What is an Enterprise Management Incentive Scheme?

Enterprise Management Incentive Schemes are a popular tool used by small- and medium-sized businesses to motivate and retainkey employees. Employees who participate in EMI schemes receive share ‘options’, which grants them the right to buy company shares in the future, at a predetermined price. This is done in the form of a written agreement between the company and their employee.

This agreed price means that the employee is protected from risk; if the value of the shares falls, they are under no obligation to ‘exercise’ the option (i.e. receive the shares). If the value increases, they are still able to buy them at the lower agreed price. An employee can hold an option for up to 10 years. EMI schemes are popular because of the significant tax advantages of these share options for both employees and the company. Usually, employees do not have to pay income tax or National Insurance Contributions when they are given the EMI option, or when they ‘exercise’ it (i.e. decide to receive the shares). If the employee decides to sell their shares later on, they will have to pay capital gains tax (usually only 10%) rather than income tax (up to 45%) on any profit.

Employees will only have to pay tax when they ‘exercise’ the option if the agreed price is lower than the market value of the shares at the date they were granted the option.

In addition, under certain circumstances the company may be able to get a deduction from corporation
tax when an employee ‘exercises’ their EMI option.

Is your company able to use an Enterprise Management Incentive Scheme?

In order to use an EMI scheme:

  • The company must not 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)
  • The value of its gross assets must not exceed £30 million
  • It must have less than 250 full-time employees
  • It must undertake a ‘qualifying trade’ (certain trades including property development and running hotels or nursing homes are excluded)
  • The company must have a fixed place of business in the UK

Which employees are able to use the Enterprise Management Incentive Scheme?

To qualify for an EMI scheme:

  • The employee must spend at least 25 hours per week (or 75% of their working time) working for the company
  • They must not own more than 30% of shares in the company

Limits on Enterprise Management Incentive Schemes

There is an overriding ‘commercial purpose test’: the option must only be issued for commercial reasons (as an incentive to recruit or retain an employee), not for the avoidance of tax.


An employee can hold up to a maximum of £250,000 as EMI options. The maximum value of shares which the company can issue as EMI options is £3,000,000.

The company must notify HMRC of the grant of an EMI option – this must be done within 92 days. The 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.

To obtain tax advantages, the EMI scheme must be registered online. Pre-approval from the HMRC on your option agreement or EMI plan is not compulsory; however, it is possible to obtain advance assurance from the HMRC that the company qualifies, and we can draft this application for you.

Limits on EMI Schemes and Qualification

There is an overriding ‘commercial purpose test’: the option must only be issued for commercial reasons
(as an incentive to recruit or retain an employee), not for the avoidance of tax.

An employee can hold up to a maximum of £250,000 as EMI options. The maximum value of shares which the company can issue as EMI options is £3,000,000.

The company must notify HMRC of the grant of an EMI option – this must be done within 92 days. The 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.

To obtain tax advantages, the EMI scheme must be registered online. Pre-approval from the HMRC on your option agreement or EMI plan is not compulsory; however, it is possible to obtain advance assurance from the HMRC that the company qualifies, and we can draft this application for you.

What our clients say

Client feedback has revealed three main reasons that SMEs have decided to adopt the EMI scheme:

  1. To reward and incentivise senior staff members
  2. To make their reward scheme tax-efficient
  3. To retain current employees and attract new talent