UK EMI Share Schemes Detailed Guide 2026/27

EMI = Enterprise Management Incentive: UK's most tax-efficient share scheme for small / medium companies. Schedule 5 ITEPA 2003. Designed for SMEs to attract + retain key staff. Tax advantages: (1) No income tax at grant: option grant tax-free. (2) No income tax at exercise IF: (a) Strike price equals market value at grant. (b) Option exercised within 10 years. (c) Employee held option 24+ months pre-exercise. (3) CGT on sale of shares: 18% / 24% standard rates. (4) BADR 18% (post-April 2026): applies if 24-month holding from GRANT (not exercise). Massive tax saving vs unapproved options. Worked example - EMI option granted at £1 / share strike, exercised at £10 (vested), sold at £25 (4 years later): Grant: no tax. Exercise: cost £1. No income tax (within EMI rules). Sale: £25 - £1 = £24 / share gain. 1,000 shares × £24 = £24,000 gain. AEA £3,000. Taxable: £21,000. BADR 18%: £3,780. Compared to unapproved option same scenario: would have £9 × 1,000 = £9,000 income tax at exercise (40%+ rate) + £15,000 × 24% = £3,600 CGT. Total unapproved: ~£7,200+. EMI saves £3,400+. Larger for higher-value options.

Strict qualifying conditions - EXPANDED from 6 April 2026 (Autumn Budget 2025): Company requirements: (1) Gross assets ≤ £120m (up from £30m at Autumn Budget 2025). (2) Fewer than 500 FTE employees (up from 250). (3) UK permanent establishment OR carries on trade in UK. (4) Independent (not 50%+ owned by another company). (5) Qualifying trade: most trades qualify. EXCLUDED: banking, leasing, legal / accountancy services, farming, property development, hotels, nursing / residential care. (6) £3m company limit on total unexercised EMI options (Schedule 5 ITEPA 2003 paragraph 7). Employee requirements: (1) Employee or director of the company or qualifying subsidiary. (2) At least 25 hours / week OR 75% of working time. (3) Not material interest (30%+) in company: typical owner-employees excluded. (4) £250,000 limit per employee: cumulative across all EMI options. (5) UK resident or trading in UK. Notification + registration: (a) Grant must be notified to HMRC within 92 days: ERS Annual Return. (b) Failure to notify: scheme ineligible. (c) Annual return EMS40 each year: scheme status updates. Common disqualifying events: (1) Company exceeds gross asset / employee limits. (2) Employee leaves OR reduces hours below 25/week. (3) Material interest acquired. (4) Trade ceases / changes to non-qualifying. (5) Option modified beyond rules. Disqualifying event consequences: (a) Tax advantage lost from that date. (b) Vesting / exercise post-disqualification treated as unapproved. (c) Important to monitor company size + employee tenure.

4 main HMRC-approved share schemes: EMI (Enterprise Management Incentive): (a) £250k / employee + £3m / company. (b) SME only (≤250 staff, ≤£30m assets). (c) Most flexible + tax-efficient. (d) Discretionary award. (e) BADR 18% on sale possible. CSOP (Company Share Option Plan): (a) £60k / employee limit (raised from £30k in April 2023). (b) No company size restriction. (c) Discretionary award. (d) 3-year holding for tax efficiency. (e) Income tax-free at exercise + CGT at sale. (f) No BADR: standard CGT only. SAYE (Save As You Earn / Sharesave): (a) ALL-employee scheme: must offer to all qualifying staff. (b) Maximum £500 / month savings. (c) 3 or 5-year savings contracts. (d) Strike at up to 20% discount to grant date market value. (e) No income tax at exercise. (f) CGT on later sale. (g) Option to take back cash + interest if shares fall. SIP (Share Incentive Plan): (a) ALL-employee scheme. (b) 4 share types: free (£3,600 / year), partnership (£1,800), matching (2:1 max), dividend reinvestment. (c) Held in trust 5 years: no income tax / NI / CGT if held full period. (d) Max £9,000+ / year value. (e) Sold within 3 years: full income tax + NI. (f) Sold 3-5 years: lower of MV at acquisition or sale. Decision matrix: (1) Startup / early-stage SME: EMI for key staff. (2) Large + listed company key staff: CSOP. (3) Engagement broad employee base: SAYE or SIP. (4) High-net-worth founder shares: EMI then BADR on exit.

