EMI share options for UK startups
Enterprise Management Incentives (EMI) for UK startups: eligibility, valuation, vesting and CGT.
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 CGT on exit.
Company and employee eligibility
EMI has tight eligibility tests intended to keep it focused on growing innovative SMEs.
| Test | Threshold |
|---|---|
| Gross assets | ≤ £30 million |
| Employees (full-time equivalent) | < 250 |
| Trading status | Carrying on a qualifying trade |
| Excluded activities | Property, finance, legal services, farming |
| Independence | Not a 51% subsidiary |
| Employee working time | ≥ 25 hrs/week or 75% of total time |
| Employee shareholding | < 30% before grant |
The gross assets test is at the group level and is one of the most common stumbling blocks during a Series A.
Limits and valuation
| Limit | Amount |
|---|---|
| Per-employee EMI options | £250,000 (market value at grant) |
| Total company EMI options | £3 million |
| Exercise price floor | None (can be £0.0001) |
| Vesting period | Not prescribed |
| Maximum option life | 10 years |
You agree the market value at grant with HMRC’s Shares and Assets Valuation team using form VAL231, locking in the EMI tax treatment.
Tax outcome at exit
If structured properly, the employee pays CGT only on the gain above the exercise price, with no income tax or NIC at any stage.
| Event | Tax for employee |
|---|---|
| Grant | None |
| Exercise (within 10 years) | None if exercise price ≥ MV at grant |
| Sale of shares | CGT, often at 10% (BADR / EMI relief) |
| BADR holding requirement | 24 months from grant of option |
The 10% rate applies up to the £1m lifetime BADR limit, with the balance taxed at the standard CGT rate.
Practical setup
- Run an HMRC valuation before grant; refresh 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
Final thoughts
EMI is one of the most generous schemes in the developed world, but the formalities matter. 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 on the HMRC Employee Tax Advantaged Share Schemes manual . See pricing for tools that handle option grant reporting.