EMI options or growth shares: which should your startup use?
If your company qualifies, use EMI. Enterprise Management Incentives are the most tax-efficient share scheme HMRC offers, and they are built for exactly the kind of growing company that is reading this. When EMI is not available, growth shares are usually the best alternative, because they still turn an employee's reward into a capital gain rather than income. Unapproved options are the fallback, and the most expensive of the three for the person receiving them.
The reason this matters is not founder tax, it is your team's. When an employee finally sells, the question is how much of their gain they keep. Under EMI most of it; under growth shares most of it; under unapproved options a good deal less, because the biggest slice is taxed as salary with National Insurance rather than as a capital gain. Offering equity that is taxed badly is a quiet way to undercut the very reward you are trying to give.
This guide is written by LOYALS, a King's Cross firm of accountants and business consultants that sets up and runs share schemes for tech startups across London, including through our accountants for tech and SaaS companies. The aim here is to show you the three routes side by side on the number your team will actually feel, then help you pick.
The three ways to give your team equity
There are three common routes, and they differ mainly in when and how the employee is taxed. Getting the shape right at the start is far easier than fixing it later.
EMI options
An EMI option gives the employee the right to buy shares later at a price fixed now. Granted at market value, there is no income tax or National Insurance when the employee exercises, and the gain on sale is a capital gain. Where the EMI conditions are met, that gain can qualify for Business Asset Disposal Relief, which is a reduced capital gains rate.
Growth shares
Growth shares are actual shares that only carry value above a hurdle set when they are issued, so they are worth little at the start and any income tax on acquiring them is small or nil with the right election. The growth above the hurdle is then taxed as a capital gain on sale. They are the go-to route when a company cannot use EMI, for example because it is too large or in an excluded trade.
Unapproved options
Unapproved options are simply options with no special tax status. When the employee exercises, the difference between the market value then and the price they pay is taxed as employment income under HMRC's employment-related securities rules, with income tax and National Insurance. Only the growth after that point is a capital gain. They are flexible and simple to grant, but they are the most heavily taxed route for the employee.
What each costs your employee at exit
Put the three routes on the same gain and the difference is stark. Take an illustrative employee whose shares are worth 200,000 pounds more at exit than what they paid, and assume they are a higher rate taxpayer. The tax, and what they keep, depends entirely on which route you chose years earlier.
Under unapproved options, roughly the whole 200,000 pounds is taxed as income at exercise, so with income tax and National Insurance they lose around 84,000 pounds and keep about 116,000. Under growth shares, the gain is a capital gain taxed at 24 percent for a higher rate taxpayer in 2026-27, so they pay about 48,000 pounds and keep 152,000. Under EMI, the gain is a capital gain that qualifies for Business Asset Disposal Relief at 18 percent from 6 April 2026, so they pay about 36,000 pounds and keep 164,000. Same reward, tens of thousands of pounds apart.
The numbers move with the employee's income and the exact structure, and the annual capital gains exemption and any employer National Insurance passed on will shift them a little. But the ranking does not change: a capital gain beats employment income, and EMI's Business Asset Disposal Relief beats a standard capital gain. That is the whole case for setting the scheme up properly.
Do you qualify for EMI?
EMI has real conditions, but many startups clear them comfortably. From April 2026 the company must have gross assets of 120 million pounds or less, fewer than 500 full-time equivalent employees, and carry on a qualifying trade. Some activities are excluded, including property development, financial services and legal or accountancy work. Each employee can hold up to 250,000 pounds of options over three years, and the company can grant up to three million pounds in total.
Which route suits which company
The choice usually makes itself once you know the facts. A qualifying trading company that wants to reward employees should almost always use EMI, because nothing else matches it on tax. A company that is too large, in an excluded trade, or wants to give equity to non-employees such as advisers or consultants, tends to use growth shares, which keep the reward as a capital gain without the EMI conditions. Unapproved options earn their place where speed and flexibility matter more than tax, or as a top-up once someone has used their EMI limit.
There is also a sequencing point. Many companies start with something informal, then formalise as they grow and raise money. That is fine, but the longer you leave it, the higher the valuation and the more tax is baked in, so the cheapest time to put a proper scheme in is usually now rather than at the next round.
What this means for your startup
If you are deciding how to share equity, a few steps keep you out of trouble.
- Check EMI eligibility first. Confirm the company size, the trade and the individual limits before you assume you cannot use it, because EMI is worth reaching for.
- Get a valuation. An up to date share valuation, agreed with HMRC where appropriate, is what lets you grant EMI options at market value and avoid an income tax charge.
- Grant and notify properly. EMI options must be granted and notified to HMRC correctly and on time, or the tax benefits can be lost, so the paperwork is not optional.
- Use growth shares as the fallback. If EMI is out, model growth shares before defaulting to unapproved options, because the tax difference for your team is large.
- Review as you grow. Limits, valuations and your headcount all move, so revisit the scheme at each round rather than setting and forgetting.
Equity is one of the most powerful tools a startup has to attract and keep people, and it is worth an hour to make sure the version you give is the version your team actually keeps. This guide is written by LOYALS, a King's Cross firm of accountants and business consultants that sets up EMI schemes, growth share structures and valuations for tech startups across London, and would rather build the scheme right the first time than unpick an income tax charge later.