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.

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 10% Capital Gains Tax on sale under Business Asset Disposal Relief.

• 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

Scenario:

Sarah joins a startup and is granted EMI options to buy 1,000 shares at today’s market value of £1 each (£1,000 total).

Five years later, the company is acquired and each share is worth £20. Sarah decides to exercise her options and sell into the acquisition.

• Without EMI: She would face Income Tax and NICs on the £19,000 “gain” when exercising, and then Capital Gains Tax on the later sale - a big chunk of her reward lost to tax, often before she sees any cash.

• With EMI: She pays nothing when granted and nothing on exercise. On sale, she pays just 10% Capital Gains Tax on the £19,000 gain - £1,900 total.

That leaves Sarah with £17,100 after tax - a life-changing reward linked directly to her contribution to the company’s success.

For the founder: no extra salary cost, NIC savings, and Corporation Tax relief on Sarah’s gain.

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.