EMIs – The basics

What are EMIs?

EMI stands for ‘Enterprise Management Incentives’.

EMIs are a specific HMRC-approved scheme which offers certain tax advantages.

An EMI is a type of employee share scheme.

What is an employee share scheme?

An employee share scheme is an employment related benefit which provides for employees to be granted shares in their employer-company.

Offering employees the right to acquire shares in the business they work for is a management tool used to incentivise and reward employees, or to attract talent in the first place.  Employees are offered the chance to acquire shares usually based on certain company or individual performance targets being met. The targets are designed by employers to suit the strategic objectives of the business.

The contractual framework to create an employee share scheme often uses ‘share options’ which are granted to employees at the outset.

What are share options?

A share option is an opportunity to acquire a share, more so than an absolute right to acquire a share.  The use of share options allows the employer to incorporate targets and conditions for triggering any entitlement to shares.

Share options are not unique to shares granted to employees but they are useful in this context to allow reward to follow performance.

Once the option conditions are met, the share option becomes ‘exercisable’, and the employee option-holder decides whether to exercise the option and acquire the shares, or not.  Usually, exercising the option means the employee paying an exercise price.

Should the employee choose to exercise their share option, tax considerations arise.

EMI tax advantages

Income tax

An employee is not liable to pay income tax on receipt of a share option alone, but in acquiring the share when the option is exercised, income tax is chargeable at that point.  This depends on whether the exercise price paid by the employee (if any) equals less than the shares’ market value.  Any shortfall creates a benefit in kind, which is chargeable to income tax.

For the purposes of calculating market value, in default, HMRC uses the value of the shares at the time of acquisition (i.e. when the option was exercised).  This is where EMIs come in.  EMIs are primarily a tax creation, by which HMRC lends support (tax advantages) to certain eligible employment share schemes.

Under an EMI scheme, any benefit in kind is calculated using market value at the date the employee acquired the share option, not the date of the exercise of the option.  Assuming the company has achieved growth between option and exercise, this minimises any benefit in kind, which can generate considerable income tax savings.

National Insurance Contributions follow the same treatment such that any benefit in kind is measured against market value at the grant of the option, not the exercise of the option, and as above, assuming company growth, this creates a lower liability.

Capital Gains Tax (CGT)

CGT is chargeable on any profit made when the employee comes to sell their shares.  Broadly speaking, such profit is calculated as any positive difference between the sale price and the market value of the shares.

Again, for the purpose of calculating market value, under an EMI scheme, the date the share option was granted is adopted.  In circumstances where the company’s value has grown, the use of this date creates a bigger gain and therefore a greater chargeable profit. In this respect, the EMI regime leads to a tax disadvantage: a greater profit means a greater risk of CGT liability; however, any tax cost is still necessarily favourable to the income tax consequences of the market value being fixed instead to the date of exercising the option.

To support businesses generally, HMRC offers Business Asset Disposal Relief (BADR) which, if applicable, reduces the rate of CGT from 24% to 18% (as of 16 July 2026).  In the case of profit on the sale of shares, BADR is only available ordinarily where the shareholding represents at least 5% of the company’s share capital and the shares have been held for at least two years.  For shares acquired under EMI, the 5% threshold is removed, making the relief available to employees owning any number of shares; and the period during which the employee was only an option holder, counts towards the two year period.

Eligibility

EMIs are not automatically available to all employee share schemes and eligibility criteria applies.

The precise prescribed criteria changes from time to time and concerns the following:

The employer:

• Must be independent of other companies meaning it cannot be 51% or more controlled by another company such as a holding or parent companies and any subsidiaries must qualify in their own right;
• Must have gross assets not exceeding a prescribed value;
• Must have fewer than a prescribed number of full-time equivalent employees;
• must be a trading company, or the parent company of a trading group i.e. the business’s income must not derive from investments;
• Must not be involved with certain prescribed trading activities such as land development; and,
• must have a permanent UK establishment.

The shares being offered:

• must be fully paid up, ordinary shares; and
• must not exceed certain prescribed limits in value either as a whole under the scheme or as granted to any single employee.

The employee:

• must work at the employer for at least 25 hours a week; and
• must not have a material interest in the employer which means they must not already own 30% or more of the employer’s ordinary shares.

Summary

Employee share options are popular with businesses aiming for growth and they work on the premise of harmonising the objectives of the employer and the employee.

Using the EMI regime, schemes become more tax efficient and affordable, and therefore even more attractive to both employer and employee.

How Clarkslegal can help

Clarkslegal can help you understand whether EMIs suit your business and assess eligibility. Thereafter, we can also tailor and implement a scheme for your employees. To discuss EMIs please contact our corporate and commercial team and we will confirm next steps.