S.AI
Legal 26 May 2026 By Matthew Strain

What is an EMI share option scheme?

HMRC's Enterprise Management Incentive scheme is one of the most tax-efficient ways to reward key employees in an SME. Here is what it is, who qualifies, and what the process actually looks like.

Key takeaways
  1. EMI is HMRC's most tax-efficient share option scheme for rewarding key people in a qualifying SME.
  2. No income tax or National Insurance on grant, and capital gains treatment on exercise if the price is set at market value.
  3. Both the company and the employee must qualify - there are limits on size, trade, independence and hours worked.
  4. Held two years, gains can attract Business Asset Disposal Relief, cutting CGT to 10% on the first £1 million.
  5. A full scheme is five documents; Silva delivers all five, barrister-drafted, at a fixed fee in three to four weeks.

The basics

An EMI scheme is a type of employee share option plan approved by HMRC for small and medium-sized companies. It allows a qualifying company to grant share options to key employees under favourable tax conditions, no income tax or National Insurance on grant, and capital gains treatment on exercise.

For the right business, it is one of the most powerful tools available for attracting and retaining people without spending cash you do not yet have.

Most founders put EMI off because it feels expensive and complicated. It does not need to be either.

Who qualifies

To grant EMI options, your company must meet certain criteria. The main requirements are:

  1. Gross assets of no more than £30 million at the time of grant.
  2. Fewer than 250 full-time equivalent employees.
  3. The company carries on a qualifying trade, most commercial activities qualify, but property development, financial services, legal and accounting services do not.
  4. The company must be independent, not under the control of another company.

The employees receiving options must also meet individual requirements, including working at least 25 hours per week or 75% of their working time for the company.

What the scheme covers

An EMI scheme is a framework under which a company can grant options over its shares. Each individual option grant is documented separately in an Option Agreement.

The key design choices you make when setting up the scheme include:

  1. Vesting schedule: how long before options become exercisable. Typically three or four years, often with a one-year cliff.
  2. Exercise price: the price at which the option holder can buy shares. Usually set at market value at the date of grant.
  3. Performance conditions: whether vesting is linked to company or individual performance targets.
  4. Leaver provisions: what happens to options if someone leaves, good leavers, bad leavers, and the treatment of unvested options.
  5. Exercise conditions: the events on which options can be exercised, typically an exit, IPO, or at any time (rare).

The tax treatment

The tax advantages of EMI are significant. On grant, there is no income tax or NICs charge. On exercise, if the exercise price is set at market value at grant, there is no income tax, the employee simply acquires the shares.

On disposal, gains are taxed as capital gains rather than income. Employees who have held options for at least two years may qualify for Business Asset Disposal Relief (BADR), reducing the CGT rate to 10% on the first £1 million of gains.

The company can also claim a corporation tax deduction equal to the difference between the market value of the shares at exercise and the amount paid by the option holder.

The process

Setting up an EMI scheme involves five documents: Scheme Rules, an Option Agreement, Board Minutes, a Draft Exercise Notice, and a letter to HMRC seeking confirmation the scheme qualifies.

At Silva, we offer a fixed-fee package covering all five documents, project managed by Silva and drafted by a specialist barrister. Most schemes are delivered in three to four weeks from quote to final pack.

Frequently asked questions

What is an EMI scheme?

An EMI scheme is an HMRC-approved employee share option plan for small and medium-sized companies. It lets a qualifying company grant share options to key employees with no income tax or National Insurance on grant, and capital gains treatment on exercise.

Does my company qualify for an EMI scheme?

Your company generally qualifies if it has gross assets of no more than £30 million, fewer than 250 full-time equivalent employees, carries on a qualifying trade, and is independent of another company's control. Employees receiving options must also work at least 25 hours a week or 75% of their working time for the company.

How much tax do you pay on EMI share options?

On grant there's no income tax or National Insurance, and on exercise there's no income tax charge provided the exercise price was set at market value at grant. On disposal, gains are taxed as capital gains, and option holders who've held for at least two years may qualify for Business Asset Disposal Relief at 10% on the first £1 million of gains.

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

Setting up an EMI scheme involves five documents - Scheme Rules, an Option Agreement, Board Minutes, a Draft Exercise Notice and a letter to HMRC. At Silva, a fixed-fee scheme covering all five documents is typically delivered in three to four weeks from quote to final pack.

Ready to set up your scheme?

We offer a fixed-fee EMI package from £3,850 + VAT. Get in touch to find out whether your scheme is standard or complicated, we will tell you before anything starts.

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