TRW & Co · Employment, Pensions & Immigration
Share Option Scheme Solicitors in London
Share option scheme solicitors help companies reward and retain people with equity without creating tax or governance problems. From 6 April 2026 the EMI limits rose to £120 million of gross assets, 500 employees and £6 million of options, so many scale-ups that had outgrown the scheme can now use it again.
Key pointMost lost share scheme reliefs come from administration rather than design: a missed EMI notification, a grant without allotment authority or an unsigned section 431 election can turn a capital gain into an income tax and PAYE bill.
At a glance
EMI limits raised
For options granted from 6 April 2026, EMI companies may have gross assets up to £120m, fewer than 500 employees and £6m of unexercised options.
15-year exercise period
EMI options can now run for up to 15 years, and some existing unexpired options can be amended to use the longer period.
£60,000 CSOP limit
Since April 2023, employees can hold CSOP options over shares worth up to £60,000 at grant, including options over growth shares.
6 July deadlines
EMI grants are notified, and annual ERS returns filed, by 6 July after the tax year; missing an EMI notification can cost the relief.
Malus and clawback expected
The UK Corporate Governance Code 2024 expects director remuneration arrangements to include malus and clawback provisions, with disclosure of how they work.
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What share option scheme solicitors do in England and Wales
Share option scheme solicitors design, document and run the arrangements that give employees, directors and founders a stake in the business they work for. The work covers tax-advantaged schemes approved by statute, unapproved options, growth shares, long-term incentive plans and deferred bonuses, and the employment, company law and tax rules that sit behind each of them.
Equity incentives matter most at three moments: when a company is hiring people it cannot yet afford to pay at market rates, when investors want management locked in to a growth plan, and when there is an exit. At each point the same questions come up. Who receives what, on what terms, at what tax cost, and what happens when someone leaves?
Most of the value in an incentive is won or lost in the drafting. An option granted without the right valuation, notification or leaver terms can lose its tax relief, create an unexpected PAYE bill or leave the board unable to enforce what it thought it had agreed. Good share option scheme solicitors deal with those points at the start, not when a buyer's due diligence team finds them.
The legal and tax framework for employee incentives
The tax rules sit in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). Its four tax-advantaged regimes are in separate schedules: Share Incentive Plans (Schedule 2), Save As You Earn (Schedule 3), Company Share Option Plans (Schedule 4) and Enterprise Management Incentives (Schedule 5). Part 7 of ITEPA contains the employment-related securities rules that apply to every share or option acquired by reason of employment, approved or not.
HMRC administers the regimes through its online Employment Related Securities service. There is no formal approval of schemes any more. Instead, companies self-certify that a plan meets the statutory requirements, register it online and file an annual return. For EMI, HMRC offers non-statutory advance assurance on whether the company qualifies, which many investors expect to see.
Company law sets the corporate side: directors' authority to allot shares and disapply pre-emption rights under the Companies Act 2006, the articles of association, and any shareholders' agreement.
For quoted companies, section 439A of the Companies Act 2006 requires a binding shareholder vote on the directors' remuneration policy at least every three financial years. The UK Corporate Governance Code 2024, which applies to financial years beginning on or after 1 January 2025, now expects director remuneration arrangements to include both malus and clawback, and remuneration reports to explain how they work.
Employment law runs alongside. Plan rules interact with contracts of employment, discrimination law and the law on restraint of trade, which is why share option scheme solicitors work closely with employment law colleagues on leaver terms.
Choosing the right plan: EMI, CSOP, SAYE, SIP or unapproved
The first decision is whether the company and the people can use a tax-advantaged scheme. If they can, the saving for employees is usually significant, because income tax and National Insurance on exercise can be avoided and gains are taxed as capital. If they cannot, the choice is between unapproved options, growth shares and cash-based plans.
