EMI scheme (Enterprise Management Incentive)

EMI scheme (Enterprise Management Incentive)

Authors: Scarlett Pierce, Lucy Hoyle
Read time: 6 minutes
Published date: April 5, 2023

What is an EMI scheme, what are the benefits and how do you set up an EMI share plan? Find answers to these questions and more in this guide to Enterprise Management Incentives.

Is the UK startup ecosystem a world leader? The figures certainly suggest so.

According to the Office of National Statistics, there are more than 11,000 high-growth startups in Britain. Dealroom ranks the UK third globally for VC investment, behind only the US and China, with 70% of that investment taking place in London.

These impressive stats are the result of deliberate efforts to make the UK an attractive place to do business. One of the UK government’s best-known and most successful initiatives is the Enterprise Management Incentive (EMI) scheme.

In this article, we’ll explain the ins and outs of EMI schemes and EMI share plans, from the eligibility criteria and grant limits to the process of legal adoption.

What is an EMI scheme?

EMI, which stands for “Enterprise Management Incentive”, is a UK government-approved share option scheme. The EMI scheme provides a tax-efficient way to reward, incentivise and retain talented employees. To reap the benefits of EMI, a company and its employees must meet certain eligibility criteria set by HM Revenue and Customs (HMRC).

EMI eligibility criteria

To qualify for EMI tax relief, your company must:

To receive tax-friendly EMI options, your employees must:

→ Check whether you’re eligible for the EMI share scheme

EMI scheme benefits

The EMI scheme is widely regarded as the best share scheme in the UK, with benefits to both employers and employees.

EMI benefits for employers:

EMI benefits for employees:

The best way to secure these benefits is to set up your EMI scheme with the help of qualified share plan providers. Skipping any important steps puts your plan at risk of not qualifying for EMI, in which case option grants could become a tax burden for your company and its employees. What’s more, having a watertight EMI share plan reduces the need for grant-level variance in terms, which can put some grantholders at an unfair advantage or disadvantage to others.

How to set up an EMI scheme

An EMI share plan is your framework for granting share options to employees through the EMI scheme. It defines the rules, requirements and limits of your EMI share scheme, and is unique to your business.

You must set up your EMI share plan completely before issuing any EMI options. This includes getting the plan legally adopted by your board and shareholders, as necessary, and ensuring you have a valid company valuation approved by HMRC. Securing “pre-clearance” for option grants ensures that HMRC will not in future challenge the exercise price set upon issuance, therefore mitigating any tax risk and uncertainty. Note that EMI valuations expire 90 days after HMRC approval or whenever a material event occurs, so you’ll need an updated valuation to continue awarding equity in compliance with UK tax regulations.

EMI scheme rules

An essential part of the process is preparing your share plan rules, which capture the specifics of your EMI scheme and define every term used in your plan documents.

Your EMI share plan rules should specify:

You can customise elements of your share plan to suit your company’s needs, but it’s essential to stay within the limits of the EMI scheme.

EMI scheme documents

Once you’ve decided how to configure your share plan, you’ll need to prepare a number of legal documents. At a minimum, these should include:

You may also need:

Carta is an efficient provider of EMI share plans. Save time by using our customisable templates instead of designing documents from scratch.

Adopting a share plan

To finalise your EMI share plan, it needs to be legally adopted by your board of directors. Board adoption can vary from company to company, and the level of consent needed from investors will be determined by your existing constitutional documents or shareholders’ agreement.

Typically, you’ll need to:

Notifying HMRC of your EMI share plan

When setting up a new EMI share scheme, you need to register the plan with HMRC. You can do this through the HMRC Online Services portal.

Companies are required to notify HMRC of EMI options issued before 6 April 2024 within 92 days of the grant date. However, for EMI options granted on or after 6 April 2024, you simply need to submit one EMI notification for each tax year – along with your EMI annual return – by the following 6 July.

EMI share plans with Carta

If you’re ready to set up your EMI share plan, Carta can help. In a matter of weeks, you’ll be able to design your EMI scheme, request a HMRC-ready valuation, prepare the documentation and begin issuing equity to your employees – all on a single platform.

Prepare your plan

Customers can get a tailored EMI share plan from Carta in just a few clicks. Log in to your account and go to ‘Equity grants’ in the left-hand navigation bar. Select ‘EMI option plans’ and the platform will guide you through the necessary preparations, including:

Carta will then generate the required documents using our market-standard templates, ready for you to review. These can be tailored to your EMI scheme rules (within certain parameters).

Adopt your plan

To complete the process, you must legally adopt the plan as a company. Carta's involvement in this stage is minimal: we provide templated documents with instructions on how to complete them, but any further questions should be directed to your company's legal advisor. Note that it’s your responsibility to secure board, investor and shareholder approval by completing and executing the relevant documents.

Publish your plan

The final step is to configure and activate the plan in your Carta account. This ensures your cap table and option pool will automatically update to reflect any new option issuances. With that complete, you’re ready to grant equity to your employees.