Recruitment and talent retention are key issues for businesses of all sizes and sectors. Start-ups and scale-ups face the additional challenge of incentivising key employees without significant cash resources. Enterprise Management Incentives (or “EMI”) are designed to address these issues, by enabling small and medium-sized companies to reward employees with an equity stake in a tax-efficient and flexible manner.
However, the current rules are restrictive, excluding larger companies or meaning that companies can outgrow the scheme. As announced in the Autumn 2025 Budget, significant changes to the eligibility criteria take effect from April 2026, making EMI an option for a far larger number of companies.
EMI: how do they work?
EMI are options over a company’s shares, which can be granted to certain employees.
EMI are notable for their flexibility. Companies can grant options to a selected few individuals (often key members of the management team) or to a larger number of employees.
The company may elect for options to become exercisable after a specified period, or when certain (for example, performance) criteria are met, or only on an exit. Options can be granted over shares in an existing class of the company’s ordinary share capital, or over a newly created class with (as is common) reduced rights to voting and dividends. For larger companies wishing to differentiate between groups of employees, EMI could be granted over different classes of share, provided each class complies with the rules.
The tax benefits
No tax is payable on the grant of an EMI option.
If the strike price is set at an amount at least equal to the market value of the shares when the options are granted, no income tax or National Insurance Contributions are payable on exercise. The market value of the shares can be agreed with HMRC before options are granted, providing certainty that no tax will arise.
On a sale of the shares, the employee is subject to capital gains tax (at 24%) and, if the combined period for which they have held their option and the shares is at least two years, they may benefit from business asset disposal relief, reducing the rate to 14% (18% from April 2026).
Restrictions on EMI
Other than certain excluded sectors (for example financial activities and property development), most trading companies (or holding companies of trading groups) can grant EMI.
They can be granted to any employees who work at least 25 hours a week (or, if less, 75% of their working time) in the business, although employees with a “material interest” (more than 30% of the company’s share capital before the options are granted) are excluded.
However, they are subject to the following restrictions:
- The company must have gross assets of less than £30 million.
- The company must have less than 250 (full time equivalent) employees.
- The total value of the company’s shares under EMI options must be less than £3 million.
- No single employee can have options over more than £250,000 worth of shares.
Changes to the rules from April 2026
From 6 April 2026, the first three of these restrictions will be changed. Under the revised rules:
- The limit on gross assets will increase to £120 million.
- The limit on the number of employees will increase to 500.
- The total value of shares under EMI option at any one time will increase to £6 million.
In addition to the above, from 6 April 2026, the maximum period in which options can be exercised increases to 15 years (set at 10 years before that date).
The value of the shares under an option held by a single employee will remain capped at £250,000, and although there will be some simplifications to reporting requirements, these do not take effect until April 2027.
Practical implications
The significant and unexpected increases to the limits on gross assets, total value of shares under option and the number of employees mean that, from April 2026, many companies that cannot currently grant EMI will be able to do so.
Larger companies considering whether to take advantage of EMI should be aware, however, that there are number of potential pitfalls with EMI, and “off-the-peg” scheme rules may not be suitable in all circumstances. Proper advice and careful drafting of bespoke rules should ensure, however, that EMI are tailored to the issuing company’s requirements and achieve their commercial aims.
We can help with implementing new EMI schemes and advise on existing ones, for example dealing with leavers, disqualifying events and the cancellation, variation and issue of new options.
If you would like to discuss any of the information provided in this article, please do not hesitate to contact a member of our Tax team who would be more than happy to assist.