How to Set Up an EMI Scheme: A 2026 Guide for UK Business Owners

If you want to reward key staff with a stake in your company, learning how to set up an EMI scheme is the best place to start. Enterprise Management Incentives, or EMI, let you give employees share options with very generous tax breaks. From 6 April 2026 the rules got much wider, so many growing companies that were too big before can now use it. This guide covers the rules, the steps and the deadlines in plain English.

Key takeaways

• An EMI scheme lets a qualifying company grant share options with no income tax or National Insurance when they are exercised, as long as the option price is at least the market value at grant.
• From 6 April 2026, companies with gross assets up to £120 million and fewer than 500 full-time equivalent employees can qualify.
• Each employee can hold EMI options over shares worth up to £250,000, and the company-wide limit is now £6 million.
• When employees sell, gains usually qualify for Business Asset Disposal Relief at 18%, as long as 2 years have passed since the option was granted.
• You must register the scheme with HMRC and notify each grant by 6 July after the end of the tax year in which you granted it. Miss this and the tax breaks are lost.
• Some trades can't use EMI at all, including banking, farming, property development, and legal and accountancy services.

In this guide

1. How to set up an EMI scheme: what it is and why it matters
2. What changed for EMI schemes in April 2026
3. Can your company set up an EMI scheme?
4. Who can get options when you set up an EMI scheme
5. How to set up an EMI scheme in 8 steps
6. How much tax an EMI scheme can save
7. Key EMI deadlines and ongoing admin
8. EMI compared with other share schemes
9. Common mistakes when you set up an EMI scheme
10. FAQs about how to set up an EMI scheme
11. Talk to Phinch about setting up an EMI scheme

How to Set Up an EMI Scheme: What It Is and Why It Matters

Before you look at how to set up an EMI scheme, it helps to know what you are actually giving people. An EMI option is a right to buy shares in your company in the future at a price you fix today. If the company grows, the employee buys at the old, lower price and keeps the growth.

Most EMI options are only used when something big happens, like a sale of the company. Until then, nobody pays anything and nobody owns extra shares.

How EMI options work in practice

1. Grant. The company gives the employee an option to buy, say, 1,000 shares at £10 each.
2. Vesting. The employee earns the right to use the option over time or by hitting targets.
3. Exercise. The employee pays £10 a share, often on the day the company is sold.
4. Sale. The shares are sold at the new, higher value and the employee keeps the gain.

Why growing companies set up an EMI scheme

• Keep good people. Staff who own a piece of the future are less likely to leave.
• Save cash. You can offer a real reward without paying a bigger salary now.
• Line everyone up. When the business does well, your team does well too.
• Big tax savings. EMI is the most generous tax-advantaged share scheme in the UK for both employees and the company.

You can read more about our approach on our EMI scheme setup and advice service.

What Changed for EMI Schemes in April 2026

The Autumn Budget 2025 announced the biggest expansion of EMI since it began. The changes took effect on 6 April 2026.

Rule	Before 6 April 2026	From 6 April 2026
Gross assets limit	£30 million	£120 million
Full-time equivalent employees	Fewer than 250	Fewer than 500
Company-wide limit on unexercised options	£3 million	£6 million
Maximum exercise period	10 years	15 years
Limit per employee	£250,000	£250,000 (no change)

The higher company limits also apply to existing options that have not yet been exercised. The government has also said it plans to simplify EMI admin further from April 2027.

In short, if you looked at EMI a few years ago and were told you were too big, it is worth checking again.

Can Your Company Set Up an EMI Scheme?

Your company has to pass a set of tests on the day you grant each option. If it fails any of them, the options will not get EMI tax treatment.

The company tests

• Independent. The company can't be a 51% subsidiary of, or be controlled by, another company.
• Trading. It must carry on a qualifying trade, or be the parent of a trading group.
• UK presence. It must have a permanent establishment in the UK.
• Size. Gross assets of £120 million or less and fewer than 500 full-time equivalent employees.
• Subsidiaries. Any subsidiaries must be more than 50% owned, or more than 90% owned if they manage property.

If you are a sole trader or partnership, you can't use EMI. You would need to incorporate first, which our guide to partnership vs limited company covers in more detail.

Trades that can't set up an EMI scheme

Some activities are "excluded". If they make up a big part of what your company does, you can't use EMI. They include:

• banking, insurance and other financial activities
• farming
• property development
• legal and accountancy services
• shipbuilding

If you are unsure where your business sits, HMRC can give you advance assurance before you grant anything. We can make that application for you as part of our tax advisory and planning work.

