What is an EMI share option scheme?
By SuLe · Updated 20 June 2026
An Enterprise Management Incentives (EMI) scheme is HMRC's tax-advantaged way for a UK startup to give employees share options — the right to buy shares later at a price fixed today. If the option is priced at the shares' market value at grant, there is no income tax or National Insurance on grant or exercise, and the eventual gain is taxed as a capital gain.
Key facts
- Each employee can hold up to £250,000 of unexercised EMI options; a company can grant £3m of them in total.
- The company must have gross assets of £30m or less, fewer than 250 full-time-equivalent employees, and carry on a qualifying trade.
- Priced at market value at grant, EMI options carry no income tax or NIC at grant or exercise — gains are taxed as capital gains on sale.
- The option holder must be an employee working 25 hours a week, or 75% of their working time; no one with a 30%-plus interest qualifies.
- Grants must be notified to HMRC by 6 July following the tax year of grant.
How does an EMI scheme actually work?
An EMI option is a contractual right for an employee to buy a set number of shares at a fixed exercise price in the future. The shares are not issued at grant — the employee becomes a shareholder only if and when they exercise.
Options normally vest over time, so the right to exercise builds up as the employee stays — a common shape is four years with a one-year cliff.
Most UK startups make options exercisable only on an exit, so the employee buys and immediately sells, and leavers never clutter the share register. Scheme rules, option agreements and a board resolution are the core paperwork.
What are the tax advantages of EMI?
EMI's appeal is that a rising share value is taxed as a capital gain rather than as employment income. There is no income tax or National Insurance at grant, and none at exercise, provided the exercise price is at least the market value agreed with HMRC at grant.
Set the exercise price below that agreed market value and the discount becomes taxable as income at exercise — the one trap in an otherwise generous regime.
When the shares are finally sold, the growth is a capital gain. EMI shares can also qualify for Business Asset Disposal Relief without the usual 5% shareholding requirement, provided at least two years pass between grant and disposal — at a rate lower than main-rate capital gains tax, though the figure has been changing, so check the current one.
Does my company qualify for EMI?
Your company must be independent, carry on a qualifying trade, and sit under two size limits. Gross assets must be £30m or less, and the group must have fewer than 250 full-time-equivalent employees.
Independence means the company must not be a 51%-or-more subsidiary of, or otherwise controlled by, another company. A qualifying trade excludes activities that broadly mirror the SEIS/EIS excluded list — banking and finance, property development, legal and accountancy services, farming, hotels and energy generation among them.
If you outgrow the size limits, EMI closes to new grants and a Company Share Option Plan (CSOP) usually becomes the fallback. [More: What is a CSOP and when does it beat EMI?]
Who can receive EMI options?
EMI is strictly for employees. The holder must work at least 25 hours a week for the company or group, or if they work less, at least 75% of their total working time.
Anyone with a "material interest" — more than 30% of the company's shares — is shut out, which usually rules out majority founders but rarely affects ordinary hires.
Contractors, advisors and non-executive directors are not employees and cannot hold EMI options at all — they need unapproved options or growth shares, both taxed less kindly. [More: Can contractors or advisors receive share options?]
What are the key limits and deadlines?
Two limits cap the scheme, and one deadline protects it. Each employee can hold up to £250,000 of unexercised options, measured by market value at grant over any three-year period, and the company can have £3m of unexercised EMI options outstanding at once.
The deadline is notification: for options granted from 6 April 2024, grants must reach HMRC by 6 July following the end of the tax year of grant — miss it without a reasonable excuse and the option loses EMI status.
| Condition | EMI requirement |
|---|---|
| Company gross assets | £30m or less |
| Employees (group) | Fewer than 250 full-time equivalents |
| Independence | Not a 51%+ subsidiary or otherwise controlled |
| Trade | Must be a qualifying trade |
| Per-employee limit | £250,000 of unexercised options |
| Company-wide limit | £3m of unexercised options |
| Working time | 25 hrs/week or 75% of working time |
| Material interest | 30% or less of the shares |
| Notify HMRC by | 6 July after the tax year of grant |
Worked example
Amara runs Finch, a logistics-SaaS startup, and grants her first engineer, Leo, an EMI option over 20,000 shares. HMRC has agreed a market value of £0.40 a share, so she sets the exercise price at £0.40 — no discount, no income tax on exercise.
Four years later Finch is acquired at £6.00 a share. Leo exercises, paying 20,000 × £0.40 = £8,000, and immediately sells shares worth 20,000 × £6.00 = £120,000. His gain is £112,000, taxed as a capital gain rather than salary.
Because more than two years passed between grant and sale, the gain can qualify for Business Asset Disposal Relief. At the 2025/26 relief rate of 14% — a figure set to rise, so check the current one — the tax is roughly £15,680, below the income tax and NIC on an unapproved option.
Where founders go wrong
Assuming everyone can get EMI.
It is employees only — contractors and advisors need a different, more heavily taxed route.Pricing options below market value.
A cheap-looking exercise price creates an income-tax charge at exercise and throws away EMI's headline benefit.Forgetting to notify HMRC.
The 6 July notification is easy to miss and, if missed, the option is no longer an EMI option.
Related questions
Is EMI free to set up?
There is no HMRC fee to run an EMI scheme, but you will normally pay for a share valuation agreed with HMRC and for scheme rules and option agreements to be drafted. The tax saving for your team usually dwarfs the setup cost, which is why EMI is the default for eligible UK startups. [More: How do I set up an EMI scheme?]
Does my whole company have to qualify, or just the employee?
Both. The company must meet conditions such as gross assets of £30m or less, fewer than 250 full-time-equivalent employees, independence and a qualifying trade. Separately, each option holder must be an employee meeting the working-time test and must not hold more than a 30% interest. [More: Who is eligible for EMI options?]
What happens to EMI options if the company is sold?
A sale is usually a disqualifying event, but most schemes let holders exercise on the exit so they can sell the shares straight into the deal. If exercised within 90 days of the disqualifying event, full EMI tax treatment is preserved. [More: What happens to share options when an employee leaves?]
Can I give EMI options to advisors or contractors?
No. EMI is for employees only. Contractors, advisors and non-executive directors are not employees for EMI purposes, so they need unapproved options or growth shares instead, which are taxed less favourably. [More: What are growth shares?]
How much tax does EMI actually save?
On exercise, an option priced at market value at grant attracts no income tax or National Insurance — an unapproved option could be taxed at up to 45% plus NIC on the same gain. The eventual sale is taxed as a capital gain, often at Business Asset Disposal Relief rates. [More: EMI vs unapproved options — what's the difference?]
EMI is generous but conditional: the company conditions, the working-time test, the market-value pricing and the 6 July notification all have to line up, and a slip on any one can turn a tax-free option into a taxable one. A SuLe solicitor can set your scheme up correctly and keep it compliant as you grow. Book a free call about your option scheme and get the structure right from the first grant.
Keep reading: How do I set up an EMI scheme? · Who is eligible for EMI options? · What is an EMI valuation and how do I get one? · EMI vs unapproved options — what's the difference? · How big should a startup option pool be? · What is a CSOP and when does it beat EMI?
Primary sources: GOV.UK — Enterprise Management Incentives (EMIs)
