Eligibility criteria for EMI

📘 Overview

Enterprise Management Incentive (EMI) schemes are one of the most tax-efficient ways for UK companies to reward and retain key employees.

However, EMI schemes are subject to strict eligibility rules, both for the company and the employees.

This guide outlines the key criteria your business must meet before granting EMI options, as well as the conditions employees must satisfy to qualify for tax advantages.

🏢 Company Eligibility

To qualify for EMI, the company must meet the following conditions at the date the options are granted:

1. Genuine Commercial Purpose

The EMI scheme must be established to incentivise and retain employees, not purely for tax avoidance.

2. Independence

The company must be independent and not controlled by another entity.
No more than 50% of ordinary share capital can be owned or controlled by another company.
There must be no arrangements that could result in the company becoming a subsidiary or otherwise controlled by another business.

3. Trading Activities

The company must carry on a qualifying trade with the aim of generating profits.

Certain business activities are excluded, including:

Property development
Banking, insurance, or financial services
Legal or accountancy services
Farming, forestry, or market gardening

A full list of excluded trades can be found in HMRC’s EMI guidance.

4. UK Presence

The company must have a permanent establishment in the UK.

5. Size Limits

The company’s gross assets must not exceed £30 million at the time of grant.
The company (or parent group, if applicable) must employ fewer than 250 full-time employees.

6. Group Companies

EMI options must be granted over shares in the parent company of the group.
Any subsidiaries must also meet EMI qualifying conditions, particularly around trading activity and share ownership.

7. Option Limits

The total value of unexercised EMI options across the company must not exceed £3 million at any time.
An individual employee cannot hold unexercised EMI options worth more than £250,000, valued at the date of grant.

👩‍💼 Employee Eligibility

To qualify for EMI options, an employee must meet these conditions throughout the life of the option:

1. Employment Commitment

Employees must:

Work at least 25 hours per week, or
Spend at least 75% of their total working time on the business of the company (or its qualifying subsidiaries).

If either condition is not met, the tax advantages of EMI may be lost.

2. No Material Interest

Employees who control more than 30% of the company’s share capital are not eligible to participate.

3. Option Value Limits

Each employee may hold EMI options valued at up to £250,000 at the date of grant.
After exercising EMI options, they can receive new qualifying options after three years, provided the total value of remaining unexercised options is below £250,000.

4. Number of Participants

There is no cap on the number of employees who can be granted EMI options.

⚖️ Key Takeaways

✅ EMI schemes are designed for independent, growth-oriented UK companies.

✅ They offer significant tax benefits to both employers and employees, but only if all conditions are met.

✅ It’s essential to check eligibility before granting any options and to maintain compliance throughout the life of the scheme.

💼 How Barnes & Scott Can Help

We can help you:

Assess your company and employee eligibility for EMI.
Manage HMRC pre-clearance and share valuation.
Draft compliant EMI scheme rules and option agreements.
Maintain ongoing compliance with HMRC reporting requirements.

💡 Our EMI experts ensure your scheme is structured for maximum benefit and minimum risk.