With the economy struggling, inflation rising and businesses taking stock of the recent rise in Employer NI Contributions, many small and medium-sized businesses are looking for a way of incentivising their senior staff to remain with the company, without offering large salary increases.
Enterprise Management Incentives (EMIs) are becoming increasingly popular as a tax-efficient way of giving share options to valuable members of staff. This note provides an overview of EMIs, explains which companies are eligible, looks at the benefits to both employer and employee, and provides advice on next steps to set up a scheme.
Who is eligible?
By way of an overview, companies are eligible to offer EMIs if they are independent of other companies, have gross assets of £30 million or less and employ fewer than 250 people. There are a few ‘excluded activities’ where companies working in those areas are not allowed to offer EMIs, such as (but not limited to) banking, farming, property development, legal services and ship building.
To be eligible to receive an option, an employee must work at least 25 hours a week for the company, or 75% of their total working time for the company to be eligible to receive EMIs.
Up to £250,000 worth of shares can be granted to each individual in a 3-year period. The limit on the total value of options that can be granted under an EMI scheme is £3m.
What’s the benefit?
For employees, the benefits that can derive from EMIs are significant. They can gain a stake in the company they work for and gain the tax benefits associated with a compliant EMI. There is a possibility that even if the option provides a discount on the market value, so long as individuals buy the shares within 10 years of them being offered, then they will not need to pay Income Tax or NI on the difference. If an employee sells their shares they may be required to pay Capital Gains Tax.
For companies, EMI options are considered one of the most flexible and tax-efficient ways of retaining and incentivising your employees. While it can be considered to be a straightforward concept, the legal detail and complexity means you need advisers who have considerable experience. Bishop and Sewell has considerable experience of setting up the legal side of EMIs for our clients. We also work with specialist accountants and tax advisers that can advise on all the tax advantages and particular tax requirements and HMRC clearances (if necessary).
How to set up an EMI and agree the exercise price
It is important to get legal and tax advice while setting up an EMI to ensure that it meets all the criteria, is in line with HMRC guidance and that the option agreement and EMI rules are correctly drafted.
An EMI option must be a written option agreement, that sets out key details including the grant date, the number of shares under the option and the exercise price (or method used for determining it).
In terms of the types of shares that can be used to satisfy an EMI option, these can be either newly issued shares (with this being the most common method) or shares transferred from an existing shareholder. The shares must be fully paid up, ordinary shares.
Exercising the option
The option agreement will specify when an option becomes exercisable (vesting criteria). This can be based on time and performance basis or an exit event, such as a share sale or listing.
On-going reporting requirements
Once set up, your EMI option plan must be registered with HMRC who will allocate a unique scheme reference number, which must be used to complete annual scheme returns and the grant of options. The company will be obliged to complete an annual return for the scheme for every tax year, even if no events have occurred during that year.
Ionut-Florin Tihulca is an Associate Solicitor in our Corporate & Commercial team.
To find out more about EMIs contact Ionut-Florin Tihulca:
Email: itihulca@bishopandsewell.co.uk
Tel: +44 (0)20 7631 4141
The above is accurate as at 29 July 2025. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
