Which trades are excluded from EMI?

Excluded trades include: banking, finance, lending, property development, property investment, farming, market making, legal services, accountancy, and certain other professional services. A company with mixed activities may still qualify if the qualifying trade is the main activity. EMI is only available to companies carrying on a qualifying trade. The following trades are excluded: (1) Banking, banking services, or any activity carried on as a bank or building society. (2) Finance, lending, or any similar activity. (3) Property development, property investment, or any activity involving land or buildings. (4) Farming, market gardening, or forestry. (5) Market making. (6) Legal services, accountancy, or any similar professional service. (7) Operating or holding shares in a closed-ended investment company. (8) Operating or holding shares in an open-ended investment company. (9) Operating a hotel or similar establishment. (10) Shipbuilding, coal and steel production (in certain circumstances). A company with mixed trading and excluded activities may still qualify if the qualifying trade is the main activity (generally at least 50% by turnover, assets, or management time). The excluded activities are similar but not identical to the BPR excluded activities — specialist advice is needed to confirm eligibility. Relevant legislation: Schedule 5 ITEPA 2003, Paragraph 21 (excluded activities). Example: A company that develops and sells software (qualifying trade) also holds some investment property (excluded activity). If the software development represents at least 50% of the business by turnover, assets, or management time, the company may still qualify for EMI. If the investment property represents more than 50%, EMI is not available. Common mistake: Assuming that a company with some excluded activities is automatically disqualified. If the qualifying trade is the main activity (at least 50%), the company may still qualify for EMI.

What is the £30 million gross asset limit for EMI?

The company's gross assets must not exceed £30 million at the time the EMI option is granted. Gross assets are measured at group level, including all subsidiaries. Exceeding the limit disqualifies the company from granting EMI options. The £30 million gross asset limit is one of the key qualifying company requirements for EMI. The limit applies to the company's gross assets (total assets before deducting liabilities) at the time the option is granted. Key points: (1) Group level — the limit is measured at group level, including all subsidiaries. The gross assets of the parent and all subsidiaries are aggregated. (2) Timing — the limit is tested at the time each option is granted. If the company exceeds £30 million at the time of grant, the option is not a qualifying EMI option. (3) Gross assets — gross assets means the total assets on the balance sheet (before deducting liabilities). It does not mean net assets (assets minus liabilities). (4) Impact — if the company exceeds £30 million, no new EMI options can be granted. Existing EMI options remain qualifying, provided the company met the limit at the time of grant. (5) Monitoring — companies approaching the £30 million limit should monitor their gross assets carefully, as exceeding the limit (even temporarily) can prevent new EMI grants. The £30 million limit was increased from £15 million in 2018, making EMI available to larger companies. Relevant legislation: Schedule 5 ITEPA 2003, Paragraph 26 (gross asset limit). Example: A company has gross assets of £28 million at the time it grants EMI options. The options are qualifying EMI options (within the £30 million limit). If the company's gross assets increase to £32 million the following year, no new EMI options can be granted, but the existing options remain qualifying. Common mistake: Confusing gross assets with net assets. The £30 million limit applies to gross assets (total assets before liabilities), not net assets. A company with £25 million assets and £20 million liabilities has gross assets of £25 million, not £5 million.

Can all employees receive EMI options?

Most employees can receive EMI options, but they must meet individual requirements: work at least 25 hours/week (or 75% of working time), not hold more than 30% of the share capital, and be employed by the company or a qualifying subsidiary. Individual employees must meet several requirements to receive EMI options: (1) Work commitment — the employee must work for the company (or a qualifying subsidiary) for at least 25 hours per week, or if less, for at least 75% of their total working time. This prevents EMI from being granted to passive investors or very part-time employees. (2) Material interest — the employee must not hold (or be entitled to acquire) more than 30% of the ordinary share capital of the company. This prevents majority shareholders from benefiting from EMI. (3) Employment — the employee must be an employee of the company or a qualifying subsidiary. Directors and officers can also qualify if they meet the other requirements. (4) UK connection — the employee must be UK-resident or work predominantly in the UK. There is some flexibility for international employees, but specialist advice is needed. (5) £3 million limit — the employee can hold EMI options with a total value of up to £3 million (at the date of grant). This is a lifetime limit per employee. Relevant legislation: Schedule 5 ITEPA 2003, Paragraphs 28-31 (individual employee requirements). Example: A full-time software developer working 40 hours per week for the company, with no existing shareholding, qualifies for EMI options. A part-time consultant working 10 hours per week does not qualify (below the 25-hour threshold). A majority shareholder holding 40% of the shares does not qualify (above the 30% material interest limit). Common mistake: Granting EMI options to part-time employees or consultants who do not meet the 25-hour work commitment. The work commitment must be met at the time of grant and throughout the period the option is held.

