The Enterprise Management Incentive Scheme Is Now Live
- TBA
- 2 days ago
- 5 min read
In its Autumn 2025 Budget, the government announced a series of important reforms to the Enterprise Management Incentive (EMI) scheme.
This is the most positive adjustment to the EMI system in recent years, not only significantly expanding its scope of application but also substantially reducing compliance and administrative burdens.
For start-ups, scale-ups, and companies planning to incentivise core employees over the long term, this is undoubtedly a major boon. Today, we will introduce this equity incentive tool in detail, along with its tax advantages and common risks.
What is the EMI equity incentive scheme?
EMI is an employee equity incentive system specifically designed for eligible small, medium, and growing enterprises in the UK.
Through an EMI scheme, a company can grant share options to employees or directors, allowing them to purchase company shares at a pre-agreed price at a specific time in the future (such as company exit, sale, or when options vest).
However, it’s important to note:
EMI options do not confer dividend rights or voting rights.
Returns are usually realised when the shares are sold (e.g., company acquisition, secondary market sale).
Because of its high flexibility and low tax burden, EMI has consistently been one of the most commonly used incentive methods for UK start-ups and high-growth companies.
Enterprise Management Incentive (EMI) tax advantages
The most attractive aspect of EMI is its significant tax advantages.
Normally, when EMI options are granted and exercised at market value, no Income Tax or National Insurance Contributions burden arises. Employees only need to pay Capital Gains Tax on the uplift in value when they eventually sell the shares, at a rate of 24%.
If the options are held for at least 24 months from the date of grant, employees can also apply for Business Asset Disposal Relief on the first £1 million of gains, which has a tax rate of 18% as of this month (April 2026). Although the tax rate has increased, EMI options overall still save about 29% in tax compared to non-EMI options, maintaining a clear advantage within the UK equity incentive framework.
For employers, provided the conditions are met, the company can enjoy Corporation Tax deductions when employees realise their gains, and save on the corresponding employer National Insurance costs. Furthermore, the market value of the shares corresponding to the options can be pre-agreed with HM Revenue & Customs prior to the grant, significantly increasing tax certainty.
EMI also has clear limits regarding allowances and timeframes. A single employee can be granted options up to the value of £250,000 within any continuous three-year period, whilst the total option limit for the entire company or group under the EMI scheme is £6 million. Options can be exercised up to 15 years after the grant date. Although options can be granted below market value or even at nil cost, any discount may result in additional tax consequences upon exercise; therefore, careful consideration is required when designing the scheme.
Which companies can set up an EMI scheme?
Following the Budget, adjustments were made to the EMI rules.
Companies or groups meeting the following conditions can, in principle, use the EMI scheme:
Asset and size requirements
Group total assets must not exceed £120 million (effective as of this month, April 2026; previously capped at £30 million). The number of full-time equivalent employees must be fewer than 500 (effective as of this month, April 2026; previously capped at 250).
Business nature requirements
The company must engage in a qualifying trade. Non-qualifying trades include leasing, agriculture, financial activities, and property development.
Company structure requirements
The company must remain independent and cannot be controlled by another company, which means private equity holding structures often do not qualify. Under a group structure, EMI options must be granted over shares in the parent company, whilst at least one subsidiary engaged in a qualifying trade must be actively operating in the UK.
It is worth noting that overseas headquarters can also grant EMI options to their UK employees provided relevant conditions are met; for example, a US holding company can, in principle, grant EMI options over its stock to UK employees.
Meanwhile, as of this month, the overall EMI grant limit has increased from £3 million to £6 million.
From April 2027, the mandatory notification requirement following the grant of EMI options will be abolished, reducing compliance risks and administrative costs. This means that many companies that were previously forced to exit the EMI scheme because they grew too quickly are now eligible once again.
Who can receive EMI options?
Although EMI is excellent, it is not open to everyone. Employees are required to work at least 25 hours per week, or dedicate more than 75% of their working time to the company or group.
Self-employed individuals, workers hired through an 'employer of record', and individuals who already hold more than 30% of the company's shares prior to the grant cannot join the EMI scheme.
It should be particularly noted that if employees are seconded overseas long-term or have high international mobility, their EMI options generally cannot enjoy the same tax treatment abroad, and the relevant tax implications must be assessed in advance.
EMI reporting and compliance
Regarding compliance, all EMI schemes must be registered with HM Revenue & Customs and reported by 6 July following the end of the tax year in which the grant was made; otherwise, the options will immediately lose their EMI status.
Although this notification obligation will be abolished from April 2027, companies must still pay close attention to relevant reporting and annual return obligations before then to avoid significant tax losses due to procedural issues.
The view from TB Accountants
Although EMI offers generous tax reliefs, its eligibility is not set in stone.
If a company becomes controlled by another company, ceases to engage in a qualifying trade, or if an employee leaves or their working hours no longer meet the threshold, these can all constitute disqualifying events for EMI.
Furthermore, making inappropriate or non-commercial material changes to the option terms may also affect the EMI tax treatment. Therefore, both companies and employees should continuously review EMI arrangements, especially during financing, mergers and acquisitions, or restructuring phases.
Overall, even against the backdrop of rising general tax rates, EMI remains one of the most flexible and tax-efficient employee incentive tools in the UK, particularly suitable for start-ups and scale-ups hoping to retain core talent with equity rather than high cash costs.
Please note that UK corporate registration and filing fees increased in February this year, and late tax penalties have also risen sharply. If you intend to register a UK company, we recommend making arrangements as early as possible to effectively manage compliance costs.
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