How do I set up an EMI scheme?
By SuLe · Updated 11 July 2026
Setting up an EMI scheme runs in five steps: confirm the company and employees qualify, agree a share valuation with HMRC, adopt scheme rules, grant the options by board resolution, then notify HMRC by 6 July following the tax year of grant. None is individually hard, but each has a way to go wrong that costs the tax relief.
Key facts
- The company must have gross assets of £30m or less, fewer than 250 full-time-equivalent employees, be independent and carry on a qualifying trade.
- An HMRC-agreed valuation (form VAL231) fixes the market value at grant that keeps exercise tax-free.
- Grants must be notified to HMRC by 6 July following the end of the tax year of grant.
- Each employee can hold up to £250,000 of unexercised options; the company-wide limit is £3m.
- Every scheme must also be reported on HMRC's annual ERS return by 6 July each year.
What are the steps to set up an EMI scheme?
There are five, running roughly in order: check eligibility; agree a share valuation with HMRC; adopt scheme rules and option agreements; grant the options by board resolution; and notify HMRC of each grant.
Some steps overlap — you can draft the rules while the valuation is with HMRC — so the whole thing usually takes a few weeks rather than months.
The one hard deadline sits at the end: notification by 6 July following the tax year of grant. Everything before it is at your own pace; that date is not.
How do I check my company and employees qualify?
Test the company first, then each recipient. The company needs gross assets of £30m or less, fewer than 250 full-time-equivalent employees, independence from any controlling company, and a qualifying trade.
Then check each employee: they must work at least 25 hours a week, or if less, 75% of their working time, and must not hold more than a 30% interest in the company.
Get this wrong and the grant is not an EMI option at all, so document the checks. [More: Who is eligible for EMI options?]
How do I get the shares valued?
You agree the shares' market value with HMRC in advance by submitting a valuation, historically on form VAL231. HMRC either agrees your figure or negotiates, and once agreed it fixes the market value at grant.
That agreed value is what keeps exercise tax-free: set the exercise price at or above it and there is no income tax on exercise. The agreement is valid only for a limited window — commonly cited as around 90 to 120 days, though you should confirm the current period — so grant your options while it still stands.
Early-stage valuations are often low, which is exactly why granting sooner rather than later is usually cheaper for the team. [More: What is an EMI valuation and how do I get one?]
What documents and approvals do I need?
You need EMI scheme rules, an option agreement for each grantee, and a board resolution granting the options. Each option agreement states the number of shares, the exercise price, the vesting schedule and any performance or exit conditions.
You will also usually need corporate housekeeping: authority for the directors to allot the option shares and, where your articles require it, disapplication of pre-emption rights. Investor consent rights in a shareholders' agreement may add a step.
Set the exercise price at the HMRC-agreed market value unless you have taken advice on the consequences of going lower. [More: What exercise price should EMI options have?]
How do I grant options and notify HMRC?
Grant is by board resolution and signed option agreements — the date of grant starts both the vesting clock and the notification clock.
Then register the scheme and notify each grant to HMRC through its online Employment Related Securities service, by 6 July following the end of the tax year of grant.
After that, an annual ERS return is due every 6 July for as long as the scheme exists — even in years with no activity, when a nil return is still filed.
| Step | What it involves | Timing |
|---|---|---|
| 1. Check eligibility | Company conditions + each employee's working time and interest | Before anything else |
| 2. Agree valuation | Submit to HMRC (VAL231); fixes market value at grant | Weeks; valid a limited window |
| 3. Adopt rules & agreements | Scheme rules, option agreements, allotment authority, pre-emption | In parallel with step 2 |
| 4. Grant options | Board resolution + signed agreements | Within the valuation window |
| 5. Notify HMRC | Register scheme; notify each grant | By 6 July after the tax year of grant |
| 6. Annual return | ERS return (nil returns included) | Every 6 July thereafter |
Worked example
Tom and Rina run Loamly, an agri-tech startup analysing soil data, and want to give three early hires options over a 90,000-share pool. They confirm Loamly has gross assets well under £30m, nine employees and a qualifying trade, and that all three hires work full time.
They submit a valuation to HMRC, which agrees a market value of £0.25 a share. Within the valuation window they adopt EMI rules, disapply pre-emption over the pool, and grant each hire 30,000 options at a £0.25 exercise price with four-year vesting.
Because the grants fall in the 2026/27 tax year, Tom diarises the notification deadline of 6 July 2027, registers the scheme online, and files a nil ERS return the following year when nothing changes.
Where founders go wrong
Granting before the valuation is agreed.
Without a fixed market value at grant you lose the certainty that keeps exercise tax-free.Letting the valuation window lapse.
An HMRC-agreed value is good only for a limited period; grant while it still stands or re-agree it.Missing the 6 July notification.
Late notification without a reasonable excuse strips EMI status from the grant.Skipping the allotment and pre-emption steps.
The tax scheme can be perfect and the grant still stall on company-law authority the board never obtained.
Related questions
How long does it take to set up an EMI scheme?
Allow a few weeks. The slowest step is usually agreeing the share valuation with HMRC, which can take several weeks; drafting the rules and option agreements and passing the board resolution can be done in parallel. Once granted, you have until the following 6 July to notify HMRC. [More: When must EMI option grants be notified to HMRC?]
Do I need shareholder approval to set up an EMI scheme?
You will usually need board approval to adopt the scheme and grant options, and shareholder steps to create or ring-fence the option pool — for example authorising the directors to allot shares and disapplying pre-emption rights. Your articles and any investor consent rights dictate exactly what is needed. [More: How big should a startup option pool be?]
Do I have to get an HMRC valuation before granting EMI options?
It is not legally compulsory, but it is strongly advisable. An HMRC-agreed valuation fixes the market value at grant, which is what keeps the exercise tax-free, and gives you certainty. Skipping it means arguing the value with HMRC later, potentially after the shares have grown. [More: What is an EMI valuation and how do I get one?]
What happens if I miss the 6 July notification deadline?
The options generally lose EMI status and are treated as unapproved, so the tax advantages fall away — unless you had a reasonable excuse. Because the consequence is severe and the fix limited, notification should go in your calendar the day you grant. [More: EMI vs unapproved options — what's the difference?]
Can I set up EMI myself or do I need a lawyer?
Some founders use option-scheme platforms for the paperwork, but the valuation, the company and employee eligibility checks and the pre-emption and allotment steps are where mistakes get expensive. Most startups take advice at least on the structure and the first grant. [More: What is an EMI share option scheme?]
An EMI scheme is only as good as its weakest step: a lapsed valuation, an ungranted allotment authority or a missed 6 July can undo the whole benefit for your team. A SuLe solicitor can run the setup end to end and calendar the deadlines that matter. Book a free call about your option scheme and get your first grants done properly.
Keep reading: What is an EMI share option scheme? · What is an EMI valuation and how do I get one? · Who is eligible for EMI options? · What exercise price should EMI options have? · When must EMI option grants be notified to HMRC? · How big should a startup option pool be?
Primary sources: GOV.UK — Enterprise Management Incentives (EMIs) · GOV.UK — Tell HMRC about your employment related securities schemes
