Under an EMI scheme, employees are granted the option to buy shares in the company at a fixed price, often the market value at the time the options are granted. These options typically come with certain conditions — such as performance targets or staying with the company for a set period.

If the company grows in value, employees can buy the shares at the original (lower) price and potentially make a significant gain which would benefit from capital gains tax rates, and potentially Business Asset Disposal Relief, when they sell their shares. This aligns their interests with the company’s success, offering a valuable incentive to stay and contribute to long-term growth.

An EMI scheme is one of the most tax-efficient ways to incentivise and retain key employees. But what makes it even more appealing is its flexibility. The terms of the scheme can be tailored to suit the specific needs of small and medium-sized businesses, allowing for a range of conditions based on performance, length of service, or business targets.

This makes EMI a great choice for companies looking to align their employees’ interests with the success of the business, while offering valuable tax benefits.

What are the key benefits of an EMI share scheme?

There are multiple benefits of an EMI scheme, some being:

• Incentivisation and retention of key employees.
• Facilitating succession planning.
• Attracting new staff, pivotally so for start-up companies with limited cash.
• Tax benefits for both employer and employee.
• Flexibility in terms of the design and how it is implemented.

What are the qualifying conditions for a EMI scheme?

To be eligible for an EMI scheme, both the company and the employee must meet certain criteria. From 6 April 2026, these criteria are due to be increased.

Company Conditions

• The company must not be under the control of another company.
• The company must have gross assets of less than £30m (£120m from 6 April 2026)
• It must have fewer than 250 full-time equivalent employees (500 from 6 April 2026).
• The company must carry out a qualifying trade in the UK. There are several excluded trades, including but not limited to, banking, legal or accounting services, farming and property development. HMRC’s guidance on which businesses would be excluded can be found here.

Employee Conditions

• The employee cannot own more than 30% of the company whose shares are under option before they have been granted the EMI option.
• The employee is required to spend at least 25 hours per week or 75% of their working time working as an employee for the company.
• The maximum value of shares that can be help under unexercised EMI options by one person is £250,000.

What are the tax benefits of an EMI scheme?

For the employer

• The company can claim a Corporation Tax (CT) deduction when employees exercise their EMI options and acquire shares. This deduction is equal to the market value of the shares at the time of exercise, minus the amount the employee paid for them.

For the employee

• Employees are not required to pay income tax or National Insurance Contributions when the share options are granted.
• If the employee exercises their option within 10 years of grant (15 years from 6 April 2026) and acquires the shares at the market value (at the date of grant), they will not need to pay income tax at that point. This can sometimes be a barrier, so it’s worth having early conversations around how the employee might fund the purchase, whether through personal savings, financing, or support from the company as part of the scheme design.
• When the employee sells the shares, Capital Gains Tax (CGT) will apply on any profit made from the sale. Business Asset Disposal Relief may also be available which could further reduce the tax payable by the employee on disposal of the shares.
• If the shares are acquired at a discount, income tax will be due.

Why Stratos?

An EMI scheme can be a powerful way to reward and retain key team members, but getting it right takes careful planning. At Stratos, we’re here to support you and your management team at every step of the journey, from initial design through to implementation and ongoing compliance.

We understand that EMI schemes are rarely one-size-fits-all. That’s why we tailor our advice to suit your specific goals, helping you build a plan that works for your business and maximises the available tax benefits.

Areas we can support:

• Designing and implementing a bespoke EMI scheme that aligns with your business strategy and performance objectives.
• Valuing your company, which is essential for setting the right share option price and securing agreement with HMRC.
• Liaising with your legal team to ensure the legal documentation accurately reflects your intentions and supports the scheme’s objectives.
• Managing ongoing compliance, including communicating with HMRC, identifying available reliefs, and ensuring the scheme continues to meet qualifying conditions.