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How to Set Up EMI Share Options Contracts

Set up EMI share options by confirming your company qualifies, agreeing a share valuation with HMRC, drafting the option agreement with vesting schedule, granting the options, and notifying HMRC within the 92-day deadline.

Last updated: February 2025

Step-by-Step Guide

1

Confirm company and employee eligibility

The company must have gross assets under £30 million, fewer than 250 full-time equivalent employees, and carry on a qualifying trade. Employees must work at least 25 hours per week or 75% of their working time.

Tips
  • •Certain trades are excluded, including banking, property development, and farming.
2

Obtain an HMRC share valuation

Apply to HMRC's Shares and Assets Valuation team for an agreed valuation of your shares before granting options. This establishes the exercise price.

Tips
  • •The valuation process typically takes 4-6 weeks.
  • •Use HMRC's VAL 231 form to request the valuation.
3

Draft the EMI option agreement

Prepare the option agreement specifying the number of shares, exercise price, vesting schedule, exercise conditions, and good/bad leaver provisions.

Tips
  • •Common vesting is four years with a one-year cliff.
  • •Include provisions for what happens on exit, death, and disability.
4

Grant the options and notify HMRC

Issue the option agreements to employees and notify HMRC within 92 days of the grant date using the online ERS Annual Return service.

Tips
  • •Missing the 92-day notification deadline means the options lose EMI tax advantages.
5

Maintain ongoing compliance

File the annual ERS return, track exercises and lapses, and ensure the company continues to meet qualifying conditions.

Tips
  • •Any disqualifying event must be reported to HMRC.

Legal Requirements

EMI options are governed by Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003. Each employee can hold EMI options over shares with a market value of up to £250,000 at grant. The company-wide limit is £3 million. Options must be notified to HMRC within 92 days of grant.

Common Mistakes

Missing the 92-day HMRC notification deadline, resulting in loss of EMI tax benefits
Not obtaining an agreed HMRC valuation before granting options
Granting options over more than £250,000 worth of shares to a single employee

Template / Example

EMI Share Option Agreement: [Company] grants to [Employee] an option over [X] ordinary shares at an exercise price of £[X] per share. Vesting: 25% after 12 months, then monthly over 36 months. Exercise: on exit event or after [X] years. Subject to HMRC notification within 92 days.

When to Get a Solicitor

Always recommended. EMI schemes involve company law, tax law, and employment law. Incorrect setup can result in loss of tax benefits worth thousands of pounds per employee.

FAQ

What are the tax benefits of EMI share options?

No income tax or NI on grant. On exercise, income tax is only payable on any discount (difference between exercise price and market value at grant). On sale, gains above the exercise price are subject to CGT, potentially qualifying for Business Asset Disposal Relief at 10%.

Can non-employees receive EMI options?

No. EMI options can only be granted to employees who meet the working time requirement (25 hours per week or 75% of working time). Directors who are also employees may qualify.

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This is guidance, not legal advice. Consult a solicitor for complex matters.

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