Employees are almost always the most important asset in a business and to get the most out of them it is important that they are fully motivated and incentivised. Key employees can be incentivised in a number of ways apart from immediate cash rewards, through to share arrangements and deferred bonus solutions.
There are a number of tax favoured share arrangements and by far the most popular for small and medium size enterprises is the Enterprise Management Incentive, or in short the EMI scheme. Because the qualification requirements, as far as employees are concerned, are geared to those who spend the majority of their working time in the business, it is not always possible to make use of the scheme. In those circumstances consideration should be given to the Company Share Option Plan, or in short the CSOP.
If you looked at EMI before April 2026 and were told your company was too large, it is worth looking again. The qualifying limits were widened substantially by section 13 Finance Act 2026 and a great many companies that were previously outside the scheme now qualify.
EMI or CSOP – a comparison
| Scheme / features | Enterprise Management Incentives (EMI) | Company Share Option Plan (CSOP) |
|---|---|---|
| Employee eligibility | Working time commitment 25 hours per week or 75% of their working time (if less) | Full time working director (25 hours per week) or an employee with no working time requirement. |
| Limits – employees | Must not hold more than 30% of the share capital prior to grant. | Must not hold, or have control over more than 30% of the share capital prior to grant. Shares under option have to be included when calculating the %age. |
| Limits – company: employees | Fewer than 500 employees (fewer than 250 before 6 April 2026) | No employee limit |
| Limits – company: gross assets | Gross assets of less than £120m (£30m before 6 April 2026) | No asset limit |
| Limits – company: total options | Cannot exceed £6m of unexercised options (£3m before 6 April 2026) | No company limit |
| Grant price | Greater than or equal to market value at date of grant | Greater than or equal to market value at date of grant |
| Market value of options | Cannot exceed £250,000 at date of grant | Cannot exceed £60,000 at date of grant – £30,000 pre 6 April 2023 |
| Performance conditions and special events | Exercise can be dependent on the satisfaction of performance conditions or a special event – e.g. a sale of the majority interest. | Exercise can be dependent on the satisfaction of performance conditions or a special event – e.g. a sale of the majority interest. |
| Income Tax and NIC on grant | No | No |
| Maximum exercise period to retain tax favoured treatment | Fifteen years for options exercised on or after 6 April 2026 (previously ten years) | Ten years |
| Immediate exercise after grant providing the options have “vested” | Yes | No – cannot exercise before third anniversary of date of grant (subject to some specific early exercise opportunities) to retain favoured tax status |
| Early exercise | At the discretion of the Board | A “good leaver” may exercise within the three year period. A cash sale of the business may allow an early exercise too. |
| Income Tax and NIC on exercise | No | No |
| Tax on sale | Capital Gains Tax | Capital Gains Tax |
| Business Asset Disposal Relief available | Yes for any size of holding | Yes if holding is greater than 5% |
| Lapsing | On leaving employment – to the extent not vested | Within 12 months of death. There is no requirement for the option holder to be an employee at the time of exercise. |
| Registration and notification | Online scheme registration. Options granted on or after 6 April 2024 to be notified by 6 July following the end of the tax year of grant. Notification is being removed for options granted on or after 6 April 2027. | Plan and options to be registered by 6 July in the year following date of grant. |
The April 2026 changes
From 6 April 2026, for options granted on or after that date, the EMI limits increased. The company can now have fewer than 500 employees, up from 250. Gross assets can be up to £120m, up from £30m. The company can have up to £6m of unexercised options outstanding, up from £3m. And options can now be exercised up to 15 years from grant, up from 10.
The individual limit is unchanged at £250,000 of shares by market value at the date of grant, as is the restriction on granting options to anyone already holding more than 30% of the share capital. The independence requirement, the qualifying trade tests and the excluded activities all stand.
The extended exercise period can be applied to options already granted. Existing options that have not lapsed, expired or been exercised can be varied to extend the exercise period to up to fifteen years from grant, provided the option is exercised on or after 6 April 2026. For most option agreements the amendment can be made within the existing terms. Where an option is exercisable only on a single fixed date, the variation must be made under the new paragraph 37A: in writing between the grantor and the person entitled to exercise, on or after 26 November 2025, on or before the tenth anniversary of grant, and resulting in a single exercise date no later than the fifteenth anniversary. An exercise date can be deferred but never brought forward – an attempt to accelerate an option changes its fundamental terms and results in a release and re-grant.
