How to set up an EMI scheme

The Enterprise Management Incentive (EMI) scheme is a tax-efficient share option plan, available in the UK and used mainly by small to mid-sized UK companies to help attract, retain and incentivise talent.

If you think this scheme might be the right fit for your business, now is the time to roll up your sleeves. Below we will detail the process, step-by-step, and consider actions you will need to implement to help ensure your EMI scheme runs effectively, so your company can get the most out of it.

How to set up an EMI scheme

1. Confirm you qualify for an EMI scheme

Before you establish a plan there are a handful of EMI qualifying conditions your share options, business and employees need to satisfy before you can qualify for the scheme and receive the maximum EMI tax benefits. For example, your business must be:

• Not majority-owned by another entity
• Have fewer than 250 full-time employees
• Have gross assets of £30 million or less
• Not operate in any of the ‘excluded activities’ such as banking, insurance, farming and property

To ensure you meet the criteria, refer to our comprehensive list of ‘’EMI qualifying conditions’’.

2. Define your goals

Once you’ve established that your business, EMI options and participating employees are eligible, you can now define your objectives for the scheme.

As it’s widely known that EMIs are designed to reward and retain employees, you should think carefully about what you want to achieve specifically because it will hugely determine the scheme rules. For example, consider if performance or retention is your biggest priority. If it’s both, is one more important than the other? This is an important factor when it comes to deciding on vesting rules.

3. Structure your scheme rules & agreements

Now, you can start to design your EMI by considering rules like:

• Who should participate?
• Vesting (time-based or performance-based?)
• Types of options
• Exercise price (i.e. the cost of options for employees at exercise)
• Size of employee option pool
• Number of shares being granted to each employee
• What happens if an employee leaves? Can they still exercise their shares?

Once the scheme rules have been finalised, you can then produce individual option agreements. Also, don’t forget to make any relevant changes to the company’s constitutional documents (including the Articles of Association and any shareholders’ agreements).

4. Get an HMRC-approved EMI valuation

Getting EMI valuation approval from HMRC can normally take a few weeks. While this process isn’t compulsory, it’s often wise to do so because it can ensure the tax benefits of the EMI scheme will apply, provided all other processes and formalities are followed.

To apply you need to complete a VAL231 form online and then download it before submitting it to HMRC via email or post. The form requests information including:

• Company information and contact details
• Class of share
• Nominal value per share
• Total number of shares on which options are to be/have been granted
• Proposed actual market value (AMV)
• Proposed unrestricted market value (UMV)
• Exercise price
• Plus other information

You will also be required to include a copy of the valuation report in the submission. Once you have completed the VAL231 form and received your valuation report, you can either send both of them by:
– Email: [email protected] ; or
– Post: Shares and Assets Valuation, HM Revenue and Customs, BX9 1BJ 

5. Grant EMI options

Once you have your valuation agreed, you can create the share pool to begin issuing share options. You should do it within three months as the approved valuation only remains valid for 90 days from the date HMRC approves it.

Next you can determine how to grant the options. There are some free, professional share scheme platforms out there which can help to assist with the setup of the EMI scheme and EMI option issuance, making long-term scheme management easier and more effective.

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It’s also worth noting that most companies require formal approval both from their board and shareholders in this phase before officially granting options to employees.

6. Register the EMI scheme with HMRC’s Employment Related Securities (ERS)

You need to have an HMRC account with PAYE set up before you can start using the ERS system. If you do, you can log in here.

If not, click here to create one. Note: If you don’t have PAYE on your account already, it can take up to 3 weeks to set up.

Once you log in, click ‘’Submit Employment Related Securities returns’’ and follow the steps to register your scheme. You should receive a scheme reference number within 7 days of registering your scheme.

7. Tell HMRC about your EMI scheme

Once you have registered your EMI scheme and received the scheme reference number, you will need to notify HMRC about this on or before 6 July following the end of the tax year in which the grant is made. If you fail to notify HMRC within these deadlines you risk losing any tax benefits for you and your employees. Log in here to initiate a notification to HMRC.

8. Done

Once you’ve received confirmation that HMRC has received your EMI notifications, then you should be all set.

Enterprise Management Incentives Schemes, Simplified

You will have to add new recipients and remove leavers, as required, while also updating the cap table over time to reflect whatever options have been issued. You will also need to inform HMRC of any changes during the life of the scheme, such as employees leaving, new option grants, or a company exit (a buyout or other ownership change).

With our technology and a team of EMI professionals, J.P. Morgan Workplace Solutions can help you perform the ongoing scheme administration-related duties.

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