EMI optimised for exit events. 3 main exit scenarios: Scenario 1 - Trade sale of company: (a) Acquirer typically requires EMI exercise + rollover into acquirer's scheme. (b) Section 138A TCGA 1992 election: defer CGT on rollover. (c) Cash element triggers CGT immediately: BADR if 24+ months. (d) Worked example - £5m company sale, 1% EMI holder: £50k proceeds (less strike). BADR 18% × £50k = £9,000. Net £41k+. Scenario 2 - IPO / Public listing: (a) Lock-up period typical: 6-12 months. (b) EMI continues but BADR may lapse: company becomes listed (above 50% controlling shareholder test). (c) Sales post-listing: standard CGT. Scenario 3 - Secondary share sale to PE / VC: (a) Partial liquidity event. (b) EMI shares sold: BADR if conditions met. (c) Remaining options continue. Disqualifying events at exit: (1) Trade sale: typically NOT disqualifying if structured properly. (2) Restructuring pre-sale: may disqualify. (3) Substantial business change: e.g., trading→investing. (4) Specialist tax adviser pre-exit: essential. Pre-exit optimisation: (a) Ensure 24-month holding period met by all option-holders: critical for BADR. (b) Document EMI status retention: annual returns. (c) ERSM legal review pre-deal. (d) Sale structure favouring share sale: vs asset sale (no employee CGT on asset sale).

Strike price must equal market value at grant for full tax benefit. Valuation typically below trading multiples for private companies. HMRC Valuations Office process: (1) Pre-grant valuation discussion: company submits valuation. (2) HMRC agrees fair value: typically 60-90 day process. (3) Once agreed: company can grant options at agreed value. (4) Agreed valuation valid 90 days: must grant within window. Valuation methodologies: (a) Discounted cash flow (DCF): for established trading business. (b) Market multiples: revenue / EBITDA × industry comparable. (c) Asset-based: rare for trading company. (d) Recent investment round price: typical for startups. (e) Minority discount: typical 20-30% for non-controlling EMI shares. HMRC focus areas: (1) Recent funding round price: starting point. (2) Minority + illiquidity discounts: reasonable. (3) Revenue + EBITDA forecasts: realistic. (4) Comparable transactions: industry data. (5) Cash flow models: sensitivity analysis. Specialist EMI valuer cost: £2-15k per valuation depending on complexity. ICAEW or RICS-qualified preferred. Valuation refresh frequency: (a) Annually for active EMI schemes. (b) After significant funding rounds. (c) Material business changes. (d) Repricing requires fresh HMRC valuation.

EMI lifecycle checklist: SETUP: (1) Confirm company qualifies: SME thresholds, qualifying trade. (2) Engage specialist EMI lawyer + tax adviser: £5-20k typical setup. (3) Scheme rules drafted: vesting, performance, leaver provisions. (4) HMRC valuation agreed: pre-grant. (5) Board approval + shareholder resolution. (6) HMRC scheme registration: online via ERS service. GRANT: (7) Grant within 90 days of HMRC valuation. (8) Option agreements signed. (9) HMRC notification within 92 days: critical deadline. (10) Communicate to employees: education on tax implications. ONGOING: (11) Annual ERS return EMS40: by 6 July following tax year. (12) Monitor qualifying status: company + employees. (13) Disqualifying event tracking. (14) Periodic valuation refresh: for new grants. (15) Leaver provisions enforcement: good vs bad leavers. EXERCISE: (16) 24-month holding for BADR: verify. (17) Tax position confirmation: scheme rules + HMRC manuals. (18) Exercise + payment processing: cash or net settlement. (19) Share certificate / electronic registration. SALE: (20) CGT computation: gain = sale - strike. (21) BADR claim if eligible: 18% rate. (22) AEA + spouse split consideration. (23) SA filing required: typically. (24) Specialist tax adviser pre-exit: complex transactions. EXIT EVENT: (25) Rollover vs cash analysis: tax efficiency. (26) Section 138A election for shares: defer gain. (27) BADR on cash portion: 18%. (28) Acquirer scheme participation: future tax planning. Total EMI lifetime tax saving vs equivalent unapproved options: typically 20-30% of share value for higher-rate employees.