How to set up an EMI scheme

📘 Overview

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

Setting one up involves careful planning, legal documentation, and HMRC approval, but once in place, it can be an incredibly effective long-term incentive for your team.

This guide explains the key steps to establish, value, and grant EMI options in compliance with HMRC requirements.

🏗️ Step 1: Establish the Scheme

After consulting an expert adviser (such as Barnes & Scott), the board of directors must define the key features of the scheme.

Key Decisions

💡 Tip: A clear, consistent vesting policy helps manage expectations and simplifies future grants.

🧾 Articles of Association

Your company’s Articles of Association must allow for the creation and management of share options.

• If amendments are needed, they must be approved via a special resolution (75% majority).
• The updated Articles must then be filed at Companies House within 15 days of adoption.

💼 Share Requirements

The shares granted under an EMI scheme must:

• Be ordinary shares in the company,
• Be fully paid up and non-redeemable, and
• May carry restrictions (such as limited voting rights).

📝 The Option Agreement

Before any grant is made, each employee must enter into a written option agreement. This document should clearly state:

• The number of shares subject to the option,
• The exercise price or method for determining it,
• When and how the options may be exercised,
• Any vesting conditions or performance requirements,
• Restrictions attached to the shares, and
• Any forfeiture provisions (e.g. if the employee leaves).

📎 Tip: Keep the language simple and ensure employees understand key terms before signing.

💰 Step 2: Valuation of the Shares

Before granting options, you must determine the market value of the company’s shares to set an appropriate exercise price.

Valuation Process

A valuation report should be prepared and submitted to HMRC using a VAL231 form, along with supporting documents.

💡 Both UMV and AMV should be agreed with HMRC, even if the shares are unrestricted, to avoid future disputes.

Validity Period

HMRC valuations are valid for 60 days from the date of approval. All grant documentation must be signed within this period.

🔗 HMRC: VAL231 Form and Guidance

🗓️ Step 3: Granting the Options

Once valuation approval is received and documentation is ready:

1. Hold a board meeting to approve the option grants.
2. Sign all legal documents and board minutes within 60 days of HMRC’s valuation agreement.
3. Register the EMI scheme with HMRC.
4. Notify HMRC of the option grants by 6 July following the end of the tax year in which they were granted.

(Previously, companies had 92 days to notify HMRC, this rule changed in April 2024.)

🧮 Step 4: Ongoing Compliance

After setup, there are continuing obligations:

💡 Barnes & Scott can handle all elements of scheme registration, HMRC notifications, and annual EMI returns on your behalf.

⚖️ Summary