Understanding Enterprise Management Incentive (EMI) Share Schemes

What is an EMI scheme?

An EMI scheme operates as a discretionary option plan, granting participating employees the right to purchase shares at a predetermined price in the future, allowing them to benefit from increases in share value.

EMI schemes are specifically designed for smaller companies and are widely used across various sectors to give employees a stake in the company’s future success. Overseas businesses can also offer EMI options to their UK-based staff, provided they have a UK subsidiary or branch.

How does an EMI scheme work?

To qualify for an EMI scheme, companies must meet specific eligibility criteria:

• The company must be independent and have fewer than 250 full-time equivalent employees.
• Gross assets must not exceed £30 million at the date of grant.
• Certain excluded trades—such as hotels, pubs, accountancy, and legal practices—do not qualify.
• A detailed fact-finding process is required to confirm eligibility.

Employees can be granted options over shares worth up to £250,000 at the date of grant, subject to an overall company-wide limit of £3 million. The shares must be non-redeemable but can be any class of Ordinary Share, with or without restrictions.

Tax advantages of an EMI scheme

One of the major attractions of EMI schemes is their tax efficiency:

• Employers can set the exercise price at their discretion.
• If the price is at or above market value, there is no income tax or National Insurance Contributions (NIC) payable on grant or exercise.
• Upon sale of shares, gains are taxed under Capital Gains Tax (CGT) at:
  • 18% for basic rate taxpayers
  • 24% for higher rate taxpayers
• Business Asset Disposal Relief (BADR) may reduce CGT to:
  • 14% for the first £1m of gains (from April 2025)
  • 18% for sales from April 2026 onward

If the exercise price is below market value, income tax applies upon exercise on the difference between market value and exercise price.

Employing companies should also benefit from a corporation tax deduction equal to the gain made on exercise.

Performance conditions & reporting obligations of EMI schemes

EMI schemes can be structured with individual performance conditions to serve as short-term or medium-term incentives.

Key EMI scheme considerations include:

• Employers can impose a minimum holding period to maximise staff retention.
• The exercise period must be within ten years of the grant date.
• For multinational companies within the size limits, EMI schemes can often be aligned with existing global incentive plans.
• While prior HMRC approval is not required, companies should agree on the market value of the shares with HMRC beforehand.
• Companies must register and self-certify the EMI plan online, notify HMRC of option grants, and submit annual returns.

Get in touch with our share scheme specialists

Our experienced specialists provide expert guidance to navigate the complexities of EMI share schemes.

Our comprehensive service includes:

• Scheme qualification & design
• Valuation & documentation
• Option granting & HMRC notification
• Ongoing compliance & reporting

We have successfully helped numerous companies unlock their potential through strategic share schemes, delivering higher employee retention, improved performance, successful exits, and significant tax savings.

If you're considering an EMI share scheme, please do not hesitate to get in touch.

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