The short answer: what EMI is and why it wins
Enterprise Management Incentives, or EMI, is a share-option scheme that lets a qualifying UK company give employees the right to buy shares at a fixed price set today, with the tax deferred all the way to sale. Granted properly, the employee pays nothing on the day the option lands, nothing on the day they exercise, and only Capital Gains Tax when the shares are eventually sold. That is the whole appeal, and nothing else HMRC offers comes close for a growing company.
Compare it to an ordinary, unapproved option. When an employee exercises one of those, HMRC treats the gain as employment income and taxes it like a bonus: up to 45 percent Income Tax plus National Insurance, with the company paying 15 percent employer NIC on top. EMI removes that hit entirely, provided the exercise price is at least the market value agreed with HMRC at grant. This guide is written by LOYALS, a King's Cross firm of chartered accountants that sets up EMI schemes, files R&D claims and runs year-end accounts for London tech founders, so it is built around the mistakes we actually see, not the theory.
Equity is the currency of early-stage hiring. You cannot match a big employer's salary, but you can offer a real stake in what the new hire helps build. If you are weighing up the whole founder tax picture, our tech startup accountants page covers EMI alongside R&D relief, SEIS and EIS. The rest of this guide walks through who qualifies, what HMRC checks, and where the scheme falls over.
Does your company qualify in 2026/27?
Your company can grant EMI in 2026/27 if it has gross assets of £120 million or less, fewer than 500 full-time equivalent employees, is independent, trades wholly or mainly in the UK, and is not in an excluded trade. Those first three tests were all relaxed from 6 April 2026, which is the single biggest EMI change in years and the reason scale-ups that were previously locked out can now use the scheme.
Fix these figures in your head first, because they drive every EMI conversation.
The increases came in through Finance Bill 2025-26 and apply to EMI contracts granted on or after 6 April 2026, per HMRC's policy paper on expanding the EMI limits (as at 2026). One quiet exception: a Northern Ireland company trading in goods or electricity keeps the old lower limits (£30 million, 250 staff, £3 million) because of subsidy control rules, so check that if you operate there.
Whether you can use EMI at all comes down to a short run of questions answered in order. Say yes to every one and you can grant today.
The trade test that trips founders up
The trade test, not the size limits, is where most EMI failures start. HMRC excludes a long list of activities from EMI: banking, insurance, legal services, accountancy, property development, farming and market gardening, running hotels, running nursing or residential care homes, leasing, hire-purchase finance, and providing services to a company in any of those excluded sectors. If more than 20 percent of your trade sits in an excluded activity, the whole company fails, because EMI needs you trading "wholly or mainly" in qualifying activities, which HMRC reads as more than 80 percent.
Here is where it bites. A software company that pivots into, say, taking a cut of hotel room revenue, or holding regulated wallet balances, or holding property inventory, can drift into excluded territory even though it still looks and feels like a tech business. The test applies on every grant date and continuously while options are live. HMRC's full eligibility rules sit in the Employee Tax Advantaged Share Scheme user manual (as at 2026), and the shorter gov.uk EMI overview covers the day-to-day version.
A common pattern we unwind: a company is clean at seed, drifts into an excluded activity by Series A, and the disqualifying event quietly strips EMI status from every option already granted unless the holders exercise within 90 days. If you sit in a grey zone (legaltech, regulated fintech, proptech that holds stock, hospitality software taking commission), get the trade test confirmed in writing before you grant.
The £250,000 and £6 million limits
Each employee can hold up to £250,000 of unexercised EMI options at any one time, measured at the market value agreed on each grant date, and that figure did not change in 2026. If someone already holds £200,000 of EMI options and you grant another £100,000 worth, only £50,000 of the new grant qualifies as EMI. The rest is treated as unapproved.
Two practical points. The £250,000 is an at-a-time limit, not a lifetime one, so exercised options stop counting toward it, which is why we sometimes time an exercise before a fresh grant for a senior hire. The total company cap rose from £3 million to £6 million from 6 April 2026, and it works the same at-a-time way. As your share value climbs across funding rounds, that pool is consumed faster per share: a pre-seed company granting at £0.10 a share can issue 60 million options under the new £6 million cap, while a Series B company granting at £15 a share gets 400,000 before the cap bites.
Getting the HMRC valuation right
EMI's tax advantage hangs on one number: the strike price the employee pays on exercise must be at least the Actual Market Value (AMV) of the shares on the grant date. Get it right and exercise is tax-free. Get it wrong and the gap between strike and AMV is taxed as employment income at 20, 40 or 45 percent plus NIC, which defeats the point of the scheme.
You do not have to use HMRC's valuation, but you should. The route is form VAL231 to HMRC's Shares and Assets Valuation team, which agrees an AMV that is binding for 90 days. Grant inside that window and you have certainty. The submission usually bundles the latest accounts, the most recent priced funding round, the cap table, the proposed grants, and a discount narrative explaining why a minority, unmarketable holding is worth less than the last round price. At seed the AMV on ordinary shares is often 60 to 80 percent of the post-money headline, because the round is stacked with preference and anti-dilution rights that ordinary shareholders do not get.
The 6 July notification deadline
For options granted on or after 6 April 2024, you must notify HMRC of the EMI grant by 6 July following the end of the tax year in which the option was granted, through the Employment Related Securities (ERS) online service. So an option granted in, say, September 2026 must be notified by 6 July 2027. The old 92-day deadline is gone, but the new one still catches people out.