| Plan | Who can use it | Key limit | Main tax point |
|---|---|---|---|
| Enterprise Management Incentives (EMI) | Independent trading companies with gross assets up to £120m and fewer than 500 employees (options granted from 6 April 2026) | £250,000 per employee in any three-year period; £6m of unexercised options per company | No income tax or NICs on exercise if the exercise price is at least market value at grant |
| Company Share Option Plan (CSOP) | Companies not controlled by another company (with limited exceptions); discretionary | £60,000 of options per employee, valued at grant | Generally no income tax on exercise between three and ten years after grant, or earlier in specified leaver and takeover cases |
| Save As You Earn (SAYE) | All-employee; must be offered to all eligible staff on similar terms | Savings of up to £500 a month | Options exercised with savings at the end of the contract without income tax |
| Share Incentive Plan (SIP) | All-employee; shares held in a UK trust | Free shares up to £3,600 a year; partnership shares up to £1,800 or 10% of income; up to two matching shares per partnership share | Income tax relief if shares stay in the plan for the required period |
| Unapproved options, growth shares, LTIPs | Any company, any participant | No statutory limit, but investor and governance limits apply | Income tax (and often NICs) on the value received, unless structured as an acquisition at market value |
EMI after the April 2026 expansion
For options granted on or after 6 April 2026, the government raised the EMI company limits significantly. A qualifying company may now have gross assets of up to £120 million and fewer than 500 full-time equivalent employees, and the total value of unexercised EMI options may reach £6 million. The maximum exercise period has also been extended from 10 to 15 years, and existing unexpired options can in some cases be amended to take advantage of it.
The per-employee limit of £250,000 and the working-time requirement (at least 25 hours a week, or 75% of working time) did not change. Companies registered in Northern Ireland that trade in goods or electricity keep the previous limits.
The expansion matters most for scale-ups that had outgrown EMI and moved to CSOP or unapproved options. Share option scheme solicitors now regularly review whether a company that crossed the old thresholds can grant EMI again, and whether the board should migrate future grants back into the scheme.
CSOP, growth shares and the alternatives
CSOP remains useful where EMI is unavailable, for example because the company carries on an excluded activity (such as banking, farming, property development or legal services) or is controlled by a private equity fund. Since April 2023 options can be granted over shares worth up to £60,000 per employee, and the shares need not be ordinary shares with standard rights, which allows CSOP options over growth shares.
Growth shares, flowering shares and joint share ownership plans give participants value only above a hurdle. They suit founders and senior hires at companies with significant existing value, but they are taxed under the general employment-related securities rules and depend heavily on a defensible valuation.
An option is a contract and a tax position at the same time. If either is defective, the employee may lose the value and the company may carry the liability.
Valuation, elections and reporting: the mechanics that keep relief
Most lost reliefs come from administration, not design. The company must value the shares properly, grant the option in the right form, give HMRC the right information on time and keep its share register consistent with the plan records.
Valuation. For EMI and CSOP the market value at grant drives both the individual limit and the tax result. HMRC's Shares and Assets Valuation team will agree an EMI or CSOP valuation in advance, and an agreed valuation is normally valid for a limited period, so the grant must follow promptly.
Notification. EMI options granted on or after 6 April 2024 must be notified to HMRC by 6 July following the end of the tax year of grant. The government has announced that, for options granted on or after 6 April 2027, separate notification will be replaced by reporting in the annual EMI return, with draft legislation published in July 2026 for the Finance Bill 2026-27. Until that is enacted, the current deadline is the one to follow.
Elections. Where employees acquire shares that carry restrictions, a joint election under section 431 ITEPA can fix the income tax position at acquisition and keep future growth in capital gains tax. HMRC's Employment-Related Securities Manual explains that, for EMI shares acquired at a discount with no deemed election, the election must be made within 14 days of acquisition.
Annual returns. Every company with a registered scheme, and every company whose employees acquired employment-related securities outside a scheme, must file an annual ERS return by 6 July after the tax year, even if nothing happened. Late or missing returns attract penalties, and repeated failures can be raised in due diligence.
How share option scheme solicitors implement a plan
- Scope the objective. Agree who should participate, how much of the equity is available, how the plan should reward performance, and what the board and investors will accept on dilution.
- Check eligibility. Test EMI qualifying conditions (independence, trade, gross assets, employee numbers and the individual's working time) or the CSOP and all-employee conditions, and decide whether to seek HMRC advance assurance.
