A founder I spoke with last year had built a business to just over 260 employees and had spent two years telling senior hires that share options were coming. They were not coming. The company had crossed the 250-employee threshold eighteen months earlier and had quietly become ineligible for EMI share options, and nobody had told the founder that the promise he kept making was no longer deliverable. He found out during a conversation with a prospective commercial director who asked a more precise question than the others had.
Here is the uncomfortable truth about equity incentives in growing UK businesses: most founders discover they have outgrown EMI at exactly the point when they need it most. The scheme was designed for small companies, and its thresholds had not moved for years while company sizes and valuations had. Businesses hit the ceiling somewhere in the middle of a growth phase, precisely when senior hiring gets hardest, and equity matters most.
The Autumn Budget on 26 November 2025 changed that, and changed it substantially. From 6 April 2026, the gross assets ceiling has quadrupled, the employee cap has doubled, the company-wide option limit has doubled, and the maximum option life has been extended by half. Companies that had outgrown EMI can return to it. Companies that discounted it on size grounds should reconsider. This article sets out exactly what changed, what stayed the same, the qualifying conditions that still apply, and what I would do about it if I were running a business anywhere near these thresholds.
Why This Matters More Than It Looks
EMI is not the only option; there are several. It is comfortably the most generous tax-advantaged employee share option plan available in the UK, and the gap between EMI and the alternatives is wide enough to change hiring outcomes.
Under an EMI scheme, provided the qualifying conditions are met at grant, and no disqualifying event occurs, growth in the value of the shares under the option is free of income tax and National Insurance contributions on exercise. Gains are taxed as capital rather than employment income. Business Asset Disposal Relief may also be available on the eventual sale of the shares, where the option was granted at least two years before the disposal.
The contrast with unapproved options is stark. Unapproved options are taxed as employment income at the time of exercise, at the employee’s marginal rate, with National Insurance on top. For a higher-rate taxpayer, that is a materially different outcome on the same economic gain. Companies can also receive corporation tax relief on the gains employees make when they exercise EMI options, so the benefit runs in both directions.
The commercial consequence is straightforward. If you are competing for senior operational talent against a business that can offer EMI options and you cannot, you are competing with a worse offer on the same headline package. That has always been true. What has changed is how many businesses now sit on the right side of that line.
What Changed From 6 April 2026
The Autumn Budget 2025 announced the largest expansion of EMI eligibility since the scheme began. The changes are being introduced through the Finance Bill 2025 to 2026 and generally apply to EMI options granted on or after 6 April 2026 [1].
| Condition | Before 6 April 2026 | From 6 April 2026 |
|---|---|---|
| Gross assets ceiling | £30m | £120m |
| Full-time equivalent employee limit | 250 | 500 |
| Company-wide limit on unexercised options | £3m | £6m |
| Maximum option life | 10 years | 15 years |
| Individual limit per employee | £250,000 | £250,000, unchanged |
Four points about how these apply.
The gross assets test quadrupled. The ceiling moved from £30m to £120m, assessed as of the date the option is granted and applied to the whole group, excluding intra-group transactions [2]. This is the change that reopens the scheme to businesses that had grown out of it in terms of balance sheet size.
The employee limit doubled. The maximum moved from 250 to 500 full-time equivalent employees [1]. Part-time employees are counted on a full-time equivalent basis, so someone working 17.5 hours a week counts as half an employee. Students on vocational training, apprentices, and employees on maternity or paternity leave can be excluded from the count at the time an option is granted.
The company-wide option limit doubled. The cap on the total market value of shares subject to unexercised EMI options, measured at grant rather than at exit, rose from £3m to £6m [3]. This is the change that lets you widen participation rather than concentrating options in a handful of senior people.
The option life extended by half, and this one applies retrospectively. The maximum period within which an EMI option must be exercisable has increased from 10 years to 15 years. Critically, this can apply to existing options that have not already expired or been exercised, provided they are amended in line with the legislation without losing their tax advantages [1]. The increased employee, gross assets and company-wide limits also apply to existing EMI options that have not expired or been exercised [2].
One further change is coming but is not yet in force. The government plans to remove the requirement for companies to notify HMRC of EMI option grants from April 2027, with legislation expected in the Finance Bill 2026 to 2027 [1]. Until then, the existing notification requirement stands: the employment-related securities annual return is due by 6 July following the tax year of grant.
One regional variation worth knowing
For certain Northern Ireland companies the employee cap remains 250 rather than 500, and the overall company cap remains £3m rather than £6m. The individual limit of £250,000 is unchanged across the UK [4]. If you operate in Northern Ireland, take specific advice on which set of limits applies to you before designing a scheme.