Who Can Get Options When You Set Up an EMI Scheme

You choose who gets options. That is one of the big benefits of EMI, because you can focus on the people who matter most. But each person must meet these rules:

• Be an employee. Directors count if they are employees. Contractors and freelancers do not.
• Meet the working time rule. They must work at least 25 hours a week for the company, or if less, 75% of their total working time.
• Not own too much. Anyone who holds, or would hold, more than 30% of the company can't join.
• Stay within the limit. Each person can hold EMI options over shares worth up to £250,000 at grant, counted over a 3-year period. Any Company Share Option Plan options they hold count towards this too.

How to Set Up an EMI Scheme in 8 Steps

Here is the process we follow with clients.

1. Check the company qualifies. Run through the company tests above. If anything is borderline, apply to HMRC for advance assurance.
2. Decide who gets options and how many. Think about the size of the pot, how much dilution existing shareholders will accept, and who you most want to keep.
3. Design the terms. Set vesting dates, any performance targets, and what happens when someone leaves. Decide whether options can be used at any time or only on a sale.
4. Agree a share valuation with HMRC. This is not required, but we strongly recommend it. It gives you certainty that the option price is at market value. HMRC agreed values only last for a limited time, so plan to grant soon after.
5. Check your paperwork and get approval. Review your articles of association and any shareholder agreement. Hold a board meeting, and get shareholder consent if needed. Our company secretarial team can handle the minutes and filings.
6. Grant the options. Each employee signs a written option agreement. They also confirm they meet the working time rule.
7. Register the scheme with HMRC. This is done through HMRC's online Employment Related Securities (ERS) service. You need a PAYE scheme set up, which our outsourced payroll team can help with.
8. Notify HMRC of the grants. For options granted from 6 April 2024, this must be done by 6 July after the end of the tax year of grant. Our ERS reporting service makes sure this never slips.

How long it takes to set up an EMI scheme

For most small companies, the whole process takes a few weeks to a couple of months. The longest wait is usually for HMRC to agree the valuation. Steps 2, 3 and 5 can often run at the same time.

Who you'll need on your side

• a tax adviser to check eligibility, value the shares and deal with HMRC
• a solicitor, or an adviser who works with one, to draft the option agreements
• your accountant, who needs up-to-date management accounts and financial statements for the valuation

Thinking about an EMI scheme? Our Chartered Tax Advisers can check whether you qualify in one call. Book a free consultation or call 01934 404000.

How Much Tax an EMI Scheme Can Save

This is where EMI really stands out. Here is how tax works at each stage when options are granted at market value:

• On grant: no tax.
• On exercise: no income tax and no National Insurance for the employee. No employer National Insurance for the company.
• On sale: Capital Gains Tax on the gain. If at least 2 years have passed since the option was granted, Business Asset Disposal Relief usually applies, bringing the rate down to 18%. The normal 5% shareholding rule for this relief does not apply to EMI shares.

A worked example

Sam is granted an option over shares worth £20,000, with an option price of £20,000. Four years later, the company is sold and the shares are worth £220,000. Sam exercises and sells on the same day, making a £200,000 gain.

	EMI option	Non-tax-advantaged option
How the gain is taxed	Capital Gains Tax with Business Asset Disposal Relief	Income tax and National Insurance
Tax rate	18%	Up to 47% (45% income tax plus 2% NI)
Tax Sam pays	£36,000	Up to £94,000
What Sam keeps	£164,000	From £106,000
Employer National Insurance (15%)	£0	£30,000

This is a simplified illustration. It ignores the £3,000 annual exempt amount and assumes Sam has not used up the £1 million lifetime limit for Business Asset Disposal Relief. Your own figures will depend on your circumstances.

What the company gets

The company can usually claim a corporation tax deduction for the gain employees make on exercise. In the example above, that is a deduction of £200,000 against the company's profits. We build this into your corporate tax compliance so it is not missed.

Employees who sell shares will also need to report the gain. Our Self Assessment tax return team can help them claim the relief properly.

Key EMI Deadlines and Ongoing Admin

Setting up the scheme is only the start. EMI comes with a yearly filing duty, even in years when nothing happens.

What	When	What happens if you miss it
Register the scheme on HMRC's ERS service	Before or when you notify the first grant	You can't notify grants without it
Notify HMRC of each option grant	By 6 July after the end of the tax year of grant	Options lose EMI tax benefits
Annual ERS return (including nil returns)	By 6 July after the end of each tax year	Automatic late filing penalties
Exercise after a disqualifying event	Usually within 90 days	Later growth may be taxed as income

HMRC can also charge a penalty of up to £5,000 where a return contains a careless or deliberate error that is not put right.

Disqualifying events to watch

A disqualifying event ends the EMI tax relief on future growth. Common ones include:

• the company being taken over or coming under the control of another company
• the employee leaving or no longer meeting the working time rule
• changes to the share rights that increase the value of the option shares
• the company no longer carrying on a qualifying trade

If you are planning a sale, a restructure or a new share class, speak to us first. Our company reorganisations and business exit planning advice is built to protect existing options.

EMI Compared With Other Share Schemes

EMI is not the only option. Here is how it compares with the other main routes.

