Key facts
- EMI is available to independent trading companies with fewer than 250 full-time equivalent employees and gross assets of £30 million or less.
- Each employee can hold unexercised EMI options over shares worth up to £250,000 (at date of grant).
- No Income Tax or NI arises on grant or exercise, provided the exercise price is at or above actual market value (AMV) at the date of grant.
- On disposal of shares, CGT applies — with potential eligibility for Business Asset Disposal Relief (10% rate on gains up to £1 million).
- Companies must file an ERS annual return with HMRC and notify the grant within 92 days.
How EMI Share Options Offer Tax Advantages
Enterprise Management Incentives (EMI) are the most generous tax-advantaged share option scheme available in the UK. They are designed to help small and medium-sized companies recruit and retain key employees by giving them a stake in the company’s future growth.[1]
The tax advantages are substantial:
- No Income Tax when the option is granted
- No Income Tax when the option is exercised (if the exercise price equals or exceeds AMV at grant)
- No National Insurance for employee or employer on grant or exercise
- Capital Gains Tax on eventual sale of shares, potentially at the 10% BADR rate
- A Corporation Tax deduction for the employer on exercise
Qualifying Conditions
Both the company and the employee must meet specific conditions for EMI to apply:[2]
Company Requirements
- Independent company — not a 51% subsidiary of, or controlled by, another company
- Qualifying trade — must carry on a qualifying trade (or be the parent of a group where trading activities are carried on). Excluded trades include banking, insurance, property development, farming, legal services, and accountancy
- Fewer than 250 employees (full-time equivalents)
- Gross assets of £30 million or less
- Must have a permanent establishment in the UK
Employee Requirements
- Must be an employee of the company (or a qualifying subsidiary), working at least 25 hours per week or, if less, at least 75% of their working time for the company
- Must not hold (together with associates) a material interest of 30% or more in the company
Option Value Limits
There are two limits on EMI options:[1]
| Limit | Amount |
|---|---|
| Per employee — maximum value of unexercised EMI options | £250,000 (based on market value at date of grant) |
| Per company — total value of all outstanding EMI options | £3 million |
The £250,000 limit applies to the market value of shares under option at the date of grant, not the exercise price. If an employee exercises some options, the headroom is freed up for further grants.
Tax Treatment: Grant
No Income Tax or NI charge arises when an EMI option is granted, regardless of the exercise price set. However, to avoid a tax charge on exercise, the exercise price must be set at or above the shares’ actual market value (AMV) at the date of grant.[2]
Tip: It is good practice to agree the AMV with HMRC’s Shares and Assets Valuation (SAV) team before granting EMI options. This provides certainty that the valuation will not be challenged later. Use form Val 231 to request a valuation opinion.
Tax Treatment: Exercise
When the employee exercises the option (buys the shares), the tax position depends on the exercise price:[2]
- Exercise price ≥ AMV at grant: No Income Tax or NI on exercise. The entire gain from grant to exercise is sheltered.
- Exercise price < AMV at grant: Income Tax (and potentially NI) is charged on the discount element (AMV at grant minus exercise price). The remaining gain is taxed as a capital gain on eventual sale.
If the shares have increased in value between grant and exercise, that increase is not subject to Income Tax — it is deferred until the shares are sold and taxed as a capital gain.
Tax Treatment: Disposal of Shares
When the employee sells the shares, Capital Gains Tax applies to the gain (sale proceeds minus the amount paid on exercise). The key rates for 2025/26 are:[1]
| Scenario | CGT Rate |
|---|---|
| BADR qualifying (shares held 2+ years from grant) | 10% on gains up to £1 million lifetime limit |
| Basic-rate taxpayer (above BADR limit or not qualifying) | 18% |
| Higher/additional-rate taxpayer | 24% |
Business Asset Disposal Relief (BADR): EMI shares qualify for BADR provided the option was granted at least 2 years before disposal. Unlike normal BADR, the employee does not need to hold 5% of the shares or voting rights — even a small EMI holding qualifies.[1]
Corporation Tax Deduction for the Employer
When an EMI option is exercised, the employing company may claim a Corporation Tax deduction for the difference between the market value of the shares at exercise and the exercise price paid by the employee. This can result in a significant tax saving for the company, effectively sharing the benefit of the scheme. The deduction is claimed through the company’s Corporation Tax return.
Reporting Requirements
Companies granting EMI options must comply with strict reporting obligations:[3]
- 92-day notification: Notify HMRC of each EMI option grant within 92 days of the grant date, using the online ERS service
- ERS annual return: File an Employment Related Securities annual return by 6 July following the end of the tax year, reporting all grants, exercises, releases, and other share option events
- Failure to notify: If you miss the 92-day deadline, the options lose their EMI tax-advantaged status and are treated as non-tax-advantaged options — resulting in Income Tax and NI on exercise
Tip: Set a diary reminder when granting EMI options. Missing the 92-day notification deadline is one of the most common mistakes and results in the complete loss of EMI tax advantages for those options.
Frequently Asked Questions
What is an EMI share option?
An EMI share option is a right granted to an employee to buy shares in their employer company at a predetermined price (the exercise price) at a future date. EMI options are tax-advantaged: if the exercise price is set at or above the shares’ actual market value at the date of grant, no Income Tax or National Insurance is payable when the option is granted or exercised.
Which companies qualify for EMI?
The company must be an independent trading company (or parent of a trading group) with fewer than 250 full-time equivalent employees and gross assets not exceeding £30 million. Certain trades are excluded, including banking, insurance, property development, farming, and provision of legal or accountancy services.
What happens when EMI shares are sold?
When the employee sells the shares, Capital Gains Tax is payable on the gain (sale price minus exercise price). If the shares have been held for at least 2 years from the date of grant, Business Asset Disposal Relief (BADR) may apply, reducing the CGT rate to 10% on qualifying gains up to £1 million lifetime limit.
What reporting is required for EMI options?
The company must notify HMRC of each EMI option grant within 92 days using an online notification. It must also file an ERS (Employment Related Securities) annual return by 6 July following the end of the tax year, reporting all option grants, exercises, and other events during the year.
Further Reading
- Allowable Expenses for CT — understanding deductible costs including share scheme deductions
- Close Companies — rules affecting owner-managed companies considering EMI
- Business Asset Disposal Relief — the 10% CGT rate for qualifying business disposals
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