EMI is an HMRC-approved scheme that allows UK businesses to grant employees share options with significant tax advantages. It is designed for smaller businesses and helps attract, motivate, and retain talent without cash. Employee profits on approved EMI options are typically subject to only 10% capital gains tax.
We have helped a large number of start-ups, scale-ups, and high-growth businesses implement EMI schemes. We advise on option types, exercise prices, vesting periods, and scheme documentation, and handle all the legal and administrative steps from drafting scheme rules and option agreements through to HMRC notification.
FAQs
When an employee exercises EMI options and later sells the shares, any gain is subject to Capital Gains Tax rather than Income Tax and National Insurance. With Business Asset Disposal Relief, the CGT rate is 18% on the first £1 million of lifetime gains, provided the EMI option was granted at least 24 months before the disposal. This compares very favourably with unapproved options, where the gain on exercise is taxed as income at up to 45%.
You do not need prior HMRC approval to grant EMI options, but it is strongly recommended that you obtain an HMRC-agreed valuation in advance so that the exercise price is accepted without question. We manage the valuation approval process and notify HMRC following the grant.
EMI options can vest early and be exercised on a sale if the scheme rules include exit provisions. Most well-drafted schemes include these provisions, and the tax treatment on exit is generally highly favourable. We draft EMI scheme rules with robust exit provisions to make sure employees receive the benefit intended when the company is acquired.
No. EMI options can only be granted to employees who work at least 25 hours per week or, if less, at least 75% of their working time for the company. Contractors and consultants who are not employees cannot receive EMI options. Unapproved share options are the alternative for these individuals, and we advise on the most suitable approach.