What Did Not Change
The expansion is generous on size thresholds. It did not loosen anything else, and the conditions that catch most companies out are unchanged.
The individual limit stays at £250,000. That is the maximum unrestricted market value of shares under unexercised EMI options any one employee can hold, measured at grant. Once an employee reaches it, no further options can be granted to that individual for three years following the last grant [5]. For senior hires in a business with a meaningful valuation, this bites sooner than founders expect.
The qualifying trade test is unchanged. The company must carry on a qualifying trade on a commercial, profit-making basis, and must not be substantially involved in excluded activities. Excluded activities include banking, insurance and money-lending; legal and accountancy services; property development; leasing; shipbuilding, coal and steel production; operating or managing hotels and comparable establishments; operating or managing nursing or residential care homes; farming; and forestry [6]. Where a company has a mix of qualifying and excluded activities, HMRC broadly treats a substantial part as 20 per cent or more.
This catches more businesses than founders assume. A hospitality group operating hotels does not qualify. Nor does a property developer, a lettings business, or a firm providing accountancy services. If your business is close to any of these, confirm the position before you make promises to staff.
The independence requirement is unchanged. The company must not be under the control of another company. More than 50 per cent of the ordinary share capital must not be owned or controlled by another company [6]. Where the company is part of a group, options must be granted over the parent’s shares.
The UK permanent establishment requirement is unchanged. The company must have a permanent establishment in the UK, evidenced by either a fixed place of business such as an office or factory, or an agent acting on its behalf with authority to enter contracts [6].
The employee working time requirement is unchanged. An employee must be committed to working at least 25 hours a week for the company, or where they work fewer hours, EMI hours must represent at least 75 per cent of their total working time across all jobs [7]. A part-time adviser working one day a week does not qualify. Directors who are also paid employees usually do, provided they meet the time test.
The disqualifying events rules are unchanged. After a disqualifying event, such as the company being acquired or the employee leaving, options must be exercised within 90 days to retain EMI tax treatment. Founders routinely underestimate how tight that window is during a transaction.
The Capital Gains Position Has Moved Against You
This is the part of the picture that the Budget commentary underplayed, and it matters when you are modelling what an option is actually worth to an employee.
Business Asset Disposal Relief has been on a rising rate path. The BADR rate was 10 per cent for disposals on or before 5 April 2025, rose to 14 per cent for disposals between 6 April 2025 and 5 April 2026, and rose again to 18 per cent from 6 April 2026 [8]. The lifetime limit remains £1m of qualifying gains, and gains above that limit are taxed at the individual’s normal capital gains rates.
Anti-forestalling rules apply. Ordinarily, capital gains tax is calculated using the rate applicable on the date an unconditional contract is entered into, rather than on the completion date. Under the rules introduced with the rate change, that principle is overridden for disposals on or after 6 April 2026, to prevent taxpayers artificially triggering a disposal before the rate change by contracting early and completing later [9]. Simply signing a contract before the deadline does not guarantee access to a lower rate.
So the picture is mixed rather than uniformly positive. EMI eligibility has widened substantially. The tax outcome on eventual disposal has become less favourable than it was two years ago. EMI remains far better than the alternatives, but if you built your equity story on a 10 per cent exit rate, the model needs to be rerun.
Who Should Act, and What They Should Do
Three groups should be doing something about this now.
Companies that outgrew EMI. If you crossed the £30m gross assets threshold or the 250 employee limit and stopped granting, you may now qualify again. This is the group with the most to gain and the least awareness that anything has changed, because they stopped paying attention to EMI once they were no longer eligible.
Companies that recently discounted EMI on size grounds without checking. Growth companies that assessed the position two or three years ago and concluded they were too large should reassess against the new thresholds rather than the old ones.
Companies with existing EMI options. The extension of the maximum option life from 10 to 15 years can apply to existing unexpired, unexercised options if they are amended in line with the legislation. For a company whose early grants are approaching their 10-year expiry and for which an exit is not imminent, this is genuinely valuable. It requires action, not just awareness.
Take a worked illustration using the published limits. A company with gross assets of £45m and 310 full-time equivalent employees was ineligible on both tests before 6 April 2026. From that date, it is comfortably within both the £120m gross assets ceiling and the 500-employee limit. If it also carries on a qualifying trade, is independent, and has a UK permanent establishment, it can now grant EMI options over shares worth up to £6m in total at grant, with up to £250,000 per individual. That is a scheme capable of covering a senior leadership team and a meaningful proportion of the wider workforce, at a business that had written EMI off entirely.
Common Mistakes
Promising options before confirming eligibility. The single most damaging error I see. Verify the qualifying trade test, the independence test and the size tests before anything is said to staff. Retracting an equity promise costs more trust than never making it in the first place.