- Value the shares. Prepare a valuation, usually with accountants, and agree it with HMRC where appropriate; the valuation also sets the exercise price.
- Corporate approvals. Review the articles and shareholders' agreement, obtain investor consents, adopt any new share class, and pass board and shareholder resolutions to allot shares and disapply pre-emption rights.
- Draft the documents. Prepare the plan rules, option agreements, leaver provisions and participant summaries, and any amendments to the articles for drag, tag and compulsory transfer.
- Grant and register. Execute the option agreements, register the scheme on HMRC's ERS service, and diarise the EMI notification and annual return deadlines.
- Run the plan. Track vesting, performance conditions, leavers and disqualifying events, and refresh valuations before further grants.
- Prepare for exit. Before a sale or listing, check exercise windows, rollover options and the tax treatment of each participant, so the deal timetable is not held up.
Executive remuneration in quoted and private equity-backed companies
For listed companies, incentives are shaped as much by investors as by tax. Remuneration committees work within the approved directors' remuneration policy, institutional investor guidelines on dilution and holding periods, and the Code's expectations on malus, clawback and post-employment shareholding. Performance share plans, restricted share plans and deferred bonus plans are the usual tools. Market abuse rules on dealing by persons discharging managerial responsibilities also affect when awards can be granted and shares sold.
In private equity buyouts, the management equity package is negotiated as part of the deal. Sweet equity, institutional strip, ratchets and leaver provisions determine what managers actually receive on exit. Managers should take independent advice on the investment agreement and articles before signing, and the private equity firm will expect section 431 elections to be in place on completion.
For venture-backed companies, option pools are a recurring negotiation point in funding rounds. Investors may ask for the pool to be expanded before their investment so that the dilution falls on existing holders. Share option scheme solicitors who also act on venture capital rounds can align the pool size, vesting and good-leaver terms with the investment documents.
Documents and records to assemble
Whether a plan is being set up, reviewed or prepared for a sale, the same papers are needed. Gaps in them are the most common reason for price adjustments, indemnities or escrow in a transaction.
Constitution and cap table
Current articles, shareholders' agreement, register of members and a fully diluted cap table showing every option and share class. Inconsistencies between the cap table and the register need fixing before any grant.
Plan rules and agreements
Signed plan rules, every option agreement and any side letters. For EMI, each agreement must state the required details, including any restrictions on the shares and the exercise conditions.
Valuations and HMRC correspondence
Agreed valuations, advance assurance letters, EMI notifications, scheme registrations and annual returns. These are the evidence that relief was properly claimed.
Board and shareholder approvals
Resolutions authorising allotment and disapplying pre-emption, investor consents, and minutes approving each grant, with dates matching the option agreements.
Employment records
Contracts, working-time evidence for EMI, and leaver files showing the dates and reasons for departures, which decide whether options lapse or remain exercisable.
Elections and payroll
Section 431 elections, any NIC elections or agreements, and payroll records showing PAYE and NICs operated on taxable exercises.
Risks and common mistakes in employee share schemes
Missing an EMI notification or annual return deadline
If an EMI option is not notified by the statutory deadline, it does not qualify as an EMI option at all. The employee then faces income tax, and potentially National Insurance, on exercise, and the company may have to operate PAYE.
A missed annual return does not usually destroy relief in the same way, but it creates automatic penalties and is flagged in due diligence. A calendar of deadlines owned by one person in the finance team, and checked by advisers each spring, prevents most of these problems. Where a deadline has been missed, it is worth taking advice promptly on whether HMRC will accept a late filing or whether the options should be restructured.
Granting before the company can lawfully allot shares
Options must be backed by corporate authority. If the board has no authority to allot shares, or pre-emption rights in the articles or shareholders' agreement have not been disapplied, the company may be unable to satisfy an exercise without investor consent. This is easy to miss when options are granted informally by email or offer letter. Before granting, check the articles, the shareholders' agreement and any investor consent rights, and pass the necessary resolutions. Retrospective fixes are possible but cost time and goodwill, especially if a sale is under way.
