> ## Content Index > Fetch the complete content index at: https://entrepreneurplus.co.uk/llms.txt > Use this file to discover other available public pages before exploring further. # What Is an EMI Share Option Scheme? A UK Founder's Guide - URL: https://entrepreneurplus.co.uk/what-is-an-emi-share-option-scheme-a-uk-founders-guide/ - Published: 2026-08-25T12:00:59.000Z - Updated: 2026-08-25T12:01:01.000Z - Description: An EMI share option scheme can help UK startups attract and retain talent through tax-advantaged equity. Discover eligibility, HMRC valuation, vesting, tax treatment and setup steps. - Author: Sharoni Banerjee - Tags: Startup Toolkit --- An **EMI share option scheme** is a UK tax-advantaged share option scheme that lets qualifying trading companies grant employees the right to buy shares at a fixed price in the future, with qualifying gains generally subject to Capital Gains Tax rather than Income Tax, provided the conditions are met. For founders competing with corporate salaries on a startup budget, it's the tool that does the heavy lifting: it means the company can offer meaningful equity upside without paying the employee additional cash upfront. The mechanics are simple. The company grants an option to buy shares at a set exercise price usually market value at the date of grant. If the business grows, the employee exercises the option, buys at the old (lower) price, and pockets the difference on sale. No shares change hands at grant; it's a promise, not a gift. **EMI is the most widely used of the UK's tax-advantaged employee share schemes.** HMRC's official statistics, published July 2026, show 18,570 companies operated an EMI scheme in the tax year to 2025 up 12.8% from 16,460 three years earlier, now around 90% of every company running a tax-advantaged share scheme in the UK. Employees actually receiving grants fell over the same period, from 50,000 to 42,000, while average grant value rose from £12,150 to £13,930\. The figures suggest EMI awards are becoming more concentrated, with fewer employees receiving grants while average grant values increased. --- ### EMI Scheme Eligibility: Company and Employee Rules Your company's **EMI scheme eligibility** depends on gross assets of £120 million or less, fewer than 500 full-time-equivalent employees, and carrying on a qualifying trade with a permanent UK establishment though eligibility also involves independence requirements and group-company considerations beyond these headline tests. Those thresholds are new: before 6 April 2026, the limits were £30 million and 250 employees. The 2025 Budget increased the gross-assets threshold from £30 million to £120 million and the employee limit from fewer than 250 to fewer than 500. A number of trades are excluded regardless of size including banking, insurance, money-lending, property development, leasing, and running hotels or nursing homes. Whether a particular business qualifies depends on its actual activities and structure, so it's worth checking the specific exclusions against your trade rather than assuming. --- **EMI scheme eligibility at a glance, before and after 6 April 2026:** | Test | Before 6 April 2026 | From 6 April 2026 | | ------------------------------------------- | ------------------- | -------------------- | | Gross assets | £30 million or less | £120 million or less | | Employees (FTE) | Fewer than 250 | Fewer than 500 | | Maximum value of qualifying company options | £3 million | £6 million | | Maximum exercise period | 10 years | 15 years | On the employee side, **EMI scheme eligibility** hinges on two further tests. First, working time: the individual must spend at least 25 hours a week, or 75% of their total working time, employed by the company. Second, material interest: they together with any associates mustn't hold or be able to acquire more than 30% of the company's ordinary share capital. One limit the 2026 reforms left untouched is the individual grant cap: the £250,000 individual limit has applied since 16 June 2012. --- ### EMI Valuation HMRC: How the Process Works An **EMI valuation HMRC** agrees starts with proposing a share price to HMRC's Shares and Assets Valuation team via a VAL231 form, which once agreed provides the market values used to determine the exercise price, and stays valid for 90 days. You'll need to state both the Unrestricted Market Value (UMV) and Actual Market Value (AMV) of the shares, particularly if any restrictions affect their worth. There is no approval process or clearance mechanism for EMI itself, so agreeing a valuation with HMRC is not mandatory. Even so, many companies seek an agreed valuation because it can provide greater certainty over the price used for the option grant, which matters if HMRC later queries the price during due diligence on an exit. **Specialist advisers commonly report HMRC** valuation responses taking around four to six weeks, although complex cases can take longer. Because an EMI valuation HMRC agrees to only hold for 90 days, timing your request against your actual grant date matters too early, and it may lapse before you've issued a single option. --- ### Vesting Schedules and Cliffs Explained Vesting under an **EMI share option scheme** works by spreading an employee's right to their options over a set period commonly four years with a one-year cliff, so nothing vests until they've completed twelve months of service though this is a matter of market practice, not an HMRC requirement. HMRC doesn't mandate any particular structure; the schedule is entirely a commercial decision. **The one-year cliff is less** a formality than a filter: it protects the company from handing out real equity to someone who leaves after eight weeks. Past the cliff, remaining options typically vest monthly or quarterly. For example, under a four-year schedule with a one-year cliff and straight-line monthly vesting, an employee leaving after two years might have roughly half