What is an EMI share option scheme?

📘 Overview

An Enterprise Management Incentive (EMI) share option scheme allows companies to grant employees the right to buy shares in the future, usually at today’s price, as a reward for contributing to the company’s long-term growth.

It’s one of the UK’s most tax-efficient and flexible employee incentive schemes, helping businesses attract, motivate, and retain key talent.

🎯 Purpose of an EMI Scheme

An EMI scheme is designed to align employee interests with company success.

When employees hold options that could increase significantly in value as the company grows, they are motivated to help the business achieve its goals, whether that’s scaling revenue, hitting milestones, or preparing for an exit.

Typical vesting structures include:

• Time-based vesting: e.g. over four years with a one-year cliff.
• Event-based vesting: e.g. on a sale, merger, or IPO (“exit-only” options).
• Performance-based vesting: tied to targets such as revenue or product development.

This ensures that employees and founders are all working toward a shared outcome.

⚖️ How EMI Options Work

1. Grant – The company grants the employee an option to buy a fixed number of shares at a set exercise price (usually equal to the market value agreed with HMRC).
2. Vesting – The option becomes exercisable after a set time or event.
3. Exercise – The employee buys the shares at the agreed price.
4. Sale – The employee may later sell those shares, often during a company exit or takeover, for a potential profit.

💰 Tax Benefits of EMI

For Employees

• No Income Tax or National Insurance when options are granted.
• Usually no Income Tax or NICs on exercise if the exercise price is at least the market value agreed with HMRC at the time of grant.
• On sale, any gain is subject to Capital Gains Tax (CGT) rather than Income Tax.
• If held for at least 24 months from grant, the gain may qualify for Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, reducing CGT to 10%.

For the Company

• The company receives a corporation tax deduction equal to the difference between:
  • the market value of the shares at exercise, and
  • the amount paid by the employee.
• This can result in a significant tax saving when options are exercised.

🧩 Why Companies Use EMI

✅ Attract and retain top talent without large upfront salaries.

✅ Align employee interests with company performance.

✅ Reward key staff tax-efficiently.

✅ Preserve cash while offering meaningful equity incentives.

✅ Create a clear path for employees to share in company growth or exit value.

💼 How Barnes & Scott Can Help

We guide companies through every stage of the EMI process, including:

• HMRC valuation and approval
• EMI scheme design and documentation
• Option grant administration
• Annual EMI reporting and compliance

💡 Our goal is to make EMI schemes simple, compliant, and motivating, for both founders and employees.