise price turns out to be below market value at grant, the employee will pay income tax on the difference.
04Who can receive EMI share options?
Employees of the company or its qualifying subsidiaries who work at least 25 hours a week, or 75% of their working time if less, and who do not have a material interest of broadly 30% or more in the company. Non-executive directors and consultants cannot hold EMI options. The company itself must be independent, have a UK permanent establishment, carry on a qualifying trade and meet the size limits at grant.
05What is a disqualifying event?
A disqualifying event is something that ends EMI tax treatment for future growth, such as the employee leaving or no longer meeting the working time test, the company being taken over or ceasing to trade, or certain changes to share capital. If the option is exercised within 90 days, the tax advantages are usually preserved. After that, any increase in value from the event to exercise is subject to income tax and possibly National Insurance.
06When must EMI options be notified to HMRC?
Under the current rules, each grant must be notified online by 6 July following the end of the tax year in which the option was granted. A late notification means the option does not qualify as an EMI option. The government has announced that separate grant notifications will be removed for options granted from April 2027, with information collected through the annual return instead, so companies should keep the timetable under review.
Sources and official materials
- Tax and Employee Share Schemes: Enterprise Management Incentives — HMRC summary of EMI limits and tax treatment
- Get a share scheme valuation from HMRC — Form VAL231 and the 90-day validity of EMI valuations
- Income Tax (Earnings and Pensions) Act 2003, Schedule 5 — Statutory EMI conditions
- Finance Act 2026 — Principal tax legislation for 2026
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.