of the options vested. Some founders layer in milestone or performance-based vesting instead of, or alongside, time useful for senior hires whose impact ties to a specific outcome rather than tenure alone. --- ### EMI vs Unapproved Options: Why EMI Wins for Most Startups The core of the EMI vs unapproved options debate is tax treatment: qualifying EMI options can provide favourable treatment, with no Income Tax or National Insurance generally due on exercise where the relevant conditions are met, and CGT potentially applying when the shares are later disposed of. Non-tax-advantaged options can instead create an Income Tax charge on exercise on the employment-related gain. It's worth putting real numbers against that gap. Under a qualifying **EMI share option scheme**, growth in the shares' value is taxed as a capital gain at 18% or 24%, depending on the individual's circumstances only when the employee sells. Business Asset Disposal Relief can bring that rate down further still, to 18% on gains up to a £1 million lifetime limit (rising from 14% for disposals before 6 April 2026), subject to BADR's specific qualifying conditions for shares. Unapproved options don't carry that same protection. The spread between share price and exercise price is typically taxed as ordinary income at exercise a tax bill on shares the employee may not even be able to sell yet, since there's often no ready market for private stock. For founders weighing **EMI vs unapproved options**, the practical gap is timing: one route can defer tax until the shares are sold, the other can tax paper gains immediately. Founders sometimes still reach for unapproved options of non-UK staff, consultants, or once EMI limits are exhausted but for a qualifying UK employee, there's rarely a good reason to look elsewhere first. --- ### How to Set Up an EMI Scheme: Steps for Founders Setting up an **EMI share option scheme** follows a fairly fixed sequence: confirm eligibility, agree a valuation with HMRC, draft the scheme rules and option agreements, grant the options, then notify HMRC. In practice, it looks like this: 1. **Confirm eligibility** — check gross assets, headcount, and trade against the current thresholds. 2. **Agree a valuation** — submit VAL231 to HMRC (not mandatory, but widely used for certainty). 3. **Draft the scheme rules and option agreements** — get a solicitor or accountant involved here; this is the technical core of the scheme. 4. **Grant the options** — via board resolution, once rules and any agreed valuation are in place. 5. **Notify HMRC** — report the grant by the current deadline (see below). 6. **File annual ERS returns** — due every year the scheme is live, whether or not anything changed. The notification deadline has genuinely changed and catches people out: for options granted before 6 April 2024, you have 92 days from the grant date to notify HMRC. For anything granted since, the deadline moved to 6 July following the end of the tax year in which the grant was made a materially longer window, but easy to miscalculate if you're working from an old guide. Missing the deadline can result in the loss of EMI tax advantages, although HMRC has a reasonable-excuse procedure for certain late notifications. Keep an eye on disqualifying events too; a change of control, a lapse in the qualifying trade, or an employee's working time dropping below the threshold can all trigger one. Where an option is exercised within 90 days of a disqualifying event, the relevant EMI tax advantages can generally be preserved. ![](https://storage.ghost.io/c/05/a4/05a4a052-18ab-4836-8924-ec8b322c371c/content/images/2026/08/EMI-scheme-eligibilty.png.png) EMI scheme eligibility ### **FAQs** **1\. What is an EMI share option scheme?** An EMI share option scheme is a UK tax-advantaged share option scheme that lets qualifying trading companies grant employees the right to buy shares at a fixed price in future, with qualifying gains generally taxed as capital rather than income. It's used by 18,570 UK companies as of the tax year to 2025 (HMRC), making it the most widely used tax-advantaged share scheme in the country. **2.What's the difference between EMI and unapproved options** Qualifying EMI options can carry no Income Tax or NIC on exercise, with CGT applying later on disposal, while unapproved options can create an Income Tax charge at the point of exercise. That difference is why EMI is the default choice for eligible UK companies and their qualifying employees. **3.How long does an EMI valuation from HMRC take?** Specialist advisers commonly report **EMI valuation HMRC** responses taking around four to six weeks, though HMRC doesn't publish a fixed statutory turnaround and complex cases can take longer. Once agreed, the valuation stays valid for 90 days, so timing the request close to your intended grant date matters. *Also read:* [*10 Things UK Founders Get Wrong About Business Insurance for Startups and What It Actually Costs*](https://entrepreneurplus.co.uk/10-things-uk-founders-get-wrong-about-business-insurance-for-startups-and-what-it-actually-costs/) --- **Sources:* HMRC Employee Share Schemes statistics (published July 2026, tax year ending 2025); HMRC's Employee Tax Advantaged Share Scheme User Manual (ETASSUM), including ETASSUM50100 on the absence of an EMI approval/clearance mechanism; HMRC policy paper "Expanding the eligibility limits of the Enterprise Management Incentive scheme" (gov.uk, updated January 2026); gov.uk guidance "Get a share scheme valuation from HMRC," "Submit an Enterprise Management Incentives (EMI) notification," and "Late registrations for employment related securities"; gov.uk Business Asset Disposal Relief guidance. Figures reflect the most recent available data at the time of writing.* ***The EP+ Editorial Desk covers UK startups, founder stories, and venture capital. All editorial content is independently produced and human-reviewed before publication.***