Assuming the individual limit moved. It did not. The £ 250,000-per-employee cap is unchanged, and in a business with a substantial valuation, it constrains senior grants well before the company-wide £6m limit is reached.
Missing the qualifying trade problem. Property development, hotel operation, care homes, financial services, legal and accountancy services are all excluded. Businesses adjacent to these need a specific determination, not an assumption.
Granting without an agreed HMRC valuation. HMRC can agree on a share valuation before the grant, which provides certainty regarding the employment tax position when exercise prices are set [10]. This is one of EMI’s real advantages, and it is frequently skipped for speed. It becomes expensive at exit when a buyer’s diligence questions the valuation.
Forgetting the 90-day disqualifying event window. During an acquisition, everything is happening at once, and this deadline is easy to miss. Build it into the transaction timetable rather than discovering it.
Not revisiting the retrospective option life extension. Existing options can potentially move from a 10-year to a 15-year exercise period. That requires a documented amendment and will not happen on its own.
Implementation: What to Do Now
Phase one: establish eligibility.
- Calculate the group’s gross assets at the likely grant date, excluding intra-group transactions, and compare them against the £120m ceiling.
- Calculate full-time equivalent employees across the group, excluding apprentices, students in vocational training, and staff on maternity or paternity leave, and compare the total against the 500 limit.
- Confirm the qualifying trade test. Where any excluded activity exists, assess whether it is a substantial part of the business, which HMRC broadly considers to be 20 per cent or more.
- Confirm independence: no more than 50 per cent of ordinary share capital owned or controlled by another company.
- Confirm a UK permanent establishment.
- If you are a Northern Ireland company, confirm which set of limits applies to you.
Phase two: design the scheme.
- Decide the total pool against the £6m company-wide limit, valued at grant.
- Model individual grants against the £ 250,000-per-employee cap, and identify where senior grants will exceed it.
- Confirm which employees meet the 25-hour or 75 per cent working time requirement.
- Decide the exercise trigger. Exit-only options behave differently from time-vesting options, and the choice has consequences at disposal.
- Model the employee outcome using the 18 per cent BADR rate, which applies from 6 April 2026, not the historic 10 or 14 per cent rates.
Phase three: execute properly.
- Obtain an agreed HMRC share valuation before grant.
- Prepare the scheme documentation and option agreements.
- Grant and notify HMRC through the employment-related securities annual return by 6 July following the tax year of grant. This requirement remains in effect until the planned removal in April 2027.
Phase four: maintain.
- Review existing unexercised options for the retrospective extension from 10 to 15 years and amend where beneficial.
- Monitor for disqualifying events, and diarise the 90-day exercise window against any transaction timetable.
- Reassess the size tests annually. Companies grow through thresholds without noticing, and now have considerably more headroom before they do.
Frequently Asked Questions
My company grew past the old EMI limits. Can we use the scheme again? Very likely, yes. If you were excluded because your gross assets exceeded £30m or you had more than 250 full-time equivalent employees, the thresholds are now £120m and 500, respectively, from 6 April 2026. You will still need to satisfy the qualifying trade, independence, UK establishment and working time conditions, none of which changed.
Do the new limits apply to options we granted before April 2026? The increased employee, gross assets and company-wide limits apply to existing EMI options that have not expired or been exercised. The extension of the maximum option life from 10 to 15 years can also apply to existing options, but only where they are amended in line with the legislation without losing their tax advantages. That amendment requires a documented step, not just the passage of time.
Did the £250,000 individual limit change? No. It remains £250,000 of unexercised qualifying options per employee, measured at unrestricted market value at grant. Once an employee reaches the limit, no further options can be granted to them for three years after the last grant. This constraint bites earlier than the company-wide limit in most valuable businesses.
Which businesses cannot use EMI at all? Companies substantially involved in excluded activities. That list includes banking, insurance and money-lending; legal and accountancy services; property development; leasing; shipbuilding; coal and steel production; operating or managing hotels; operating or managing nursing and residential care homes; and farming and forestry. HMRC broadly treats substantial as 20 per cent or more of the business.
Is EMI still worth it now that Business Asset Disposal Relief is taxed at 18 per cent? Yes, though by a smaller margin than before. The BADR rate rose from 10 per cent to 14 per cent in April 2025 and to 18 per cent from 6 April 2026. EMI still delivers a materially better outcome than unapproved options, which are taxed as employment income at marginal rates with National Insurance on top. What has changed is the size of the advantage, so equity models built on a 10 per cent exit rate need to be rerun.
Do we still have to notify HMRC of EMI grants? Yes, for now. The existing notification requirement through the employment-related securities annual return by 6 July following the tax year of grant remains in force. The government plans to remove the grant notification requirement from April 2027, with legislation expected in the Finance Bill 2026 to 2027, but that has not yet taken effect.
