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EMI Share Option Guide

Qualifying Conditions

There are a number of conditions that must be satisfied for an option to qualify as an EMI option including the following:

  1. Commercial Reasons

    The option must be granted for commercial reasons to recruit and retain employees and not as part of a scheme to avoid tax.

  2. Independence

    The option shares must be in an independent company with gross assets (including the gross assets of any subsidiaries) not exceeding £30 million.

  3. Trading Companies

    The company must carry on a trade wholly or mainly in the UK on a commercial, profit-making basis which does not, to a substantial extent, include various excluded trading activities or be the holding company of a trading group where at least one company carries on such a trade.

  4. Maximum Employees

    The company must have fewer than 250 full time equivalent employees.

  5. Options over Ordinary Shares

    The option shares must be fully paid up and form part of the ordinary share capital of the company. However it is possible to create a class of shares with specific rights for use in the arrangement.

  6. Non- Redeemable Shares

    The shares over which options are granted must not be redeemable.

  7. Employee Working Hours

    The employees to whom the options are granted must work at least 25 hours per week for the company or, if less, at least 75% of their working time.

  8. Non-Material Interest in the Company

    Employees to whom the options are granted must not have a material interest of 30% or more in the ordinary share capital of the company either on their own or together with persons connected with them.

  9. Maximum Value per Employee

    No employee can hold qualifying EMI options over shares with a value exceeding £250,000 as at the date of grant. If the employee has any tax advantaged Company Share Option Plan (CSOP) options those also count towards this limit.

  10. Exercised within 10 years

    A qualifying EMI option must be capable of being exercised prior to the tenth anniversary of the date it is granted. If the option is in fact exercised ten or more years after grant its tax advantaged status is lost and the option is treated as unapproved for tax purposes.

  11. Maximum Total Value

    The total value of shares in the company over which unexercised EMI options exist cannot exceed £3 million.

  12. Option Agreement

    The option must be granted under a written agreement between grantor (normally the company or an employee's trust) and the employee usually, but not necessarily, pursuant to a share option scheme.

  13. Notify HMRC

    The grant of an option must be notified to HMRC online within 92 days of the date of grant. An option can only be notified if the company granting the option has registered the arrangement with HMRC and obtained an HMRC reference number. An annual online return must be submitted to HMRC by 6 July each year confirming all option grants and exercises in the tax year just ended.

Companies may submit details of the company to HMRC Small Company Enterprise Centre (SCEC) for advance assurance on whether the company will be a qualifying company for the purposes of the EMI legislation. The SCEC is not obliged to give advance assurance in respect any other requirements of the EMI legislation.


Although there is no legislative requirement to do so, it is advisable for a company wishing to grant EMI options to agree the value of the shares over which the options are to be granted with HMRC Shares and Assets Valuation (SAV). There is no charge to tax when a qualifying EMI option is exercised provided that the option exercise price equals or exceeds the value of the underlying shares when the option is granted. If the option exercise price is set at a discount to market value, then when the option is exercised that discounted amount is charged to income tax (and NICs may also be due). Agreeing the value with SAV ensures that there are no unexpected tax charges on exercise, as well as that the individual and overall limits on the total value of shares over which EMI options can be granted have not been breached. Following recent changes to the way that SAV operates, the grant of EMI options is one of the few remaining situations where it is possible to agree the value of shares in a private company with HMRC.

To agree a valuation a company must complete HMRC Form Val 231 and provide the requested information along with its suggested valuation. The value to be attributed to the shares is the price that they might reasonably be expected to fetch on the open market. SAV will then either accept the suggested value or enter into negotiations to agree an alternative value and will also confirm the time period for which that valuation will remain valid.

Terms of Option

The EMI Option Agreement or Scheme rules must include the following terms:


The date of grant.


That the option is granted under the EMI legislation.


The number or maximum number of shares over which the option is granted.


The price (if any) that the employee must pay on the exercise of the option or a mechanism for determining the price.


When and how the option can be exercised.


Any performance or other conditions that must be met by the employee.


Any restrictions on the shares, such as a risk of forfeiture.

Disqualifying Events

If an EMI option is granted, but a disqualifying event occurs before the option is exercised, then although the employee will still have a valid right to acquire shares, favourable EMI tax treatment may be lost. Examples of such disqualifying events are:

  1. The company coming under the control of another company.
  2. A change in the company's trade to include a substantial amount of non-qualifying activities.
  3. Changes being made to the share capital of the company which have the effect of increasing the value of shares under option.
  4. The optionholder ceasing to satisfy the working time requirement.

NB - Growth in the company so that it has more than £30 million of gross assets or employs more than 250 full time equivalent employees is not a disqualifying event for existing options. It would however prevent the grant of any further EMI options.

We can provide guidance on how and when disqualifying events may occur, and suggest ways that they may be avoided.

If you would like further information or require assistance in respect of the grant of EMI Options or the establishment of an EMI Scheme then please do not hesitate to enquire here.

From £1600    ( £1,920.00 inc. VAT)
Please contact us for a fixed quotation.


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