EMI Share Option Schemes – VC And Founder's Insights

It was recently reported that Revolut is due to make over 200 of its employees "paper millionaries" (Sifted, 2025), demonstrating the powerful impact that employee share option schemes can have in rewarding talent without significant up-front cash payments.

Perhaps the most compelling choice of share scheme for qualifying early-stage businesses are Enterprise Management Incentive (EMI) options. EMI options offer substantial tax advantages over 'traditional' share options, including eligibility for Business Asset Disposal Relief, which reduces capital gains tax by 10% in most cases. As a result, EMI options are a powerful tool for incentivising and retaining key staff and are widely adopted by high-growth, VC-backed companies.

What are EMI share options?

At a fundamental level, EMI share options are no different to 'standard' options granted to employees, save that there are additional eligibility requirements at the company-and-employee level. Share options give the holder a right to purchase shares in a company at a future date at a fixed price. The main difference with employee share options (including EMI share options) are that the options are usually 'earned' over time (via vesting) and only become exercisable (convertable into shares) if certain criteria are met.

The criteria for exercise can be tailored on a company-by-company basis, such as on revenue metrics or (most commonly) on an exit (IPO or sale), ensuring that employees are incentivised to help meet company goals.

In addition to being an incentive for employees, the benefit of having a share option scheme is that shares are not issued upfront, meaning that the company's 'cap table' remains manageable and avoids the need for the shares to be converted into deferred shares or otherwise boughtback in the event an employee leaves.

How do I set up an EMI share option scheme?

More often than not, EMI share option schemes are implemented as part of a funding round (often Seed or Series A), which means that the amendments to the company's constitutional documents (articles of association and shareholders agreement) can be implemented alongside the changes required for the funding round. If you are seeking to implement an EMI share option scheme outside of a wider fundraising, it will be necessary to consider what consents and amendments will be required to implement the scheme, and standalone amendments to the articles of association and/or shareholders agreement may be required.

HMRC Valuation, Advance Assurance and Reporting

To avoid any unwanted surprises post-exercise, it is advisable for the company to obtain an official HMRC valuation prior to granting EMI options. Though companies can use their own valuation, agreeing a valuation with HMRC provides certainty for employees, the company, as well as any potential buyer for the company in future, as HMRC may query a company-own valuation. In addition to securing a HMRC valuation, it is often also helpful to obtain advance assurance from HMRC to confirm that the company is eligible under the EMI option rules, for the same reasons as set out above.

While securing a valuation and/or advance assurance is advisable, reporting the grant of EMI options to HMRC is a necessity to secure the tax benefits offered by EMI schemes and will be an item that any potential buyer (or investor) will require evidence of when conducting due diligence. Companies must file an annual return with HMRC reporting any EMI share option exercises, lapses, cancellations, releases, adjustments and/or replacements by the 6th July following the end of each tax year (i.e for the tax year ending 5 April 2026, the deadline will be 6 July 2026).

Eligibility requirements

Companies

Companies wishing to take advantage of EMI schemes must meet the following criteria:

• Independence - if more than 50% of the ordinary share capital of the company is owned or controlled by another company, or by another company and persons connected with it, the company will not be EMI eligible (a person is connected with a company if they and/or their close relations have control of the company). Note, this does not preclude a company with an individual (e.g. a founder) from establishing an EMI scheme.
• Gross assets - the company's gross assets (including any group companies) must not exceed £30m at the time the EMI options are granted.
• Employees - the company must have fewer than 250 full-time equivalent employees.
• Permanent establishment - the company must have a permanent establishment in the UK.
• Subsidiaries - all of the company's subsidiaries (if any) must be qualifying (see below).

In addition to the above, companies wishing to take advantage of EMI schemes must not trade, or have a substantial part of its trade, in the following industries:

• dealing in land, commodities or futures, or shares, securities or other financial instruments;
• banking, insurance, money-lending, debt-factoring, hire purchase financing or other financial activities;
• leasing (including letting ships on charter, or other assets on hire);
• dealing in goods, otherwise than in the course of an ordinary trade of wholesale or retail distribution;
• providing legal or accountancy services; or
• property development.

There are other exempt industries, however, the above are the most common types of exempt business we come across. See the full list here.

Finally, companies cannot grant more than £3m in unexercised options at any one time (based on unrestricted market value). If any options are granted in excess of this amount, they will be non-qualifying.

Employees

Employees (including directors) participating in a company's EMI option scheme must meet the following criteria:

• Working time - employees (or directors) must work at least 25 hours each week, or devote at least 75% of their total weekly working time to the company.
• Material interest - employees (or directors) must not have a 'material interest' in the company, meaning they (and their associates) must own less than 30% of the company (associates in this context include business partners, spouses and civil partners, direct relations and trusts settled by the employee/director).
• Holding period - employees (or directors) must hold their options or shares for at least 24 months from the date of grant for them to gain the maximum tax benefit.

In addition to the above, each employee must not hold more than £250,000 (based on unrestricted market value) of EMI options in any three-year period. Be aware that any options granted under a general company share option plan may also count towards this total.

General restrictions

For options to be EMI eligible, they must meet the following criteria:

• Exercise period - the options must be exercisable (convertible into shares) within 10 years of a grant.
• Share type - the options must be convertible into ordinary shares (though they can be restricted) - preference shares are ineligible.

Tax advantages

If the EMI share scheme is properly structured and the company and employees fall within the scope of the EMI rules, there are numerous tax advantages available:

• no income tax or national insurance contributions are payable on the grant of options;
• provided the market value of the shares (from a HMRC perspective) is equal to the exercise price, no income tax or national insurance contributions are payable on the exercise of options; and
• capital gains tax is payable by employees on the sale of shares issued from exercised options (reduced to a rate of 14% (from 6 April 2025) or 18% (from 6 April 2026) on the first £1m of gains per employee).

If, however, the option is exercised more than 90 days following a disqualifying event (such as the company ceasing to carry out a qualifying trade, the optionholder ceasing to be an employee, the optionholder being over their £250,000 limit (including general share options), the company being acquired, or certain alterations being made to the company's share capital), income tax and national insurance contributions will be payable in most circumstances.

In addition to the benefits for employees, companies may also be able to benefit by claiming corporation tax relief on the difference between the market value of the shares and the price paid by the employee.

Final thoughts

Setting up an EMI share option scheme can be an incredibly powerful way for early-stage companies to attract, retain and reward employees without up-front cash payments, while also aligning employees with long-term company success.

However, for the benefits to be obtained, the EMI scheme must be properly structured and carefully thought through to ensure that it does not fall foul of any of the restrictions set out above. Therefore, it is essential that companies take proper legal, tax and accounting advice when establishing EMI share option schemes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.