The reason it catches people out is that the ERS annual return is also due 6 July, and founders assume the EMI notification is part of the same job. It is not. The EMI notification is a separate step inside the ERS service, made when you set up the scheme or add new options. Miss it and the option loses EMI status completely: no late-filing fix, no penalty route that preserves the tax treatment. It simply becomes an unapproved option, and the employee pays full Income Tax and NIC on exercise. We see this most with grants buried in a year-end shareholders' agreement that never reach the accountant.
The 2-year hold and 18% BADR at exit
EMI shares qualify for Business Asset Disposal Relief (BADR) at sale, provided the option was granted at least 2 years before the disposal. For EMI, the usual BADR tests (a 5 percent personal shareholding, employment for 2 years) are waived, and the clock runs from the grant date, not the exercise date. BADR is 18 percent for the 2026/27 tax year, up from 14 percent in 2025/26 and 10 percent before April 2025, with a £1 million lifetime allowance; gains above that are taxed at the standard 24 percent rate for shares, per gov.uk's Business Asset Disposal Relief guidance (as at 2026).
Timing matters. If a founder grants senior-hire options 18 months before an acquisition, those shares are sold inside the 2-year window and miss BADR, so the gain is taxed at 24 percent rather than 18 percent. On a £400,000 gain that is a £24,000 difference for one person, purely from grant timing. Even at 18 percent, though, EMI comfortably beats an unapproved option taxed at 40 percent Income Tax plus employee NIC on exercise, with the company also paying 15 percent employer NIC.
Put real numbers on a clean exit. A Series B SaaS company grants its Head of Engineering 50,000 EMI options in April 2026 at an AMV of £2.00. It sells in 2029 at £12.00. The employee exercises and sells, realising a £500,000 gain. The 2026/27 CGT annual exempt amount is £3,000, per gov.uk's Capital Gains Tax allowances (as at 2026). Under EMI, held more than 2 years: nothing at grant, nothing at exercise, and £497,000 taxed at 18 percent BADR, roughly £89,500. Under an unapproved option, the same £500,000 is employment income at exercise: around £210,000 of Income Tax and employee NIC, plus about £75,000 of employer NIC for the company. The employee keeps about £410,000 with EMI and about £290,000 without. That £120,000 gap, per person, is the whole reason to get EMI right.
When EMI is not the answer
EMI is brilliant when it fits, and pointless when it does not. It is employees only, needing at least 25 hours a week or 75 percent of working time, so contractors, advisers and non-executive directors cannot receive it; use an unapproved option or growth shares there. Anyone already holding more than 30 percent of the company is blocked by the material-interest rule, which catches founders trying to grant themselves more EMI. If your company is in an excluded trade, there is no workaround inside EMI, and a Company Share Option Plan (CSOP) is the usual fallback, with fewer trade restrictions but a £60,000 per-employee cap.
Here is how the three main UK share-scheme routes compare for a growing company.
| What matters | Unapproved option | CSOP | EMI |
|---|---|---|---|
| Tax at grant | None | None | None |
| Tax at exercise | Income Tax + NIC on the gain | None if held 3 years | None (strike at market value) |
| Tax at sale | CGT on later growth | CGT | CGT, often 18% BADR |
| Per-employee limit | No limit | £60,000 | £250,000 |
| Who can receive | Anyone | Employees and full-time directors | Employees, 25 hrs or 75% of time |
| Company size (2026/27) | Any | Larger companies allowed | Gross assets under £120m, under 500 staff |
For a qualifying startup EMI wins on almost every line, which is why it is the default first scheme for UK tech founders. The catch is that the advantages only survive if the valuation, notification and limits are all handled correctly, so the setup is where a specialist earns their fee.
What to do next
If you are a UK tech founder with a growing team and any plausible exit, EMI is almost certainly the right first share scheme. The market rate to set one up, draft the rules, agree the HMRC valuation and file the first notifications is typically a few thousand pounds as a one-off, and the saving per employee at exit runs into tens or hundreds of thousands. The steps, in order, are the part to get right.
- Confirm the company qualifies. Gross assets, headcount, independence and, above all, the trade test. Get any grey area confirmed in writing before you grant.
- Set your option pool. Usually 10 to 15 percent of share capital at seed, growing to 15 to 20 percent through Series A and B.
- Draft the scheme rules and option agreements, with your good-leaver and bad-leaver terms built in.
- File a VAL231 with HMRC's Shares and Assets Valuation team, and allow several weeks.
- Grant the options inside the 90-day VAL231 window.
- Notify HMRC through the ERS service by 6 July following the end of the tax year of grant.
- Diarise the annual ERS return, also due 6 July, for every year an EMI option is live.
None of it is intellectually hard, but the sequencing and the deadlines have to be tracked precisely, and a single missed step can quietly cost an employee a six-figure sum. LOYALS is a King's Cross firm of chartered accountants that designs and files share schemes, agrees the HMRC valuation and builds the exit tax position for London startups, alongside the R&D and year-end work. If you would rather not track all of this yourself, you can sense-check your plan in a free call and we will tell you exactly what applies to your company. It is also worth reading our guide to R&D tax relief for SaaS companies, since EMI and R&D usually sit on the same founder's to-do list.