Do you have plans to offer shares to your employees and want to scale your business further? If so, the good news is that the enterprise management incentives (EMI) scheme has been expanded to scaling companies to allow them to grant options to employees.  

This article explores the requirements of the EMI scheme, one of the most popular share schemes offered to employees, the advantages of such scheme and what the expansion of the EMI eligibility means for established businesses.

What is an EMI scheme and why should my business implement one?

EMI schemes are used by SMEs to motivate and retain key employees and drive growth. What is unique about the scheme is that employees receive share options, which gives them the right to buy shares in the future at a set price and offers numerous tax advantages that other employee share schemes do not offer.  

The key advantage is that when employees are given their EMI option, they do not have to pay any tax or National Insurance Contributions. Tax liabilities only occur when employees ‘exercise’ their option and even if they do, you pay tax on the value at the grant date rather than the value at the date of exercise. Furthermore, if employees decide to sell their shares in the future, they will only have to pay capital gains tax (paying 18% from 6 April 2026) rather than income tax (up to 45%) on any profit they make.

Can your business use an EMI scheme and what are the new changes?

As part of the Autumn 2025 Budget, the government announced changes to the EMI scheme, whereby the eligibility for the scheme has been expanded to growing businesses. Whilst the EMI scheme was aimed at startups who wanted to attract and retain talent, larger or growing companies were unable to use it because they had become too successful and had failed to meet the criteria. As such, they had no choice but to grant unapproved options or alternative non-tax-advantaged share schemes.

The change removes some of the limitations growing companies faced for years. Effective from 6 April 2026, below are the changes the government introduced:

  • the number of employees increases from 250 to 500 employees.
  • the maximum gross assets for EMI eligibility rises from £30 million to £120 million.
  • the total value of unexercised EMI options a company can grant increases from £3 million to £6 million.
  • the maximum option lifespan extends from 10 to 15 years.

Whilst the government introduced the above changes which help scaling companies to make the best use of the EMI scheme, the existing requirements below must also be satisfied:

  • the company must not be controlled by another company (i.e. where a ‘parent company’ owns over 50% of its shares).
  • the company must only have ‘qualifying ‘subsidiaries’ (i.e. the company must hold more than 50% of the subsidiary’s shares – this increases to 90% for subsidiaries which manage property).
  • it must undertake a ‘qualifying trade’, meaning that certain trades including property development and running hotels or nursing homes are excluded.

Which employees can use the scheme?

If an employee wants to receive an EMI option, they must spend at least 25 hours per week (or 75% of their working time) working for the company and must not own more than 30% of shares in the company. Please note that if you are granting an EMI option, an employee can hold up to a maximum of £250,000 as an EMI option.

What steps do you need to take to set up a scheme?

To be eligible for the EMI scheme, the company needs to satisfy the ‘commercial purpose test’, which confirms that the option must only be issued for commercial purposes (incentivising employees), not for the avoidance of tax. Although not compulsory, companies should obtain pre-approval from HMRC plan to confirm that they qualify for the scheme. Once confirmed, documentation to approve the establishment of the scheme will need to be drafted and signed.

For the company to obtain tax advantages, the company must register the EMI scheme with HMRC online and must notify the grant of an EMI option. This must be done by 6 July following the end of the tax year the grant was made if it was granted on or after 6 April 2024. HMRC are very strict with this time period, and failure to notify HMRC before the deadline is one of the most common reasons for EMI options losing their qualifying tax status. Whilst the notification is currently mandatory, the government announced that this requirement will be removed from 6 April 2027 to help streamline compliance and remove the administrative. From that point, it will, however, still be necessary to register the scheme with HMRC and submit annual returns.

The expansion of the EMI eligibility arguably represents a significant reform to the scheme, with more established businesses being able to attract and reward employees whilst enjoying the tax benefits associated with the scheme. By offering equity to employees by way of an EMI option, your business is likely to stand out from your competitors and build an engaging team. If you do have plans to set up an EMI scheme, our team at Farringford are here to help.