How does an EMI scheme affect a future funding round? Investors expect to see an option pool and will model dilution accordingly, so a properly documented EMI scheme is normal and generally viewed positively. What causes problems is an undocumented scheme, options granted without an agreed HMRC valuation, or a cap table that does not reconcile to the option register. If you are raising, the cap table management guide covers how this should be maintained.
The Principle Underneath This
Equity incentives work when the people receiving them believe the equity is real, and belief comes from documentation rather than intention. A founder who promises options and delivers a properly constituted EMI scheme with an agreed valuation has made a credible commitment. A founder who promises options and offers only verbal assurance has created a liability, because the promise will be remembered and the scheme’s absence will eventually be discovered.
The April 2026 expansion removes the most common structural excuse for not having a scheme: being too large to qualify. Four times the gross assets headroom and double the employee ceiling mean that businesses caught in the middle, growing fast and hiring senior people, are now inside the regime rather than looking at it from the outside.
If you have been telling people that options are coming, this is the year to find out whether you can actually deliver them.
Prepare Your Equity Story Before You Need It
An option scheme is one part of how a growing business presents itself to senior hires and to investors, and both audiences look at the same underlying evidence: a clean cap table, a documented scheme, and a valuation that stands up to scrutiny.
SGI Consultants works with UK founders and scale-ups on funding readiness and investor preparation. Since 2014, we have advised over 2,000 businesses across 47-plus sectors and secured more than £250M in client funding, achieving a 90 per cent success rate compared with an industry average of 13 to 20 per cent.
If you are heading towards a raise, start with the investor readiness preparation service, or book a call at sgi.youcanbook.me to talk through where your business stands. For the wider tax-advantaged investment picture, the EIS and SEIS complete guide covers the investor-side reliefs that sit alongside employee share schemes.
SGI Consultants Ltd is not authorised or regulated by the Financial Conduct Authority. We provide funding facilitation for companies raising capital outside the consumer credit perimeter and work with FCA-authorised partners for any regulated elements. This article is general guidance on the EMI regime and is not tax, legal or investment advice. EMI is a technical area with significant consequences if it’s done wrong; seek specific advice from a qualified tax adviser and confirm current rules with HMRC before granting options.
References
- Pinsent Masons, UK Budget 2025: EMI reforms potentially game-changing, December 2025. https://www.pinsentmasons.com/out-law/news/uk-budget-2025-emi-reforms
- Saffery, Enterprise Management Incentives (EMI): complete guide to rules, tax advantages and 2026 changes, April 2026. https://www.saffery.com/insights/articles/enterprise-management-incentives-emi-complete-guide-to-rules-tax-advantages-and-2026-changes/
- Grant Thornton, EMI reform 2026: what mid-market and scale-ups need to know, February 2026. https://www.grantthornton.co.uk/insights/emi-reform-2026-what-midmarket-and-scaleups-need-to-know/
- LexisNexis UK, EMI (Enterprise Management Incentives) glossary and eligibility checklist, updated for the 6 April 2026 reforms. https://www.lexisnexis.com/en-gb/legal/glossary/emi-enterprise-management-incentives
- Ross Martin Tax Consultancy, EMI: Enterprise Management Incentives at a glance, July 2026. https://www.rossmartin.co.uk/benefits-in-kind/408-enterprise-management-incentives-emis
- J.P. Morgan Workplace Solutions, EMI qualifying conditions: is your company eligible, December 2025. https://www.jpmorganworkplacesolutions.com/uk/insights/emi-qualifying-conditions/
- Charles Russell Speechlys, Autumn Budget: expansion of the EMI eligibility limits, November 2025. https://www.charlesrussellspeechlys.com/en/insights/expert-insights/corporate/2025/autumn-budget-expansion-of-the-emi-eligibility-limits/
- BDO, Business Asset Disposal Relief, April 2026. https://www.bdo.co.uk/en-gb/insights/tax/private-client/business-asset-disposal-relief
- Brodies LLP, Business Asset Disposal Relief: what is changing on 6 April 2026 (March 2026). https://brodies.com/insights/wills-and-estate-planning/business-asset-disposal-relief-badr-what-is-changing-on-6-april-2026/
- Stephenson Harwood, EMI employee share option changes from April 2026, 2026. https://www.stephensonharwood.com/insights/emi-employee-share-option-changes-from-april-2026/
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Kurt Graver is the founder and CEO of SGI Consultants, a business consultancy that has helped over 2,000 entrepreneurs establish successful startups using systematic business development methodologies. An accountant with an MBA and 25 years of commerce and consultancy experience, Kurt specialises in strategic planning, market analysis, and sustainable business growth