What is the £3 million EMI individual limit?

Each employee can hold EMI options with a total value of up to £3 million (at the date of grant). This is a lifetime limit per employee — unexercised EMI options count towards the limit. The £3 million limit is the maximum value of EMI options that an individual employee can hold. Key points: (1) Value at grant — the value is based on the market value of the shares at the date the option is granted (not the exercise price or the value at exercise). (2) Lifetime limit — the limit is per employee, not per grant. If an employee already holds EMI options, the unexercised value counts towards the £3 million limit. (3) Multiple grants — if an employee has EMI options worth £2 million and is granted additional options, the additional options can be worth up to £1 million before the limit is exceeded. (4) Exceeding the limit — if the limit is exceeded, the excess is not a qualifying EMI option (the tax advantages are lost on the excess portion). (5) Monitoring — companies should track the total EMI option value per employee to ensure the limit is not exceeded. The £3 million limit was increased from £250,000 in 2012, making EMI much more attractive for senior employees. Relevant legislation: Schedule 5 ITEPA 2003, Paragraph 17 (individual limit). Example: An employee is granted EMI options over shares worth £2 million (at market value on the grant date). They can be granted additional EMI options worth up to £1 million before the £3 million limit is exceeded. If they are granted £1.5 million in additional options, £500,000 of the additional options is not a qualifying EMI option. Common mistake: Not tracking the total EMI option value per employee across multiple grants. The £3 million limit is a lifetime limit, and exceeding it can disqualify the excess options.

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EMI Eligibility & Qualifying Companies

EMI is the UK's most tax-advantaged share option scheme, but strict eligibility rules apply. Understand qualifying company requirements, gross asset limits, and qualifying trades.

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Enterprise Management Incentives (EMI) is the UK's most generous tax-advantaged share option scheme, offering significant income tax and NIC advantages for employees of qualifying companies. However, the eligibility rules are strict — the company must be a qualifying trading company with gross assets of up to £30 million and fewer than 250 employees. Getting eligibility wrong can result in the loss of all tax advantages, so a thorough assessment is essential before granting EMI options.

Qualifying Company Requirements

To grant EMI options, the company must be a qualifying company: (1) Independent — not under the control of another company. (2) Gross assets — gross assets must not exceed £30 million at the time the option is granted. (3) Employees — fewer than 250 employees (full-time equivalents). (4) Trading — the company must be a qualifying trading company (or the holding company of a qualifying trading group). (5) UK presence — the company must have a permanent establishment in the UK. (6) Not listed — the company must not be a listed company.

Qualifying Trades

The company must carry on a qualifying trade. Certain trades are excluded from EMI, including: banking, finance, property development, farming, market making, legal services, accountancy, and certain professional services. A company with mixed trading and excluded activities may still qualify if the qualifying trade is the main activity. The excluded activities list is similar but not identical to the BPR excluded activities.

Individual Employee Requirements

The employee must also qualify: (1) Work commitment — must work at least 25 hours per week (or 75% of their working time) for the company. (2) No material interest — must not hold (or be entitled to acquire) more than 30% of the ordinary share capital. (3) Employment — must be an employee of the company or a qualifying subsidiary. (4) UK residence — must be UK-resident or work predominantly in the UK (with some flexibility for international employees).

The £3 Million Limit

Each employee can hold EMI options with a total value of up to £3 million (at the date of grant). This is a lifetime limit per employee — if an employee already holds EMI options, the unexercised value counts towards the limit. The £3 million limit is separate from the £30 million company-wide gross asset limit.

Key Points

What You Need to Know

EMI is available to qualifying trading companies with gross assets up to £30 million
The company must have fewer than 250 full-time equivalent employees
The employee must work at least 25 hours/week or 75% of their working time
Each employee can hold EMI options worth up to £3 million (at grant date)
Excluded trades include banking, finance, property, farming, and certain professional services

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