Enterprise Management Incentive (EMI) share option schemes are a method by which key employees can be offered an equity stake in a company or group of companies, in a tax efficient way.
EMI options can form part of a broader incentive strategy alongside salary and bonus structures, to reward and motivate one or more selected employees.
In the 2025 Autumn Budget, the government announced changes to broaden access to EMI schemes from 6 April 2026. These developments are intended to widen participation and make the regime more practical for growing companies that may have previously exceeded the qualifying limits.
Further simplification of administrative requirements are planned from April 2027.
In this article, Dominic Aspinall, Senior Tax Manager at Cowgills provides an overview of what an EMI scheme is and explains the upcoming key changes.
What is an EMI scheme?
EMI share option schemes enable companies to grant employees the option to purchase shares at a future date (e.g. exit or vesting date) at a predetermined price.
They are intended to support qualifying small and medium-sized businesses by offering employees equity with substantial tax advantages compared to other share plans, while helping growth-focused companies attract and retain talent.
Under an EMI scheme, value is typically realised when the shares are sold, for example on a disposal of shares to an unconnected third party purchaser.
Holding EMI options does not immediately provide the employee with shareholders’ rights, such as voting rights or entitlement to dividends as no shares are held until the options have been exercised.
Which companies qualify for EMI status?
EMI schemes can be used by independent quoted or unquoted companies which meet certain criteria.
Companies must carry on a qualifying trade, and there are detailed provisions for this. Examples of trades that do not qualify include leasing, farming, financial activities and property development.
There are other criteria which must be met and the rules are changing from 6 April 2026.
Key Changes to EMI Scheme criteria effective from 6 April 2026 are:
- Employee Limit: Increased to fewer than 500 employees (up from 250).
- Gross Assets Limit: Raised to £120 million (up from £30 million).
- Company Options Value: Will be increased from £3 million to £6 million.
- Holding Period: Maximum holding period extended to 15 years (up from 10), applicable to new and existing contracts (although amendment to documentation are likely needed).
Who can be granted EMI options?
To be eligible for EMI options, an employee must:
- Work at least 25 hours per week, or spend 75% of their total working time for the company, and
- Not have a material interest in the company (30% or more of the share capital).
The maximum value of shares for which an individual may hold under EMI is £250,000, calculated at the date of grant of the options. The maximum value of potential shares that can be held under EMI options, is currently £3 million. This is doubling to £6 million from 6 April 2026.
What are the tax advantages of EMI options?
EMI options are highly attractive from a tax perspective and flexible in how they operate.
In most cases, no income tax or National Insurance Contributions (NICs) arise when EMI options are granted or exercised (at the market value agreed with HMRC). Instead, Capital Gains Tax (CGT) at 24% is payable on the gain when the shares are sold to a third party purchaser.
Where the EMI option has been held for at least 24 months, the option holder should qualify for Business Asset Disposal Relief (BADR), reducing the CGT rate to 18% (from April 2026) on the first £1 million of lifetime gains.
Although the BADR rate is increasing, EMI options still remain one of the most flexible and tax-efficient ways to incentivise and retain employees.
Another key advantage is certainty: the market value of shares subject to EMI options can be agreed in advance with HMRC before options are granted, providing clarity on the tax position.
There are also tax benefits for the employer. Provided relevant conditions are met, the company may be entitled to a corporation tax deduction in the accounting period in which the employee exercises their option.
Options must be capable of being exercised within 15 years from April 2026 (10 years before that date).
EMI notification to HMRC and EMI annual reporting requirements
All EMI schemes are required to be registered with HMRC, via the online portal. At present, EMI option grants must be reported electronically and failure to notify HMRC will cause the option to lose its EMI status.
You must inform HMRC of an EMI option grant by 6 July following the end of the tax year in which the grant took place. For example, options granted in the 2025/26 tax year must be reported by 6 July 2026.
From April 2027, this notification requirement will be abolished, helping to reduce compliance risk and administrative burden.
If you want to explore how EMI options can benefit your business and your employees, get in touch with your Cowgills contact or visit our website.
