Advantages of an EMI option scheme

📘 Overview

An Enterprise Management Incentive (EMI) option scheme is one of the most tax-efficient and flexible ways for growing UK companies to reward and retain key employees.

It’s particularly valuable for scaling, technology-led businesses, providing powerful incentives for staff to stay and contribute to the company’s success, while offering meaningful corporate tax relief to the business.

For founders planning a future exit, acquisition, or IPO, EMI options can be structured to vest only upon that event, ensuring the whole team works toward a common goal.

👩‍💻 Advantages for Employees

1. No Tax When Options Are Granted

Employees pay no Income Tax or National Insurance Contributions (NICs) when they receive their EMI options.

2. Favourable Tax Treatment on Exercise

• If the exercise price (the amount the employee pays for the shares) is at least equal to the market value agreed with HMRC at the time of grant, no Income Tax or NICs are due when the options are exercised.
• If the exercise price is below the agreed market value, Income Tax is payable on the difference. NICs may also apply if the shares are classified as readily convertible assets (RCAs), for example, if they can be sold immediately for cash during a company sale.

💡 Most EMI schemes are structured to avoid this scenario, ensuring employees exercise at the HMRC-agreed market value to maintain tax efficiency.

3. Reduced Capital Gains Tax on Sale

When the employee sells their shares:

• They pay Capital Gains Tax (CGT) on the difference between the sale price and what they paid for the shares.
• If they held the options for at least 24 months (for options granted after April 2019), they may qualify for Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief.
• This reduces CGT to 10% instead of the usual 20%, significantly increasing post-tax gain.

🏢 Advantages for the Company

1. Attract and Retain Talent

EMI schemes are a cost-effective way to reward key staff without immediate cash outlay, ideal for start-ups and scale-ups managing cash flow during growth phases.

They align employee incentives with company performance and long-term value creation.

2. Corporation Tax Relief

When employees exercise their options, the company can claim a corporation tax deduction equal to:

The market value of the shares at exercise minus the amount paid by the employee.

This relief can result in a substantial tax saving at the point of exercise.

3. Fully Tax-Deductible Setup Costs

All reasonable costs of establishing and managing the EMI scheme are tax-deductible, including:

• Legal and accounting fees
• Share valuations and HMRC submissions
• Ongoing administration

📊 In our experience, many accountants overlook this corporation tax deduction. Barnes & Scott ensures clients claim the full benefit available under HMRC rules.

⚖️ Summary of Key Benefits

💼 How Barnes & Scott Can Help

We advise on every stage of EMI scheme setup and management, from eligibility assessment and HMRC valuation through to grant documentation, annual reporting, and exit planning.

💡 Our EMI specialists ensure your scheme is compliant, tax-efficient, and designed to align your team’s success with your company’s growth.