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The Enterprise Management Incentive (EMI) Scheme is a type of employee share option scheme designed to help attract, retain, and motivate staff and is particularly beneficial for small and medium-sized businesses with growth potential. The scheme incentivises employees to help grow and share in the increased value of the business. This scheme is particularly beneficial for startup companies with limited funds available to pay competitive wages and in situations where owners are planning a future exit from the company but wish to retain key members of staff.
Under the scheme, EMI options are granted to selected employees. An option gives the employee the right to acquire shares for an agreed upon price (the exercise price) at a later date.
The EMI scheme is very flexible, meaning that the scheme can be structured in a way that suits both the employee and the company’s needs.
It is currently viewed as the most tax efficient employee share scheme given that the scheme can be structured such that employees can share in the value of the company without incurring an income tax charge.
Tax Implications – Employee
Tax Implications – Company
When an employee exercises their option and acquires shares, the employing company will receive a corporation tax deduction equal to the difference between the market value of the shares at exercise and the amount paid by the employee for the shares.
Additionally, the costs incurred for annual compliance returns are deductible expenses for corporation tax purposes.
EMI Conditions
Given the generous tax benefits listed above, there are a number of conditions that must be met by the company, the employee, and the shares for the option to receive EMI treatment.
Company
For a company to be eligible to grant EMI options it must be an independent trading company and have:
- Gross assets of less than £30 million
- Less than 250 full-time employees
- A permanent establishment in the UK
Employee
For an employee to be eligible to be granted EMI options they must work, on average, at least 25 hours per week for the company or spend at least 75% of their total working time working for the company.
The employee must not have a “material interest” in the company or any of its 51% subsidiaries, either by themselves or together with their associate(s). A material interest means ownership of over 30% of the company’s share capital.
Share Option
For an employee to receive the tax advantages of EMI options, the option must be exercised within 10 years of the grant and the value of shares granted to one employee cannot exceed £250,000. Overall EMI options cannot be granted over shares with a total worth exceeding £3 million.
Scheme Types
EMI schemes generally fall into two types: “exit only” or “time / performance based”. Exit only schemes are set up so that employees can only exercise their options once an exit event has occurred. This is typically the company being sold or listed on a stock exchange.
A time / performance-based scheme allows employees to exercise their options after a set time, or when the company meets a pre-decided target. This can incentivise employees to remain with the company and make them personally invested in the company’s success.
If employees leave before exercising their options, the options generally “lapse” and can no longer be exercised.
In general, EMI schemes are a great way to attract staff to small businesses and to reward staff that have helped in the growth of the company. We would be happy to discuss whether an EMI scheme would be the right move for your business and how we can assist with the implementation.
*Business asset disposal relief currently taxes gains at 10%. From the 6 April 2025, the rate increases to 14%. From 6 April 2026, the rate increases to 18%.
Contact our team
Dawn MacDougall
Partner
Bradley Johnston
Senior Manager
Jack Matson
Assistant Manager