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.

Significant increases to eligibility limits for the Enterprise Management Incentive (EMI) scheme as of 6 April 2026 mean more companies and employees may qualify for EMI options.

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:

Have fewer than 250 full-time employees (fewer than 500 on or after 6 April 2026)
Have £30M or less in gross assets (£120M on or after 6 April 2026)
Have allocated no more than £3M worth of EMI options (£6M on or after 6 April 2026)
Have a permanent establishment in the UK
Be independent (i.e. not owned or controlled by another company)
Operate a qualifying trade or service (learn more about excluded trading activities)

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

Spend at least 25 hours per week (or 75% of their time) working for your company
Own no more than 30% of your company’s ordinary shares
Not exceed the £250k limit for EMI (or Company Share Option Plan (CSOP)) grants within a three-year period

→ 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:

No tax upon granting and no employer’s National Insurance Contributions (NIC)
Corporation tax relief on the difference between the market value and strike price when the options are exercised
Corporation tax deductions on the costs of setting up and managing the scheme

EMI benefits for employees:

Lower tax costs than cash bonuses or share option grants that don’t qualify for EMI (i.e. unapproved options)
No income tax or employees’ NIC when the options are granted or exercised (where the exercise price is at or above market value)
Reduced capital gains tax (10% instead of 20%) upon sale of the shares (for grants held for two years or more)

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.

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:

What makes a good leaver or a bad leaver
The class of shares to be granted as options
When a grantholder is able to exercise their options
How the grant is treated if the company is acquired

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:

Share plan rules – the blueprint for a share scheme, specific to each company
Board resolution–the formal record of a board of directors’ decision to adopt an EMI share plan and authorise the creation of an option pool
Notice of option grant – a document outlining the details of each award (e.g. number of options granted, strike price, exercise rules and vesting schedule)
Notice of exercise – a document that confirms the exercise of options into shares, specifying the number of options being converted

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:

Assessing whether your company qualifies for EMI
Ensuring that enough equity is available to issue
Establishing the rules of your scheme

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.