Enterprise Management Incentives (EMI): complete guide to rules, tax advantages and 2026 changes

Employee share ownership can be an effective way to attract and retain key employees and help them feel invested in a company’s performance.

The right share scheme can improve commitment and motivation, which can support growth. Further, by using a tax-advantaged scheme such as an Enterprise Management Incentive (EMI) you can reward employees in a tax-efficient way.

EMI is a popular tax-advantaged share option scheme for smaller and growing companies. As announced at Autumn Budget 2025, from 6 April 2026 it is available to a wider range of scale-up businesses, with higher eligibility thresholds and increased limits. This makes EMI more relevant for some larger, growing businesses and may prompt companies to reconsider whether EMI could now be suitable. Companies with existing EMI arrangements may also be able to benefit from the expanded limits, including the extended exercise period.

What is an Enterprise Management Incentive (EMI)?

EMI is a highly tax-efficient share option scheme most suited to smaller and growing businesses. It tends to be most effective where there is a medium-term opportunity to receive value from their option, for example on an exit event such as a trade sale or flotation. In general terms, companies that qualify can grant qualifying employees options up to a value of £250,000 per employee.

Typically, employees are granted an option to buy shares at a certain point in the future. This may depend on company and/or employee performance criteria and is granted at a fixed price agreed at the outset when the options are granted. This is often the market value of the shares at the date the option is granted.

Key tax advantages of EMI for employees and companies

Employees benefit from favourable income tax treatment. If the exercise price of the options is no less than the market value at the date of grant, there are no income tax or National Insurance charges on grant or exercise. There is no employer National Insurance charge either.

Any growth in value after the exercise of the option is generally subject to capital gains tax (CGT) on the ultimate disposal of the shares. Employees can usually claim Business Asset Disposal Relief (BADR), giving access to a reduced 18% CGT rate from 6 April 2026 (currently 14%), compared to the standard 24% CGT rate that higher and additional-rate taxpayers would otherwise pay on shares.

For BADR purposes, the date of grant will count as the date of acquisition and the 5% minimum shareholding rule doesn’t apply where shares are obtained from the exercise of an EMI option. The minimum holding period of 24 months still applies (but from the date of grant of the option).

The employing company should be able to claim a deduction against corporation tax for the full amount of the financial gain provided to employees who exercise their options (being the difference between the market value of the shares at exercise and the exercise price paid by the employee for the shares).

EMI also allows an employer to identify the key employees that it wishes to benefit. Performance and vesting conditions can be included to align outcomes with the company’s objectives and encourage long‑term commitment.

Generally, an EMI scheme is relatively straightforward and cost-effective to implement.

Another key advantage of EMI is that HM Revenue & Customs (HMRC) can agree a share valuation before grant, providing a higher degree of certainty on the employment tax position when setting exercise prices (which can be particularly beneficial for due diligence when exit-only options are exercised).

EMI qualifying conditions (company and employee requirements)

There are strict qualifying criteria for both the company and the employee. For example, a company must carry on a qualifying trade and meet certain size and independence conditions.

Certain trading activities are excluded, including financial and banking activities, legal and accountancy services, property development, and farming.

The company must have a permanent establishment in the UK.

The company must be independent and not a 50% subsidiary or otherwise under the control of another company. Plus there must not be any arrangements in place for the company to become a 51% subsidiary or under the control of another company in the future.

The company must hold more than 50% of the share capital of any of its subsidiaries and more than 90% of any property managing subsidiaries.

Employees must meet the ‘working time commitment’, essentially working at least 25 hours per week for the company (or its subsidiary), or, if less, 75% of their working time.

Employees owning more than 30% of the company (directly or indirectly) cannot participate.

Key EMI changes from 6 April 2026

For EMI options granted on or after 6 April 2026:

• The company (or group) must have fewer than 500 full-time equivalent employees (250 before 6 April 2026),
• The company (or group) must have gross assets not exceeding £120 million (£30 million before 6 April 2026),
• The company (or group) must not have more than £6 million worth of shares under EMI options (£3 million before 6 April 2026), and
• EMI options must be capable of exercise within 15 years of grant (10 years before 6 April 2026).

The increased employee, gross assets and company‑wide limits also apply to existing EMI options that have not expired or been exercised.

This extended exercise period can also apply retrospectively to existing EMI options that have not expired or been exercised, and existing option terms can be amended without losing the tax advantages.

EMI planning opportunities for growing companies

EMI option plans can support employee incentive planning ideas such as:

• Growth shares where the share price is high, or where existing options mean the company‑wide limit on unexercised EMI options (£3 million increasing to £6 million from 6 April 2026) and the per employee limit (£250,000) would otherwise restrict employee inventive planning,
• Options over non‑voting shares, or exercise only on an exit event, where existing shareholders want to protect their share rights,
• Individual performance or vesting conditions to better incentivise staff, and
• A low or nil exercise price, as there’s no requirement for the exercise price to be set at the market value at grant (albeit the discount to the market value at grant would be subject to employment tax at the date of exercise).

Who is EMI most suitable for?

EMI is most suitable for smaller and growing companies that want to attract and retain key employees where there is a medium‑term exit event or another mechanism to allow employees to realise gains.

How we can help with EMI schemes

Our team advises on the design, implementation and operation of EMI arrangements.

We can help you:

• Consider whether EMI is suitable for your business,
• Assess whether your company and employees meet the qualifying conditions (and, if required, seek advance assurance from HMRC),
• Review existing EMI options to see whether they may benefit retrospectively from the extended 15-year exercise period,
• Prepare share valuations and submit valuation clearance applications to HMRC, and
• Support ongoing compliance and reporting requirements.

If you’re considering an EMI scheme or would like advice on how the 2026 changes could benefit your business, our team is here to help. Contact Sean Watts to discuss the right approach for your company and how we can support you through every stage of the process.