What is an EMI scheme?
An Enterprise Management Incentive (EMI) scheme is a government-approved programme that helps small and medium-sized businesses attract and retain skilled employees by offering tax-efficient share options.
According to HM Revenue & Customs (HMRC) official statistics, 89% of the 20,370 companies with Employee Share Schemes (ESS) operate an EMI scheme, under which the total value of options across the business is capped at £6 million.
This comprehensive guide explains the key EMI scheme rules so you can stay compliant while unlocking the full benefits for your business and team.
Why should you offer an EMI scheme for your employees?
Offering an EMI share option scheme can be a powerful way to strengthen your workforce. It helps to:
- Attract top talent by making your business more appealing to high-calibre candidates.
- Encourage loyalty by giving employees a genuine stake in your company’s success.
- Reward cost-effectively by offering meaningful benefits without increasing payroll costs.
How does an EMI scheme work?
With an EMI scheme, eligible companies grant chosen employees the right to buy shares at a fixed, pre-agreed price. These options can be exercised later often tied to specific conditions like hitting business milestones or meeting performance targets.
Example:
A renewable energy company, GreenVolt Ltd grants share options to its operations manager, James at £1.50 per share. A few years later, the share price rises to £8. James can still purchase his shares at the original £1.50 price, giving him a significant financial upside while rewarding his contribution to the company’s growth.
When these EMI options are exercised, employees typically pay Capital Gains Tax (CGT) on the profit rather than Income Tax, which usually applies to bonuses or salary increases.
For a deeper dive into how it works, check out our full guide: EMI scheme explained
What are the eligibility rules for the EMI scheme?
If you’re planning to use the EMI scheme, it’s important to check that both your business and employees meet the qualifying conditions set out in the EMI scheme rules.
For employers
Your company must:
- Employ fewer than 500 full-time staff.
- Have gross assets of £120 million or less.
- Maintain a permanent establishment in the UK.
- Operate independently without being controlled by another company.
- Be engaged in a qualifying trade which excludes certain sectors such as property development, legal services and farming.
For employees
Under Paragraphs 26 & 27, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), employees qualify if they:
- Work at least 25 hours per week
- If less, spend at least 75% of their total working time with your company.
These working time requirements are based on an average, meaning employees with flexible or variable hours can still qualify if they meet the threshold on average.
How can you check if an employee meets the 75% requirement?
To determine whether an employee meets the 75% requirement for the EMI scheme rules, you first need to calculate their total working time which includes both employment and self-employment.
Example:
Maria works 18 hours a week for your EMI-qualifying company and spends another 6 hours a week on freelance design projects. Her total working time is 24 hours per week. Since 75% of those hours (18 out of 24) are with your company, she meets the requirement and can qualify for an EMI option.
When calculating working time, certain periods still count as if the employee were working such as time off for illness, injury, maternity or paternity leave, carer’s leave, statutory holidays or during a notice period when they’re not required to work.
What are the EMI scheme rules for businesses?
Before issuing any EMI options, you must have your share plan fully in place. This means getting the plan formally approved by your board and obtaining an HMRC-approved company valuation.
If you need guidance, check out EMI Valuation 2026: Easy Expert Guide for Growth Firms
It’s good practice to secure pre-clearance for your option grants. This minimises the risk of them challenging the agreed exercise price later. Keep in mind that EMI valuations are valid for only 90 days from HMRC approval or until a material event occurs. After that, you’ll need an updated valuation to stay compliant with EMI scheme rules.
Your EMI plan should clearly outline:
- The criteria for “good leaver” and “bad leaver” status.
- The class of shares available under the options.
- The conditions or timelines for exercising options.
- How options will be treated in the event of an acquisition.
Other important requirements include:
- EMI options must be over ordinary shares that are fully paid and non-redeemable, though they can carry restrictions.
- Each employee or director can only hold EMI options over shares worth up to £250,000 at the time of grant.
- Options may be issued at a discount or nil price, but if granted below market value, tax could be due on exercise.
- All EMI options must be exercisable within 15 years of being granted.
What are the EMI scheme rules for employees?
When it comes to employees, ensure that:
- They hold no more than 30% of your company’s ordinary shares.
- They hold a maximum of £250,000 worth of unexercised options at any one time. If they hit this maximum limit, they are restricted from receiving further grants for three years.
When the shares are sold, any gain above the market value at the time of grant is usually subject to Capital Gains Tax (CGT).
Employees who qualify for Business Asset Disposal Relief (BADR) may benefit from reduced CGT rates of 14% for disposals made between 6 April 2025 and 5 April 2026, rising to 18% from 6 April 2026.
However, if the shares are sold within 24 months of the grant date or the employee has already used their £1 million lifetime BADR limit, standard CGT rates of 18% or 24% may apply depending on their income tax band.
What are the EMI scheme rules in a disqualifying event?
If a disqualifying event occurs, your employees will keep the full Income Tax and NIC benefits if they exercise their options within 90 days. After that, tax relief only applies to the gain made up to the event date under the EMI scheme rules.
It’s good practice to monitor EMI arrangements regularly so you can spot potential disqualifying events early.
Notification deadlines
For any options granted, companies must notify HMRC. For grants made on or after 6 April 2024, the deadline is 6 July following the end of the tax year in which the grant was made (matching the annual return deadline). Failing to meet this deadline invalidates the tax-advantaged status of the options entirely. (Note: The government has announced intentions to remove the notification requirement entirely from April 2027, but for 2026, the 6 July rule remains strictly active).
FAQ about EMI scheme rules
Can EMI options be transferred to someone else?
No. EMI options are personally granted to the employee and cannot be transferred, except in the event of death.
What happens if an employee leaves the company?
It depends on your EMI plan rules. Options may expire, be forfeited, or be exercised early, depending on whether the employee is classified as a “good leaver” or “bad leaver.”
How do I submit an EMI valuation to HMRC?
The quickest way to submit an EMI valuation is by emailing a completed VAL231 form along with your valuation report to savexternal.mailbox@hmrc.gov.uk.
How long does an EMI valuation take?
EMI valuations typically take 4 to 6 weeks to process and remain valid for 90 days from the date of approval.
Do EMI options impact company voting rights?
EMI options themselves do not grant voting rights until exercised and converted into shares. Employees only gain voting rights once they become actual shareholders.
