Oct 25
EMI share option schemes are able to be used by small, higher risk, trading companies to recruit and retain employees. They are designed to enable these trading companies to provide their staff with the ability to obtain shares in the company, with significant tax benefits, when compared with other share incentive arrangements.
There is a statutory regime that must be strictly complied with for an EMI scheme to obtain the favourable tax treatment. However, provided the rules are followed, there is considerable flexibility within the conditions of any EMI scheme for it to be designed to satisfy the company’s objectives.
The Corporate and Commercial team at Raworths has extensive experience of supporting trading companies with the design and implementation of EMI share option schemes.
Which companies can adopt an EMI scheme?
The company must be an independent company, with gross assets of £30m or less, and it must have less than 250 full-time equivalent employees. Importantly, the company must be a trading company (ie not simply a property or investment holding vehicle).
Which staff can participate?
EMI schemes are for employees (not contractors or NEDs) who work at least 25 hours a week or 75% of their total working time for the company.
How many share options can be granted?
Up to £250,000 worth of share options can be granted to each optionholder and the aggregate value of options that can be granted under a scheme is £3m.
When can options be exercised?
It is most common for EMI schemes to be either ‘exit only’ (ie options can only be exercised if a third party makes an offer to buy all of the shares in the company) or ‘time and performance’ (ie options can be exercised once a specified vesting period has elapsed and provided certain other performance criteria have been satisfied either by the company or the relevant employee).
What documentation is required?
The terms of the scheme will be contained in the Scheme Rules (which will be adopted at a board meeting of the company) and each employee to be granted options will then have an individual option agreement (which sets out the details of that employee’s options).
Is there flexibility on the exercise price for the options?
Yes, there is. However, there will be tax implications of different pricing alternatives. It is generally recommended that a market valuation of the shares is agreed with HMRC in advance of granting any options.
What is the tax favourable treatment?
Generally, no income tax or NIC liabilities arise on grant or exercise of market value options. CGT would then be payable on any gain on sale of the shares (and it is possible Business Asset Disposal Relief may be available). There may also be a corporation tax deduction available for the company.
Does an EMI scheme have to be registered?
Yes, the scheme must be registered with HMRC. It is also necessary to notify HMRC of the grant of any options under the scheme, and the company must also file an annual scheme return with HMRC.
The Corporate and Commercial team at Raworths specialises in implementing EMI schemes for small trading companies.
Our advice includes designing the scheme, preparing the scheme rules, preparing corporate approval documents to adopt the scheme, and preparing option agreements for the options to be granted to individual employees. The team also works closely with clients’ accountants and tax advisers to ensure that the statutory tests for EMI schemes are satisfied and that all reporting requirements to HMRC are met, on adoption of the scheme and on grant of options.
Jon Healey is Head of Corporate and Commercial at Raworths.
Published on 7 October 2025
The information and any commentary contained in this briefing is for general information purposes only and does not constitute legal or any other type of professional advice.
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