The increased limits do not apply universally. Where the employer company has its registered office in Northern Ireland and carries on a trade in goods, or in the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity, the previous limits are retained. In a group the test applies to the employer company rather than the parent, but the limits continue to be measured against the group as a whole.
Does your company qualify?
The EMI scheme is suitable for companies with fewer than 500 employees, where the gross asset value is less than £120m and the company is not under the control of another company, i.e. it is not a subsidiary. The scheme is very flexible and presents the opportunity to scale awards and also determine the basis and timing of the issue of shares following the grant of an option.
Size is rarely where companies fall over. The qualifying trade requirement and the excluded activities are the tests that most often cause difficulty, and they are worth establishing early – before options are designed rather than after.
Valuation
The exercise price you set determines whether your people receive a genuine incentive or an unexpected income tax charge. Agreeing that valuation with HMRC before options are granted is what turns a scheme from a hope into a certainty.
We prepare independent share valuations for EMI purposes and agree them with HMRC’s Shares and Assets Valuation team. That means a defensible view of market value, a report setting out the basis and the reasoning, and agreement in place before anything is signed.
Stephen was extremely thorough and produced a well honed and detailed, yet easy to read, report. The process was swift and virtually painless, and was carried out entirely electronically, and we were very pleased with the outcome.
Graham Collins, rfp contracting limited
Notification – and the change coming in 2027
For options granted on or after 6 April 2024, notification must reach HMRC by 6 July following the end of the tax year of grant. Options granted in 2025-26 had to be notified by 6 July 2026. Miss the deadline and the options lose EMI treatment – a failure that tends to surface at the worst possible moment, in due diligence on a sale.
For options granted on or after 6 April 2027 the separate notification requirement is being removed. The grant information will instead form part of the end-of-year return from 6 April 2028, and companies will need to register the scheme and make a declaration that it meets the conditions. Options granted before 6 April 2027 still need notifying in the usual way.
CSOP – when EMI is not available
The CSOP is a tax favoured discretionary option plan under which a company may grant options to any employee or full-time director to acquire shares at an exercise price which must be not less than the market value of the shares on the grant date. The market value of the shares over which options are granted must not exceed £60,000 at the date the options are granted (£30,000 pre 6 April 2023). This is not an annual limit – it applies to all CSOP options held at any particular time.
Generally, if the option is exercised more than three years after the grant date the exercise does not trigger a tax charge and the gains are taxed under the CGT regime on the sale of the shares. The usual trigger for reaching for a CSOP rather than an EMI is the working time requirement, which makes EMI unavailable to employees who do not spend the majority of their working time in the business.
What else can be considered?
Where share arrangements are not considered by the owners to be an attractive solution, other solutions would include phantom share schemes – effectively a deferred bonus arrangement based, for example, on the growth in value of the business – and deferred bonus arrangements using an Employee Benefit Trust as a vehicle for payment of the bonuses, possibly at a future trigger date such as the sale of the shares by the current owners.
For those employers not expecting, or wishing, their employees to convert their share options to shares within three years, the CSOP is worth considering. An all employee share scheme may be suitable for larger companies where it is intended to reward the entire work force, subject to the qualification criteria.
Guide for option holders
If your company is granting EMI options, the people receiving them will have questions: what an option actually is, when they can exercise it, what happens if they leave, and what tax they will pay. Our participant’s guide answers them in plain question-and-answer form, including the disqualifying events and the excluded activities that most often catch companies out.
Download the EMI Option Participant’s Guide (PDF, 11 pages) — updated for the 2026-27 tax year. No registration required.
How we can help
We advise on the design, qualification and implementation of EMI and CSOP schemes, prepare independent share valuations and agree them with HMRC. If you are considering a scheme, or already operate one and want to review it in light of the April 2026 changes, please contact us.