Unclear or unenforceable leaver provisions
Good leaver and bad leaver definitions decide what a departing employee keeps. Vague wording leads to disputes when someone is dismissed, resigns to join a competitor or leaves through ill health. Bad leaver terms that operate as a penalty, or that discriminate on grounds such as disability or age, can be challenged. Plan rules should give the board a discretion that is exercised consistently and recorded, and should be read together with the employment contract and any restrictive covenants. Where a dispute arises, a settlement agreement can deal with the options expressly.
Disqualifying events that end EMI relief
EMI relief can be lost if a disqualifying event occurs, such as the company coming under the control of another company, ceasing to meet the trading requirement, or the employee ceasing to meet the working-time requirement. After a disqualifying event, the option keeps its EMI treatment only if exercised within a limited window. Boards should check the impact of investment, group reorganisations and changes to hours before they happen. On a sale, the deal timetable should be planned so that participants can exercise in time, or so that options are properly replaced.
Ignoring the PAYE consequences of unapproved awards
Where shares are readily convertible assets, for example because there is a market for them or a sale is arranged, income tax on unapproved options and awards must be collected through payroll and National Insurance is due. A company that treats a taxable exercise as a capital event may face PAYE, interest and penalties, and must recover the employee's tax within the statutory period or face a further charge. Exercise mechanics, including sell-to-cover arrangements and indemnities from participants, should be built into the plan.
If your company outgrew EMI before 6 April 2026, check again now. With the higher asset, headcount and company limits, many scale-ups qualify once more, and new grants can carry the 15-year exercise period. Replacing unapproved options already granted is a separate question that needs careful tax analysis, so take advice before cancelling anything.
Cross-border incentives: Bangladesh, the EU, the Gulf and Asia
Growing companies increasingly employ people outside the UK. A UK plan offered abroad must comply with each country's tax, social security, securities and exchange control rules, and those rules often differ from the UK's on timing. An option that is tax-free on exercise in the UK may be taxed on grant or vesting elsewhere.
For employees in Bangladesh, foreign exchange controls administered by Bangladesh Bank can restrict residents from acquiring or holding shares in foreign companies without approval, and local tax treatment of employee equity must be checked with Bangladeshi counsel. TRW & Co's Dhaka office works alongside the London team on these questions, and on structuring incentives for Bangladeshi businesses in the UK and UK companies with teams in Bangladesh.
In the EU, offers of shares to employees may engage prospectus rules unless an exemption applies, and data protection law governs the transfer of participant data. In the United Arab Emirates, Singapore and China, local securities and foreign exchange rules, and in China in particular registration requirements for offshore equity plans, can apply. The practical answer is usually a country-by-country addendum to the main plan, a cash-settled alternative where shares cannot be offered, and clear allocation of employer withholding obligations.
How TRW & Co helps as share option scheme solicitors
We advise companies, boards, remuneration committees, founders and individual executives. For companies, our role as share option scheme solicitors is to make the plan work commercially and survive scrutiny from HMRC and future buyers. For individuals, we explain what an award is worth, what the tax will be and what leaving would cost.
Plan design and implementation
EMI, CSOP, SAYE, SIP, growth share and LTIP structures, with plan rules, option agreements, board papers and HMRC registration. We coordinate valuations with your accountants.
Health checks and remediation
Reviews of existing schemes against the statute, the articles and HMRC records, with a practical plan to fix defective grants before a fundraising or sale.
Transactions and exits
Treatment of options and management equity on mergers and acquisitions, buyouts and listings, including rollover, cash cancellation and exercise mechanics.
Executive and leaver advice
Advice for directors and senior employees on award terms, leaver status and negotiating exits, working with our senior executive employment practice.
Where a matter turns on the tax treatment of a transaction, we work with our tax team and, where needed, with the company's accountants. We do not promise a particular tax result: we explain the law, the risks and the evidence HMRC will expect.
Checklist for boards considering share option scheme solicitors
- Define the purpose: retention, recruitment, alignment with an exit, or broad employee ownership.
- Agree the size of the pool and the dilution investors will accept, on a fully diluted basis.
- Test EMI eligibility against the post-April 2026 limits before defaulting to unapproved options.
- Obtain a defensible valuation, and agree it with HMRC where the scheme allows.
