What is an EMI Scheme?
The Enterprise Management Incentive (EMI) is a UK government tax scheme designed to help smaller companies recruit and retain talent by offering highly tax-efficient share options.
For a UK startup, this is the standard way to give equity to employees.
Why is it so good? Without an EMI scheme, if you give an employee shares, they have to pay Income Tax on the value of those shares (which can be up to 45%). With an EMI scheme:
- No Income Tax: The employee usually pays £0 income tax when the options are granted or exercised.
- 10% Capital Gains: When they eventually sell the shares (e.g., at an exit), they only pay 10% Capital Gains Tax (via Business Asset Disposal Relief), rather than the standard 20%.
How it works
- Valuation: You agree on a valuation with HMRC (usually very low compared to what investors pay).
- Grant: You grant the option to the employee to buy shares at that low price.
- Exercise: Years later, when the company is sold, the employee buys the shares at the old low price and sells them at the new high price, paying minimal tax on the profit.
Eligibility
- The company must have gross assets under £30 million.
- You must have fewer than 250 full-time employees.
- The employee must work at least 25 hours a week (or 75% of their working time) for the company.
Key Takeaway: An EMI scheme turns a "nice to have" perk into a life-changing financial event for your team. If you are a UK startup, do not issue options any other way.
