EMI option schemes: A founder and employee win-win

For early-stage startups, talent is your most valuable asset - and also your biggest challenge. You need to recruit the best people, keep them motivated, and convince them to stay, often without the budget to match corporate salaries.

That’s why more and more founders are turning to the Enterprise Management Incentive (EMI) scheme - a government-backed share option plan built specifically for smaller, high-growth UK companies. EMI gives employees a stake in the company’s success while allowing founders to offer competitive, long-term incentives without draining cash reserves.

What is EMI?

The Enterprise Management Incentive scheme lets you grant share options to selected employees on terms you choose. These options give them the right to buy shares in the future at a set price, typically today’s market value. If the business grows, those shares can be worth significantly more when sold - creating a tangible reward linked directly to the company’s success.

Unlike other HMRC-approved share schemes, EMI is designed for agility. There’s no requirement to offer it to everyone on the same terms, and the limits are generous - up to £250,000 in options per employee and £3 million in total unexercised EMI options for the company.

Why EMI works for startups

EMI’s power lies in how it connects personal reward to business success. When employees become co-owners, they:

• Think more like founders

• Stay longer to see their efforts pay off

• Care more about the bigger picture, not just their own role

For founders, it’s about creating a motivated, engaged, and aligned team — without the constant fear of losing key people to better-paid roles elsewhere.

Who qualifies?

For companies:

• Fewer than 250 full-time equivalent employees at the time of grant

• Less than £30 million in gross assets

• Independent UK trading company (some sectors excluded, e.g. banking, legal services, property investment)

For employees:

• Must work at least 25 hours per week or 75% of their total working time

• Must not hold more than 30% of the company’s share capital before grant

Benefits for Founders

For early-stage companies, EMI is more than a tax perk — it’s a strategic growth tool:

• Targeted incentives: Choose exactly who to reward and how much equity to offer.

• Retention built-in: Use time-based or performance-based vesting to encourage long-term commitment.

• Cash-friendly growth: Offer genuine value without inflating salary bills or straining your cash flow.

• Tax advantages: No employer National Insurance Contributions (NICs) on qualifying options and Corporation Tax relief on the gain when exercised.

• Investor-friendly: Many investors view EMI schemes positively, as they help align the whole team’s incentives with growth and exit goals.

“We needed an EMI option scheme to incentivise employees. FounderCatalyst delivered a complete end-to-end package — slick, cost-effective, and with human support all the way through.”

Benefits for Employees

For team members, EMI options are one of the most attractive reward structures available:

• Real ownership potential: Buy shares at today’s price, even if the company’s value increases dramatically.

• Tax-efficient gains: No Income Tax or employee NICs on grant or exercise (if qualifying), and just 14% Capital Gains Tax on sale under Business Asset Disposal Relief (BADR). BADR are taxed at a tax rate of 14% (10% before 6 April 2025, and 18% from 6 April 2026).

• Alignment with the business: When the company grows in value, they share in the upside.

• Flexibility: Up to 10 years to exercise options, providing control over timing.

• Long-term wealth creation: The potential for a meaningful payout on an exit or IPO, rewarding loyalty and performance.

How EMI works in practice

The table compares the tax treatment of Enterprise Management Incentive (EMI) options with unapproved share options from the perspective of both the employee and the employer. It illustrates how tax liabilities arise at each stage of the option lifecycle: grant, exercise, and eventual sale of the shares.

A key difference is the tax timing issue. With EMI, no tax is due either at grant or on exercise, even if the shares have significantly increased in value since the grant date. The employee only faces a liability when they sell the shares and realise actual proceeds. By contrast, unapproved options create a problem because income tax becomes payable at exercise, even though the employee has not yet received cash from selling shares to fund that bill.

The employee tax impact is also far more favourable under EMI. In the example, Sarah pays only £17,100 of capital gains tax (CGT) on the £95,000 growth in value when she eventually sells her shares, benefiting from Business Asset Disposal Relief (BADR), which applies at 18% from April 2026 (14% after April 2025). By contrast, James, holding unapproved options, is taxed twice: first at exercise, when £20,250 of income tax is due on the £45,000 gain from grant to exercise, and then on sale, when a further £12,000 CGT is payable on the £50,000 gain realised after exercise. His combined tax burden of £32,250 is nearly double Sarah’s.

With EMI options, BADR is relatively easy to secure: employees need only hold the options or resulting shares for two years from grant and remain employed at the time of sale, with no minimum shareholding requirement. By contrast, unapproved options require the tougher “personal company” conditions - holding the shares for at least two years, owning at least 5% of share capital and voting rights, and being entitled to 5% of profits or sale proceeds.

From the employer’s perspective, EMI is also more efficient. Corporation tax (CT) relief is available on the option gain at exercise (worth £11,250 in this example), and no employer NICs are due. With unapproved options, the employer can claim slightly higher CT relief (£12,803), but this comes at the cost of an additional £6,210 NIC liability. Net, the employer is in a stronger position under EMI.

Overall, EMI structures offer clear advantages: tax is only triggered at a liquidity event, employees pay less and at lower CGT rates, and employers avoid NIC costs while still benefiting from CT relief.

The 2025 HMRC data

Latest HMRC figures highlight EMI’s dominance in the share scheme landscape:

• 89% of companies using tax-advantaged schemes opt for EMI.

• 99% of those companies rely on EMI alone.

• The average EMI option value in 2024 was £12,340 - far higher than other approved schemes like SAYE (£6,070) or SIP (£220).

This shows that EMI delivers more value per participant, which matters for early-stage companies aiming to make equity awards feel significant.

The bottom line

If you’re building an early-stage UK startup and want to reward, retain, and truly motivate your best people, EMI share options are one of the most powerful tools available.

For founders, they’re cost-effective, flexible, and tax-efficient. For employees, they offer a real stake in the future and the chance to share in the wealth they help to create.

When structured well, EMI schemes aren’t just a benefit - they’re a cultural signal that everyone is in it together, working towards the same goal and the same success.

At FounderCatalyst, we help founders make their UK startups investor-ready, close funding rounds, and motivate their teams. We handle SEIS and EIS advance assurance, fundraising legal paperwork, data rooms, cap table management, and set up EMI and unapproved share option schemes. Book a call with an expert to learn more.