Some budget good news – EMI employee share option plans improved

As anticipated, the Autumn Budget delivered by Rachel Reeves today contained, amongst others, changes to Enterprise Management Incentives (EMI) employee share option plans. Below we set out the key features of EMIs, the changes introduced, and how these changes can benefit companies and employees.

What are EMI plans?

These employee share plans are designed to provide a tax efficient way for small and medium sized businesses (SMEs) and their employees to align their objectives. Employees can build a stake in the business they work for, incentivising them to work towards growth as they will be able to benefit from the company’s success. Businesses also see a benefit as schemes can be time bound, which encourages retention of key individuals within the company – an especially important consideration at early stages of a company’s life cycle.

EMI schemes also bring financial benefits to the business and the employee when the qualifying option is exercised. For the business, a corporation tax deduction may be available and there is relief from employer national insurance contributions (NICs). For the employee, provided the cost of the shares at the time of exercise was at least equal to the market value at the time of the grant of the option, there is no income tax liability or employee NICs due.

Instead, gains are considered under the more favourable capital gains tax (CGT) regime – currently set at 18% and 24% for lower and higher rate taxpayers, respectively. In addition to the more favourable CGT regime, Business Asset Disposal Relief (BADR) may also be available.

What has changed?

For a company to qualify to establish an EMI plan, they must satisfy a number of statutory criteria. If these are met, individuals can be granted options over shares with a total value of up to £250,000. A company can grant options over shares with a total value of up to £3 million across all EMI participants.

As announced in today’s budget, the overall limit on the value of shares over which EMI options can be granted by a company will, with effect from 6 April 2026, double from £3 million to £6 million. However, no change to the individual £250,000 individual limit has been proposed.

The qualifying criteria for a company to grant EMI options will also be expanded from 6 April 2026. From that date, EMI options can be granted by companies with gross assets up to a value of £120 million (a significant increase from the previous £30 million limit) and by companies with up to 500 employees (doubling the previous 250 employee cap). These are both welcome changes as they will allow companies to continue to grant EMI options longer into their growth cycle.

Finally, the limit on the period during which EMI options must be exercised in order to secure the associated tax advantages will be increased from 10 years to 15 years. Although this change will come into effect on 6 April 2026, indications are that it will also be capable of being applied to existing outstanding awards.

What this means

The increase to the overall limit means that businesses have more scope to offer EMI options. This could mean simply that there is sufficient headroom to maximise awards to existing participants, or it could allow businesses to award options to more individuals.

Given the changes to the qualifying company criteria, companies that have not previously qualified to implement an EMI plan may also now be in a position to offer this tax-advantaged arrangement to their employees and enhance their incentivisation offering. Benefits previously limited to startups can now also be reaped by scaleups.

If you are considering whether an employee share scheme is the right option for your company or would like to find out more, you can contact one of our dedicated share plan specialists.

This article was co-authored by Trainee Erin Casey.

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