Eligibility criteria for EMI

📘 Overview

An EMI scheme allows a company to grant share options to employees in a tax-efficient way. The goal is to encourage long-term commitment, reward performance and help smaller companies grow.

However, you must satisfy specific conditions at the time the options are granted: both the company and the individual employee must qualify. It’s not enough just to set up the scheme, the eligibility rules must be met when the grant happens. The scheme must serve a genuine commercial purpose (incentivising staff) rather than being just a tax-avoidance device.

📊 1. Company Eligibility

Here are the main company-side conditions. If any one of them isn’t met on the grant date, the options may not qualify for EMI treatment.

✅ Key company conditions

• Independence: The company must not be controlled by, or more than 50% owned by, another company. Further, there must be no arrangements that could lead to the company becoming a subsidiary or coming under control.
• Qualifying trade: The business must carry on a qualifying trading activity. Certain activities are excluded (for example property development, accountancy, legal services, farming).
• UK presence: The company must have a permanent establishment in the UK.
• Asset threshold: The company’s gross assets must not exceed £30 million at the grant date.
• Subsidiaries: If the company has subsidiaries, they must meet the EMI conditions too; the options must be over shares in the parent company.
• Employee limit: The company (or group) must have no more than 250 full-time employees.
• Scheme cap: The total value of unexercised EMI options granted by the company must not exceed £3 million.

👥 2. Employee Eligibility

On the individual side, the following tests apply to each employee who is to benefit from the EMI scheme.

✅ Key employee conditions

• There is no limit on how many employees can hold EMI options.
• An employee must not hold options with a market value at grant of more than £250,000.
• Working time test: The employee must work at least 25 hours per week, or else spend at least 75% of their working time (across all employment/self-employment) working for the company (or qualifying subsidiary). This must continue to hold throughout the vesting period.
• Material interest: An employee who has a controlling interest (more than 30% of the company’s share capital) is not eligible for EMI options.
• When options can be re-granted: After a qualifying EMI option grant, the same individual cannot receive further qualifying EMI options for 3 years from the date of the last qualifying grant, even if some earlier options are exercised or released.

🔁 3. Important Grant & Notification Timelines

• Options must be granted when all the company and employee tests are satisfied (i.e. on the grant date).
• Notification to HMRC: For options granted on or after 6 April 2024, you must notify HMRC by 6 July following the end of the tax year of grant. For grants before 6 April 2024, the previous deadline (within 92 days of the grant) still applies.
• Annual returns: Companies operating EMI schemes must file annual returns (for example the tax year ending 5 April 2025 must be filed by 6 July 2025) even if no option events occurred.

💡 Practical Points

• Before granting options, check and document that all company and employee conditions are satisfied at the grant date.
• Use the correct market value of the shares at grant to test the £250,000 individual cap.
• Ensure the working time test is met from grant until vesting, consider part-time and flexi-time employees carefully.
• Register the scheme and give appropriate advance notice where needed; keep records of grant notifications and acknowledgements.
• If considering grants in the run-up to a sale, be aware of the independence requirement and potential “arrangements” risk (e.g., rights held by investors that could bring the company under control).

✅ Summary

• Company must be independent, trade qualifying business, have UK establishment, assets ≤ £30 m, employees ≤ 250, options unexercised ≤ £3 m.
• Employee must not hold >£250,000 of options at grant, must meet working time test, must not have >30% shareholding.
• Notification to HMRC: for grants from 6 April 2024, by 6 July after end of tax year of grant.
• Further grants to the same employee only after 3 years from last qualifying grant.