Enterprise Management Incentives (EMI) Share Option Schemes: a practical guide including 2026 changes

A Short Guide to Enterprise Management Incentives

Enterprise Management Incentives (EMI) are tax advantaged share options designed to help small higher risk companies recruit and retain employees with the skills that will help them grow and succeed. They operate through the use of share options, rather than transferring shares to employees directly. They are also designed to reward employees for taking a risk by investing their time and skills in helping small companies achieve their potential.

Why consider EMI share options?

Share options allow employees to acquire ordinary shares at a fixed date in the future or following a predetermined event at a fixed price. The price that they will pay to acquire their shares is determined at the start of the process when the option is granted and in almost all cases, so is any income tax and NIC liability that they will face. This gives all parties a welcome degree of certainty, as does the knowledge that the scheme is endorsed by the Government.

The use of options means that employees face no upfront exposure at all, with nothing to pay until the time at which they ultimately decide to exercise an option and acquire shares in their employing company. This contrasts very favourably with alternative routes to share ownership that will usually require a significant capital outlay before the employee can get any chance of involvement.

Enterprise Management Incentives (EMI) changes from April 2026

• From April 2026 the Government has increased the eligibility thresholds for EMI schemes. Companies can now grant up to £6 million of EMI share options, subject to revised size tests. The gross assets threshold increases to £120 million, and the employee limit increases to 500, replacing the former £30 million asset and 249 employee ceilings. These expanded limits support larger and scaling businesses and may bring companies back into eligibility where they previously exceeded the older thresholds.
• In addition, the Government has extended the maximum exercise period for EMI options from 10 to 15 years, giving companies and employees greater flexibility where long-term value creation and exit planning take longer.
• EMI is a selective share scheme. This means that companies can choose which employees should be able to receive share options and how many options each employee should get.
• In addition to the tax breaks, the major advantage that EMI offers is to give employers the chance to target reward precisely. At the same time, this should enable them to offer incentives which make leaving their employment a much bigger decision than would be the case with only a standard salary package.
• The grant of the option is tax-free and there will normally be no tax or National Insurance Contributions (“NICs”) for the employee to pay when the option is exercised, providing they pay the agreed option price at grant date.In effect therefore any growth in the company between grant and exercise is not subject to Income Tax or National Insurance, provided the option price reflects the agreed market value at grant and EMI conditions continue to be met.
• There will normally be no NIC charge for the employer.
• When the shares are sold at a gain any Capital Gains Tax charge may be reduced because Business Asset Disposal relief (BADR), will normally start from the date that the option is granted. Providing other qualifying conditions are met the employee may then only pay 10% Capital Gains Tax on disposal.

For options to qualify for tax relief under EMI you need to ensure that:

1. the option has been notified to the HMRC in time and as they require.
2. the company whose shares are under option qualifies.
3. the type of share under option qualifies.
4. the employee is eligible.
5. the terms of the option qualify.

HMRC notification requirements for EMI options

If an EMI option is granted, the employer must notify HMRC within 92 days for options granted before 6 April 2024. For options granted on or after 6 April 2024, notification must be made by 6 July following the end of the tax year in which the grant was made. Failure to meet these deadlines risks loss of tax advantages.

Qualifying conditions for EMI schemes

For companies to qualify for EMI they must meet several eligibility criteria. The company must have gross assets of no more than £30 million (increasing to £120 million from 6 April 2026) – for groups, this applies to the assets of the group as a whole. The company must carry on a qualifying trade on a commercial, profit-making basis and have a permanent establishment in the UK. Certain activities, including property development and legal/accounting services, are excluded for EMI purposes. The company whose shares are the subject of the option must be independent (it cannot be a subsidiary company), and the company or group must be trading. Companies carrying on certain trades will not qualify. The company cannot have more than 249 employees (increasing to 500 from 6 April 2026).

Employee eligibility for EMI

To qualify for EMI, the employee must be employed by a company or qualifying parent or subsidiary and must spend at least 25 hours a week working for the company or the group, (or if they have shorter hours, they must spend at least 75% of their working time working as an employee for the company or group).

In addition, the employee must not hold more than a specified proportion of the company’s ordinary share capital (generally capped at 30% to avoid material interest disqualification).

EMI option exercise period rules

Under HMRC rules, EMI options granted before 6 April 2026 must normally be exercised within 10 years of the date of grant.

For EMI options granted on or after 6 April 2026, the permitted exercise period has been extended to 15 years, offering greater flexibility where long-term value creation and exit planning take longer. This aligns the scheme more closely with modern growth-stage timelines.

Advance Assurance for EMI schemes

HMRC offer advance assurance on whether or not a company qualifies under the EMI legislation and it is possible to agree, in advance, the value of the shares subject to the option with HMRCs Shares Valuation Division.

EMI share option agreement requirements

No model agreement has been produced for Enterprise Management Incentives and therefore, individual agreements must be drawn up when share options are granted.

The requirements are:

Type of share – the option must be a right to acquire shares that are part of the ordinary share capital of the company, are fully paid up and not redeemable.

Option capable of exercise within 10 years (or up to 15 years for options granted on or after 6 April 2026) – it must be possible for the option to be exercised within this period from the date of grant.

Terms of option to be agreed in writing – the agreement must be in the form of a written agreement between the company granting the option and the employee. The agreement must state:

• the date the option is granted.
• that it is granted under the provisions of Schedule 5 ITEPA 2003.
• the number, or maximum number, of shares that may be acquired.
• the price (if any) the employee will pay to acquire the shares, or the method by which that price will be determined.
• when and how the option may be exercised.
• any conditions (including performance conditions) affecting the terms or the extent of the employee’s entitlement.
• any restrictions on the shares.

Non assignability of rights – the terms of the option must:

• prohibit the option holder from transferring any of his or her rights under it; and
• if they permit its exercise after that person’s death by the person’s personal representatives, do not permit this more than 1 year after the date of death.

The scheme can include conditions that ensure should the employee leave the employment any unexercised options they hold will automatically lapse and any shares acquired under option must be returned at a pre-determined price.

Get in touch

If you need assistance attaining an EMI for your business and would like more information about EMI share option schemes,  contact Mark Moore, Tax Partner in London on +44 (0)20 7388 2641 or in St Albans on +44 (0)1727 833222 to see how we can assist you further.