EMI - the Enterprise Management Incentive scheme

Retain and reward key staff with share options


A share option gives someone the right to buy a company’s shares in the future, but at a price that is fixed now. Options are very useful for companies that wish to incentivise and retain key employees because if the value of the shares escalates over time, the employees could make a significant capital gain when they sell their shares.

An EMI share option scheme provides significant tax advantages to those employees. Put simply, an ‘EMI’ scheme is by far the most tax beneficial structure for staff. The EMI scheme was introduced in 2000 to assist growing companies in attracting and retaining key employees and to reward those employees for taking the risk to work for such companies.

The main tax benefit of an EMI share option scheme is that employees do not have to pay the income tax that would normally be charged on the market value of any shares or options granted to them. If employees are given options under an approved EMI scheme, they are only charged capital gains tax at 10% on the increase in value over the option exercise price (what they pay for the shares), so long as that price is at or above the market valuation of the shares on the date of granting the options. This value is agreed upfront with HMRC as part of the process. Please see the infographic below which illustrates the benefits, and have a look at our FAQs which explain everything in more detail.

We are a small company employing fewer than 20 people so the process of setting up a company share scheme was pretty daunting. The Mill Consultancy worked with us at every stage to make sure we understood the process and got the paperwork right. We’re proud of what we’ve achieved for our staff and couldn’t have got there with any degree of confidence without the expertise and patience of the Mill Consultancy.


How does an EMI scheme work?

Shares awarded

Jim is granted options worth £3k at a value agreed with HMRC.


Under an EMI scheme Jim would be charged 10% capital gains tax on any profit only when he sells the shares. Without an EMI scheme he would be charged PAYE of up to 45%.

Increase in value

The value of the shares rises to £50k.

Shares Sold

When the shares are sold, Jim makes a gain of £47k net of the cost of his shares. Under an EMI scheme he would pay under £4k in tax. Without the EMI scheme Jim might have to pay out over £21k.


There is a lot of flexibility for structuring a scheme and it’s best to discuss this with us. Companies can structure the timing of when staff can ‘exercise’ their options and buy their actual shares in all sorts of ways, for example they could be allowed to buy their shares immediately, over a period or on a sale of the company. To protect the business, most schemes provide that if an employee leaves the company, then they automatically lose their options or shares, although this can be subject to the board’s discretion. The option will be formalised in an option scheme agreement, which will include all the necessary rules and conditions.

Some of the matters to consider when structuring an EMI scheme will include the following, all of which we will help you with:

- Which employees should get options?

- How many options should be granted?

- What price should be paid for the shares?

- Should there be any performance criteria for vesting?

Real examples of EMI scheme structures

There are three key terms you need to understand for option schemes:

Grant’ – the award of the share options to an employee

Vest’ – means the date from when the option rights can be ‘exercised’ i.e. when the employee can actually buy the shares.

  • A company granted options over 10% of its shares between two senior execs. The options were structured so that they vest over the following two years, with half of their options each vesting on the first and second anniversaries of the date of the grant. The ‘exercise price’ (the cost per share) was set at the market value agreed by us with HMRC.
  • Another company granted options over 5% of its shares to its new MD. The options vested immediately, on the date of grant. The exercise price was set at the market value agreed with HMRC.
  • A company granted options over 15% of its shares between five key staff, with vesting permitted only on the date of an exit event (i.e. the sale of the company, which could include a management buy out or flotation). This type of vesting structure is very popular with clients because i) it focuses everyone on building value towards a sale and ii) it avoids the admin hassles and other issues caused by having employee shareholders prior to an exit.
  • A founder shareholder had built his company to a point where turnover and profit were healthy and he was looking to exit in 3 to 5 years. He granted options over 20% of the business to his three key execs, with vesting allowed only on a sale of the company. The exercise price was set at the market value agreed with HMRC. However, the option holders would be issued with a different class of shares on an exit, and this enabled the founder to take the first £2 million of the sale proceeds, with all shareholders then receiving their proportionate share in excess of that amount. In this way, the founder reserved for himself some of the value he had built in the company. This structure entailed some straightforward amendments to the Articles of Association.
  • Fifteen employees at a software company were granted options of between 0.5% and 3% of the shares, depending on seniority and length of service. The options vested on an exit event. The exercise price was set at zero, whereas the market value agreed with HMRC was 50p per share. This is fine and just means that on an exit, when the shares are sold to the acquirer, the option holders will have to pay income tax on the first 50p of any gain per share, because the discount off the agreed market value is a taxable benefit. Then any gain over 50p per share is subject to capital gains tax at only 10%.

Our experience

We have set up plenty of EMI schemes and for all types of industry sector. It's one of our core activities and our approach is personable but highly efficient. Typically we can deal with the documentation by phone, post and email but if you would like a ‘full service’ basis, which would include face-to-face meetings (which can encompass presentations to staff for example) we are very happy to undertake this too.

There are other types of option schemes available but for most growing SMEs we consider that EMI is the best if the scheme is for your ‘key’ staff. If the scheme is for a larger number of employees, please let us know, as there are other forms of scheme,

such as the CSOP (company share ownership plan), or an ‘unapproved’ scheme for non-executives and non-employees that we can help you with.


We have worked with a number of accounting firms to set up EMI and other schemes for their clients. Please contact Jerry Davison to discuss how we can work together.

Jerry set up our EMI scheme and I can’t recommend him highly enough; he provided us with all the advice and documentation and dealt with HMRC to get us a heavily discounted option.

Cupris Software

What are the big advantages of EMI options?

  • No income tax or national insurance is payable when EMI options are granted.
  • When shares obtained on exercise are eventually sold the employee will be liable for capital gains tax (CGT), currently at the entrepreneur’s relief rate of only 10%. The employee can also use their annual CGT exemption.
  • The costs of setting up and administering the EMI will be deductible expenses for the company against corporation tax. Also, after exit, the net market value of the options exercised by employees may be an allowable expense, similar to expensing normal employee remuneration.

If the option’s exercise price is set at the same or a higher price than the agreed market value of shares on the date that the option is granted, then no income tax or NI is payable when the option is exercised. Companies may set the option price at a discount to the agreed market value (or even at nil). However, where this is the case then, on exercise of the option, income tax will be payable on the discount (the excess of the market value of the shares on the date the option is granted over the exercise price paid by the employee).

How we can help

The EMI Full Solution Package – everything you need to get your EMI scheme in place –

  • This is a 'one-stop service' - we cover both the legal and the accounting requirements
  • All of the scheme agreement legal documentation you need- scheme rules, option certificates, board minutes, letters to employees
  • Your share valuation agreed with HMRC
  • Advice and in-depth discussion with our specialist on how to best structure your scheme
  • The fully inclusive cost for up to 3 employees is £2995 + vat (then for each employee in excess of 3 it is £50 per employee).
  • Add-ons: if you need some minor legal extras such as a share split, a new share class or amended Articles of Association we can execute this work as well - see the pricing schedule
  • Get in touch - call us on 01392-432654 or email office@millconsultancy.co.uk