Enterprise Management Incentive (EMI) Options

Out-Law Guide | 25 May 2012 | 10:14 am | 7 min. read

This guide was last updated in April 2018.

Enterprise Management Incentives (EMI) options offer tax-advantaged and flexible incentives for companies which meet the qualifying criteria. They are intended to help smaller companies with growth potential to recruit and retain the best employees, and offer generous tax advantages to employees of those companies which qualify.

Which companies qualify?

There are a number of legal requirements which companies must satisfy in order for their share options to qualify as EMIs, including:

  • The company must carry on a "qualifying trade" or be preparing to do so, and have a UK permanent establishment. If the EMI options are to be granted to employees of a group of companies, at least one company in the group must satisfy these requirements;
  • The company (or group of companies) must not have gross assets exceeding £30million at the time the share option is granted;
  • The company whose shares are used may be listed or unlisted on a stock exchange, but it must be an independent company. This means that, in the case of a group of companies, the options must be over shares in the parent company to meet the EMI requirements. The only exception is that a company subject to an employee-ownership trust will be deemed independent;
  • The company (or group of companies) must have fewer than 250 full-time equivalent employees at the time the share option is granted.

The shares used for EMI options can be subject to restrictions, but they must be ordinary shares which are "fully paid up" (for company law purposes) and not redeemable or convertible.

What is a "qualifying trade"?

Broadly speaking, a "qualifying trade" is one that is carried out with the intention of making a profit. Unless the company's business consists, to a substantial extent, of one of HMRC's listed "non-qualifying" activities, it will most likely be eligible. These non-qualifying activities include:

  • dealing in land;
  • financial trading;
  • leasing;
  • property development.

Receiving royalties or licence fees is usually classed as a non-qualifying activity, unless the income is substantially generated from intellectual property belonging to the company or group of companies.

Companies can apply in advance to HMRC for an opinion as to whether a company or group of companies meets the EMI requirements. Companies with overseas activities may qualify to use EMI to recruit and retain UK staff, provided they have a "permanent establishment" in the UK.

250 employees restriction

The company or group of companies must have fewer than 250 full-time equivalent employees. A full-time employee is one who works 35 hours a week or more, and the company must include fractions representing part-time employees. Non-executive directors and overseas employees and employees of "qualifying subsidiaries" in which the parent company owns a controlling stake, must also be counted.

Who can participate in EMIs?

In order to qualify, participating employees, including executive directors, must spend at least 25 hours per week or, if less, 75% of their working time, on the business of the company or group of companies. Employees must give written declarations confirming that they meet this working time requirement, and the company must retain those declarations.

Individuals with a “material interest“ (broadly a 30% interest) in the company or any of its subsidiaries, either on their own or together with one or more associates, are also unable to participate.

Limits on grant of EMIs

There is a company limit of £3million on the total value of shares (as at the grant date) which may be available under EMI options at any given time. There is also an individual limit on the value of shares (as at the grant date) which any one employee may hold under the EMI option. This limit is currently £250,000. Options under any Company Share Option Plan (CSOP) operated by the company also count towards this limit.

Tax treatment of EMIs

EMIs offer generous tax advantages to both qualifying companies and participants, as follows:

  • no income tax or National Insurance contributions (NICs) is payable on the grant of shares;
  • normally no income tax or NICs will be payable when an employee exercises the share option, unless the exercise price is less than the market value of the shares on grant. In those circumstances, the difference between the grant market value of the shares (or the current market value, if lower) and the exercise price will be chargeable to income tax and possibly NICs, but tax and NICs relief will apply in the usual way to any excess of the current market value of the shares over the grant market value;
  • capital gains tax (CGT) is payable on the sale of the option shares;
  • entrepreneur's relief (ER), which reduces the rate of capital gains tax to 10% on the first £10 million of lifetime gains will potentially be available on the disposal of shares acquired pursuant to an EMI option, if the shares are sold more than 12 months after the grant of the option. This is much less restrictive than the usual conditions for employee shareholders to enjoy ER;
  • if the share option is exercised more than 90 days after a "disqualifying event", income tax (and, if appropriate, NICs) is payable on the increase in value of the shares between the date of the disqualifying event and the date of exercise.

Disqualifying events include:

  • the company ceasing to carry out a qualifying trade;
  • the optionholder ceasing to be a qualifying employee;
  • optionholders being granted an additional tax-advantaged company share option (CSOP) taking them over their individual (currently £250,000) EMI limit;
  • the company being taken over;
  • certain alterations to the company's share capital.

In addition to these substantial tax advantages, the employer company may also be able to claim corporation tax relief on the option gain.

Share option requirements

Employees must be able to exercise EMI share options within 10 years. The option terms must be set out in a written agreement which must detail any restrictions on the shares.

Each EMI option must be notified, electronically, to HMRC within 92 days after its grant in order to secure the tax reliefs.

The company must deliver, electronically, an annual return to HMRC in respect of its EMI options. 


It is recommended that unlisted companies establish the market value of the shares that will be put under option before EMI options are granted. The value can be formally agreed with HMRC, or the company can use its own valuation although it would then be open to HMRC to query this. HMRC valuation agreements in advance of a taxable event are now only available in a few circumstances, including for a proposed EMI option grant.

HMRC must be notified electronically of any grants of EMI options within 92 days of the grant date using Form EMI 1.

HMRC has 12 months to make enquiries as to eligibility. If it does not make such enquiries, and all information provided is correct, then the share option is deemed to qualify.

EU state aid

Unlike the other three UK tax-advantaged employee share scheme (TASS) types, EMI options involve the provision of 'state aid' by the UK to companies granting them. This is because the benefits of EMI options are restricted to companies with certain business activities, unlike the other TASS types. State aid is generally unlawful under the EU treaties, unless it clearly falls within certain exceptions or has been reviewed (in advance of implementation) by the European Commission and found to be compatible with the relevant treaty provisions.

EMI options were approved by the Commission in a decision issued on 9 July 2009. That approval expires at 11 pm on 6 April 2018, which is midnight Brussels time on that date. A Commission decision to renew state aid approval for EMI options has been requested by the UK, but has not been issued as yet.

If state aid approval is not renewed before the end of 6 April 2018, the availability of tax reliefs for EMI options and any shares acquired pursuant to them may be restricted from that date until such time as approval is renewed, even though the relevant UK tax law will be unchanged, unless and until it is amended to reflect the expiry of approval. As EU state aid policy evolves significantly over time, any new approval may impose new or amended requirements for EMI options granted under that approval.

Other arrangements available

If a company is too large to grant EMI options, it may still qualify to grant options under a tax-advantaged Company Share Option Plan (“CSOP”). For more information, see our separate Out-Law guide.

If a company or the employee does not meet the qualifying criteria for either EMIs or CSOPs, it can grant share options which have no eligibility criteria and are very flexible, but which are not tax-advantaged and are subject to income tax (and, if appropriate, NICs) on exercise of the share options. Alternatively, the company may consider other arrangements, for example the Pinsent Masons' ExSOP™, which may offer a more favourable tax treatment than "unapproved" options.


For companies and employees who meet the qualifying conditions, EMIs are a flexible and tax-favoured share incentive arrangement.