Enterprise Management Incentive (EMI) Scheme 

What are EMI Share Options? 

The Enterprise Management Incentive (EMI) scheme is a government approved scheme which allows qualifying trading companies to offer qualifying employees the option to acquire shares at an agreed upon price (the exercise price) at a later date. This is a type of employee share scheme designed to help attract, motivate and retain staff of qualifying small and medium sized businesses. The scheme is widely regarded as the most tax efficient share scheme in the UK. 

Qualifying Conditions 

As the scheme offers beneficial tax incentives for both the employer and the employee, there are a variety of conditions to be met by the: 

• Company (or group)  

• Employees 

• Type of shares 

Some of the key conditions have been detailed below:  

Qualifying Companies  

In order to qualify the company must meet the following requirements: 

• Be an independent trading company, with a place of business in the UK carrying out a qualifying trade 

• Have gross assets not exceeding £30 million 

• Have fewer than 250 full time employees 

• The total value of shares over which EMI options are held cannot exceed £3 million 

Qualifying Employees  

• The employee must work at least 25 hours a week or, if less, at least 75% of their working time must be for the company.  

• The employee, either individually or together with an associate, must not have a material interest in the company.    

Qualifying Shares  

• The shares over which the options are granted must be ordinary shares and not redeemable.  

• Options must be capable of exercise within 10 years from the date of grant. 

EMI Tax Position 

One of the key benefits of the EMI scheme are the taxation incentives available. 

• The employee (and the employer) will not be subject to income tax or NICs at the time the option is granted. 

• The employee (and the employer) will not be subject to income tax or NICs on exercise of the option, if the market value (at the time of grant) is paid for the shares.  

• If the exercise price is less than the market value at the date of grant, there will be an income tax charge for the employee on the value of the discount (i.e. difference between exercise and market value on grant). 

• When the shares are sold, there may be a capital gain which could be subject to capital gains tax (CGT) 

• If the conditions are met, Business Asset Disposal Relief may apply, and the gain may be taxed at lower rates* 

• Therefore, it can be structured such that employees can share in the growth of the business without incurring an income tax or NIC charge. 

The tax position for the option holder is summarised below: 

*From 6 April 2025, the rate is 14% and then from 6 April 2026 the rate increases to 18%. 

Additional benefits of the EMI scheme  

• The employing company are entitled to claim a corporation tax deduction equal to the difference between the market value of the shares at exercise and the amount paid by the employee for the shares. 

• The value of share options granted can be agreed with HMRC up front. This provides comfort in the tax treatment on exercise in the future.  

• The scheme is very flexible, meaning that it can be structured in a way that suits the company (for example, it can be an exit only scheme or can have performance hurdles included to further incentivise the staff involved). 

• Options may be “exit only” such that they are only exercised on an exit event (i.e. sale or significant investment transaction).

• The use of options frees up cash in the short term which can be invested elsewhere in the business (such as on marketing, R&D and innovation). 

• The employee is not required to pay for the option up front and are under no strict obligation to exercise the option. 

• The rates of capital gains tax are increasing, meaning that the scheme is becoming less valuable, however, it is still more tax efficient that paying a cash bonus which can be subject to 48% as a Scottish taxpayer or 45% as a taxpayer from the rest of the UK.