Scheme	Best for	Who can join	Key limit
EMI	Smaller and growing trading companies	Selected employees	£250,000 per employee, £6m per company
Company Share Option Plan (CSOP)	Companies too big or in the wrong trade for EMI	Selected employees	£60,000 per employee
Share Incentive Plan (SIP)	Giving shares to all staff	All eligible employees	Up to £3,600 of free shares a year
Employee Ownership Trust (EOT)	Owners selling to the whole workforce	All employees, through a trust	Trust must hold a controlling stake

Each has different rules and tax results. Our employee share schemes team can help you compare them, and our employee ownership trust (EOT) advice covers selling to your employees. You can see all of this in our business lifecycle tax services.

Common Mistakes When You Set Up an EMI Scheme

We see the same problems again and again. Most are easy to avoid with the right help.

• Missing the notification deadline. This is the most expensive mistake, because the options lose their tax benefits.
• Skipping the HMRC valuation. Without it, HMRC could later say the option price was too low, leading to an income tax bill.
• Not checking the articles. Your articles may block new share issues or give other shareholders rights that clash with the scheme.
• Granting to people who don't qualify. Part-time staff below the working time rule, contractors and non-executive directors are common problems.
• Forgetting the annual return. Nil returns still have to be filed every year.
• Vague leaver rules. Unclear terms cause disputes when people leave, often at the worst possible time.
• Changing share rights without advice. A reorganisation can trigger a disqualifying event without anyone noticing.

FAQs About How to Set Up an EMI Scheme

How long does it take to set up an EMI scheme?

For most small companies it takes a few weeks to a couple of months. The longest part is usually waiting for HMRC to agree your share valuation. Drafting the option agreements, checking your articles and getting board approval can often run alongside it.

How much does it cost to set up an EMI scheme?

The cost depends on how many people you are granting options to, how complex your share structure is and whether you need new articles of association. The main costs are the valuation, the legal documents and the HMRC filings. We can give you a clear quote once we understand your plans.

Do I need HMRC approval to set up an EMI scheme?

No. HMRC does not approve EMI schemes in advance. You can ask for advance assurance that your company qualifies, and you can ask HMRC to agree a share valuation. You must still register the scheme online and notify HMRC of each grant by 6 July after the end of the tax year of grant.

Can a small startup set up an EMI scheme?

Yes. There is no minimum size. Many startups use EMI because it lets them offer a stake in future growth when they cannot pay high salaries. The company must still carry on a qualifying trade and meet the other conditions.

Can directors receive EMI options?

Yes, as long as they are employees who meet the working time rule of at least 25 hours a week, or 75% of their working time if less. Anyone who holds, or would hold, more than 30% of the company cannot join. Non-executive directors do not usually qualify because they rarely meet the working time rule.

What happens to EMI options when an employee leaves?

It depends on the leaver rules in the option agreement. Leaving is usually a disqualifying event. The employee then normally has 90 days to exercise and keep the tax relief on growth up to that point. After that, any further growth may be taxed as income.

Do the April 2026 changes apply to options we already granted?

Partly. The higher company limits apply to existing options that have not been exercised or lapsed. The longer 15-year exercise period can also apply to existing options, and option terms can be amended to use it without losing the tax benefits. Take advice before changing any agreement.

Which businesses cannot use EMI?

Companies whose trade is mainly an excluded activity cannot use EMI. These include banking, farming, property development, legal and accountancy services, and shipbuilding. If excluded activities are only a small part of what you do, you may still qualify.

What tax do employees pay when they sell EMI shares?

If the option was granted at market value, there is no income tax or National Insurance when it is exercised. Capital Gains Tax is due on the gain when the shares are sold. If at least 2 years have passed since the option was granted, Business Asset Disposal Relief usually applies, taxing the gain at 18%, subject to the £1 million lifetime limit.

Can US citizens living in the UK take part in an EMI scheme?

They can take part, but the US does not recognise EMI tax breaks. An American employee may owe US tax on exercise or sale even when no UK tax is due. They should get advice that covers both countries before they exercise, which our US tax team can provide.

Talk to Phinch About Setting Up an EMI Scheme

Knowing how to set up an EMI scheme is one thing. Getting every step right, on time, is another. Our tax team, led by Chartered Tax Adviser Seb Hassan-Ally, designs and runs EMI schemes for growing companies across Somerset, Bristol, Bath and the wider South West.

We handle eligibility checks, HMRC valuations, the paperwork and the yearly ERS filings, so you can focus on your team. We can also help with wider business advisory planning and personal tax advice for founders.

• Call us: 01934 404000
• Email us: [email protected]
• Book online: Book a free consultation or use our contact form

This article is general information based on the rules in force in September 2026. It is not tax advice. Please speak to a qualified Phinch adviser before acting. Phinch Limited, company number 10181783.