EMI Options Scheme

Explore how EMI option schemes work, who qualifies, the tax benefits, and what’s involved in setting one up for your business.

Enterprise Management Incentive (EMI) schemes are one of the most tax-efficient ways UK companies can reward and retain key employees. If you’re a startup or high-growth business looking to incentivise staff with equity, EMI options might be the right tool — but understanding how they work, who qualifies, and how to set them up is key.

This guide explains EMI schemes in plain terms, covering everything from tax benefits to common pitfalls.

What Is an EMI Scheme?

An EMI scheme is a government-approved share option plan that allows certain UK companies to grant employees the right to buy shares in the business in future — usually at today’s price — with generous tax advantages.

The main idea is to align employee incentives with business growth, giving staff a direct stake in the success of the company.

It’s a discretionary scheme, meaning you can choose which employees receive options, how many, and under what conditions.

How Do EMI Schemes Work?

The company grants employees share options, which give them the right (but not obligation) to buy shares in the company at a fixed price (usually the market value at the time of the grant). These options typically vest over time or after performance milestones.

When the employee exercises the option — often at exit or sale — they buy shares at the original price. If the company has grown, they make a gain. Thanks to EMI’s tax benefits, this gain is treated favourably compared to salary or bonuses.

Why Do Businesses Give EMI Options to Employees?

There are several reasons:

  • To attract and retain key talent

  • To motivate employees by aligning their interests with business performance

  • To compete with larger employers without needing to offer high salaries

  • To build a long-term ownership culture

  • To minimise cash outflows while rewarding staff

For startups and scale-ups, EMI options are often a core part of the compensation package.

What Is the Eligibility Criteria for EMI?

Qualifying Companies                         

To offer EMI options, your company must:

  • Be independent (not majority-owned by another company)

  • Have gross assets of £30 million or less

  • Have fewer than 250 full-time equivalent employees

  • Carry on a qualifying trade (some trades like property, finance, legal services are excluded)

Qualifying Options

Options must:

  • Be granted for genuine commercial reasons

  • Be over ordinary shares

  • Be non-transferable

  • Have a total market value of no more than £250,000 per employee

  • Not exceed £3 million across the company

Who Can Be Granted EMI Options?

Employees must:

  • Work at least 25 hours a week, or 75% of their working time in the company

  • Not hold more than 30% of the company’s shares

  • Be an employee at the time of the grant

Non-executive directors and consultants are not eligible.

What's the Difference Between EMI, Growth Shares and Unapproved Options?

  • EMI options are tax-advantaged and approved by HMRC, offering the best tax treatment.

  • Growth shares are actual shares issued now, often structured to only gain value above a threshold (suitable where EMI doesn’t apply).

  • Unapproved options don’t qualify for tax benefits — useful for non-eligible employees or overseas team members but taxed as income on exercise.

Each route has pros and cons depending on your company’s size, stage, and cap table strategy.

What Are the Tax Benefits of EMI Options?

EMI options offer substantial tax advantages for employees:

  • No Income Tax or NIC on grant

  • No Income Tax or NIC on exercise (if granted at market value)

  • Capital Gains Tax (CGT) on any sale proceeds, often at 10% with Business Asset Disposal Relief (if held for 24 months)

For employers:

  • Corporation tax relief on the gain realised by the employee

This is one of the most tax-efficient ways to reward staff.

Potential Pitfalls of EMI Schemes

Despite the benefits, EMI schemes can go wrong if not managed properly:

  • Failing to meet eligibility rules (especially on independence or trade)

  • Granting options at an undervalued price without HMRC agreement

  • Poor documentation or no signed option agreements

  • Not notifying HMRC within 92 days of the grant

  • Not tracking option holders properly over time

Mistakes can result in loss of tax benefits and unhappy employees.

What Are the Steps to Set Up an EMI Scheme?

  1. Check company and employee eligibility

  2. Get a share valuation and submit it to HMRC for approval

  3. Design your option scheme rules and vesting structure

  4. Prepare and sign option agreements with employees

  5. Grant the options formally via board resolution

  6. Notify HMRC within 92 days of each grant via the ERS online system

It’s strongly advised to work with a solicitor or accountant experienced in EMI schemes.

What Administration Is Involved in EMI Schemes?

While EMI schemes are more flexible than other share plans, they still require ongoing admin:

  • Maintain an option register

  • File annual EMI returns through the HMRC ERS system

  • Track employee leavers and lapsed options

  • Manage exercise and share issue processes

  • Monitor company eligibility (especially if taking on investment or changing structure)

Having clear documentation and software (like Capdesk or SeedLegals) can simplify this.

Final Thoughts

EMI options are one of the most effective ways to motivate and reward employees in a tax-efficient manner — especially for startups and growing businesses. They allow you to offer long-term incentives without hitting your cashflow and give staff real upside in the business’s success.

But to get the most out of an EMI scheme, it needs to be set up and managed properly. The eligibility rules are strict, and the admin requires care, but the upside for both employer and employee is significant.