Share Schemes Explained: EMI Options and Why They Matter
Enterprise Management Incentives (EMI) options are one of the most tax-efficient ways to reward and retain key employees. Here's what founders and FDs need to know.
Enterprise Management Incentive (EMI) options are widely regarded as the gold standard of employee share incentives for growing companies. They offer substantial tax advantages for both the company and the employee — but only if structured correctly.
What are EMI options?
EMI options are a type of share option that allow employees to acquire shares in their employer company at a fixed price. The key advantage is that, provided the options are structured correctly and certain conditions are met, the gain on exercise is subject to Capital Gains Tax (typically at 10% with BADR) rather than Income Tax and National Insurance.
The conditions
To qualify for EMI treatment:
- The company must be independent, with gross assets under £30 million
- The company must carry on a qualifying trade
- The employee must work at least 25 hours per week (or 75% of their working time) for the company
- Options must be over ordinary shares and the individual limit is £250,000 (based on market value at grant)
The tax saving
For an employee realising a £500,000 gain, the difference between Income Tax (up to 45%) and CGT with BADR (10%) can be over £175,000. The company also avoids employer National Insurance.
Valuation
Before granting EMI options, companies typically agree a valuation with HMRC. This provides certainty on the exercise price and the tax treatment.
Our service
We advise companies and individuals on EMI option schemes — from initial structuring and HMRC valuation through to exercise and sale. Contact us to find out whether EMI options are right for your business.
Frequently Asked Questions
What is an EMI share scheme?+
Enterprise Management Incentives (EMI) is a tax-advantaged share option scheme designed for smaller companies. It allows employees to receive share options without income tax or NICs on grant or exercise, with CGT at 10% on sale.
Does my company qualify for EMI?+
To qualify for EMI, a company must have gross assets of £30 million or less, fewer than 250 employees, and operate in a qualifying trade. Individual employees must work at least 25 hours per week.
What are the tax advantages of EMI?+
EMI options are free from income tax and NICs on grant and exercise (if held for qualifying periods), and shares qualify for Business Asset Disposal Relief at 10% CGT on disposal.
Simon Newsham CTA
Chartered Tax Adviser — Founder, Newshams Tax Advisers
Simon Newsham is a Chartered Tax Adviser (CTA) with over 30 years' experience advising businesses, high net worth individuals, law firms and accountancy practices on complex UK tax matters. He has been advising clients since 1995 and is a member of the Chartered Institute of Taxation.
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