- Check the articles and shareholders' agreement for allotment authority, pre-emption and consent rights.
- Draft leaver provisions that are clear, consistent with employment contracts and fair to apply.
- Diarise EMI notifications, scheme registrations and the 6 July annual return.
- Collect section 431 elections where shares are acquired.
- Plan for exit: exercise windows, rollover and PAYE on taxable events.
- For overseas staff, obtain local advice before offering awards outside the UK.
To discuss a new plan, a review of an existing scheme or an incentive question on a transaction, contact TRW & Co at Holborn Gate, 330 High Holborn, London WC1V 7QH, or by email at info@trw.co. You can also see how this work connects with our other areas on our practices page and read our guide to EMI share options.
Frequently asked questions
01Which share option scheme is best for a start-up or scale-up?
For most independent trading companies, EMI is the most tax-efficient choice. Employees pay no income tax or National Insurance on exercise if the exercise price is at least market value at grant, and gains are taxed as capital. From 6 April 2026 companies with gross assets up to £120 million and fewer than 500 employees can qualify. If the company carries on an excluded activity or is controlled by another company, CSOP or growth shares may be better. The right answer depends on who is participating, the company's value and its exit plans.
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, the employee limit from 250 to 500, and the company-wide limit on unexercised options from £3 million to £6 million. The maximum exercise period increased from 10 to 15 years, and some existing options can be extended. The individual limit of £250,000 and the working-time requirement did not change. Companies registered in Northern Ireland that trade in goods or electricity keep the old limits.
03Do we still need to notify HMRC of EMI option grants?
Yes. Options granted on or after 6 April 2024 must be notified to HMRC by 6 July following the end of the tax year of grant. If the notification is not made in time, the option does not qualify for EMI. The government has announced that separate notification will be removed for options granted on or after 6 April 2027 and replaced by reporting in the annual EMI return, but that change depends on legislation in the Finance Bill 2026-27.
04What is a section 431 election and do employees need one?
A section 431 election is a joint election between employer and employee that treats restricted shares as if they were unrestricted for income tax. Paying tax on the unrestricted value at acquisition means later growth falls within capital gains tax rather than income tax when restrictions lift or the shares are sold. Investors usually require elections from managers in buyouts. HMRC guidance explains the election must be made within 14 days of acquisition, so it should be signed at completion.
05What happens to my options if I leave the company?
That depends on the plan rules and your option agreement. Many plans distinguish between good leavers, such as those leaving through ill health, redundancy or retirement, and bad leavers, such as those dismissed for misconduct or resigning to join a competitor. Good leavers may keep some or all vested options for a limited period; bad leavers often lose them. For EMI options, leaving employment is a disqualifying event, so the tax position also depends on exercising within the permitted window.
06Can growth shares be used instead of options?
Yes. Growth shares give participants value only above a hurdle, usually set at or above the company's current value. Employees acquire actual shares at market value, often low because of the hurdle, so there may be little or no income tax on acquisition, and future growth can be taxed as a capital gain. The structure depends heavily on a robust valuation and correct articles. Since April 2023 CSOP options can also be granted over growth shares.
07How are share options treated when the company is sold?
The plan rules usually allow options to be exercised on a change of control, rolled over into options over the buyer's shares, or cancelled for cash. EMI options exercised within the permitted period around a sale can keep their tax advantages, and some participants may qualify for Business Asset Disposal Relief. Unapproved options exercised on sale are usually taxed through payroll. Planning the exercise mechanics early avoids delays in the deal timetable.
Sources and official materials
- Tax and Employee Share Schemes — HMRC overview of SIP, SAYE, CSOP and EMI
- Enterprise Management Incentives (EMIs) — Current EMI limits and tax treatment
- Expanding the eligibility limits of the EMI scheme — Policy paper on the April 2026 changes
- EMI: removal of the requirement to notify option grants — Proposed change for grants from April 2027
- Income Tax (Earnings and Pensions) Act 2003 — Part 7 and Schedules 2 to 5
- Employment-Related Securities Manual — HMRC guidance on restricted securities and elections
- UK Corporate Governance Code — Remuneration provisions including malus and clawback
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.