EMI share options for UK startups

Enterprise Management Incentive (EMI) options are the UK government’s flagship share scheme for early-stage companies. They let qualifying startups grant tax-advantaged options worth up to £250,000 per employee to attract and retain key staff, with 10% Business Asset Disposal Relief (BADR) CGT on exit. For a cash-poor startup competing with larger employers on salary, EMI is one of the most effective ways to share future value with the team without spending cash today.

EMI usually sits at the heart of a broader funding strategy, so it pairs naturally with the other tools covered across our financing and investment hub, from raising rounds to managing dilution.

Company and employee eligibility

EMI has tight eligibility tests intended to keep it focused on growing, innovative SMEs.

The gross assets test is at the group level and is one of the most common stumbling blocks during a Series A. Because raised cash sits on the balance sheet, a large round can push a company past the £30 million ceiling, so options are often granted before the round completes. If you are planning a raise, read our explainer on how venture capital works so the timing of grants and funding lines up.

Limits and valuation

You agree the market value at grant with HMRC’s Shares and Assets Valuation team using form VAL231, locking in the EMI tax treatment. A valuation is typically valid for a fixed window, so refresh it before each new tranche of grants and after any event that materially changes the company’s worth.

Setting the exercise price at or above the agreed market value means the employee pays no income tax on exercise. Some companies grant at a nominal price (for example, the share’s par value) and accept a small income tax charge on the discount in exchange for a lower cash cost when employees eventually exercise. The right choice depends on your cap table and the leaver provisions you put in place.

Tax outcome at exit

If structured properly, the employee pays CGT only on the gain above the exercise price, with no income tax or National Insurance at any stage.

The 10% rate applies up to the £1m lifetime BADR limit, with the balance taxed at the standard CGT rate. Crucially, EMI relaxes the usual BADR conditions: the 24-month clock runs from the date of grant rather than from exercise, and the employee does not need to hold the standard 5% of share capital. This is what makes EMI so much more generous than an ordinary share purchase.

EMI also complements the investor-side reliefs that often fund the same companies. Founders frequently raise under the Seed Enterprise Investment Scheme and later the Enterprise Investment Scheme, then reward staff with EMI, giving both investors and employees tax-advantaged routes into the equity.

Practical setup

• Run an HMRC valuation before grant, and refresh it each round
• File the EMI notification within 92 days of grant
• Issue option agreements with vesting and good/bad leaver clauses
• File the annual ERS return by 6 July following the tax year
• Cover EMI-related CT deductions in the CT600 return
• Update the share register and cap table on each exercise
• Confirm none of the employees breach the 30% test

Miss the 92-day notification deadline and the options can lose their EMI status entirely, so build a reminder into your post-grant checklist. Keep the cap table current too, because every grant and exercise affects ownership percentages and the dilution picture, which matters when you next sit down with investors to discuss raising equity.

Final thoughts

EMI is one of the most generous schemes in the developed world, but the formalities matter and small slips can be expensive. Pair this with our stamp duty on shares guide, the accounting for UK SaaS companies article, and the dividend tax for shareholders explainer. Cross-check the detail on the HMRC Employee Tax Advantaged Share Schemes manual . See pricing for tools that handle option grant reporting.