EMI schemes in 2026: what larger businesses need to know

For years, Enterprise Management Incentive (EMI) schemes have been the gold standard for startups wanting to attract and reward talent. 

However, there was always a catch. Outgrow the thresholds, and you'd lose access to the most tax-efficient employee share scheme just when you needed it most.

That's about to change. The Autumn 2025 Budget brought the biggest shake-up to EMI in years, and it's genuinely good news!

From 6 April 2026, companies that were previously shut out of EMI because they'd become "too successful" will be able to use it again.

If you're running a scaleup that's been stuck with Company Share Option Plan (CSOP) or unapproved options, this matters. A lot.

EMI changes summarised 

The Budget expanded who can use the EMI scheme and how much equity companies can grant. 

The changes remove some of the biggest limitations that growing companies have faced for years. Here they are (effective as of April 2026):

• The maximum employee headcount for EMI eligibility increases from 250 to 500 full-time equivalent employees.

• Maximum gross assets for EMI eligibility rises from £30 million to £120 million.

• Total value of unexercised EMI options a company can grant increases from £3 million to £6 million.

• Maximum option lifespan extends from 10 to 15 years (can be applied retrospectively to existing unexercised options).

The individual limit of £250,000 per employee remains the same, but everything else has been loosened dramatically.

There's one more change coming in April 2027. HMRC will remove the requirement to notify individual EMI grants by 6 July, following the end of the tax year. 

You'll still need to submit annual Employment Related Securities (ERS) returns, but the separate notification step for each grant is being abolished.

Who benefits from the new EMI rules? 

The government estimates these changes will support approximately 1,800 of the highest growth scaleups over the next five years, benefiting roughly 70,000 employees.

So are you one of them? You're in the sweet spot if you've got between 250 and 500 employees, or if your gross assets sit somewhere between £30 million and £120 million.

These are businesses that have likely raised Series B or C funding, achieved product-market fit, and are scaling rapidly. They're hiring aggressively but struggling to compete on compensation with both tech giants and smaller startups that still have access to EMI.

Capital-intensive businesses also win here. If you're in asset-heavy sectors such as biotech, cleantech, or advanced manufacturing, or even retail with considerable stock, you might be more asset-heavy than average.

Then there are the companies that outgrew EMI years ago and moved to CSOP or unapproved options. If you've been telling hires, "We can only offer CSOP now," April 2026 might change the game for you.

In addition, the changes ensure more businesses who currently use the EMI (or plan to soon) can keep it as they grow and scale. It makes the EMI a more long-term proposition, breaking down its stereotype as the share scheme for startups only. 

However, despite the scheme's expansion, not all businesses are eligible. For one, there are number of excluded industries. Take our EMI eligibility quiz if you're interested. 

Why the new EMI rules matter 

Why should you care? What's the advantage of the EMI? 

It’s always been considered the best employee share scheme available, but if you've never been able to use it, you might not fully appreciate why.

Let's break down the key benefits.

1. Tax efficiency 

EMI excels on this front. Employees pay no income tax or National Insurance (NI) on exercise if conditions are met, and gains are taxed as capital gains, not income.

If an EMI option was granted at least two years before the sale and the employee meets the requirements, they can access Business Asset Disposal Relief (BADR), currently paying 14% Capital Gains Tax (CGT) on the first £1 million of lifetime gains. 

This rate will rise to 18% from 6 April 2026, which means only higher rate CGT payers benefit.

CSOP offers tax benefits too, but they're less generous and come with tighter restrictions. For qualifying CSOP gains (held for three years), employees pay standard CGT rates of 18% or 24% depending on their income tax band.

BADR typically isn't available for CSOP unless specific conditions are met, a minus for higher-rate taxpayers. 

Unapproved options? Considerably worse from a pure tax perspective. Employees pay income tax and National Insurance Contributions (NICs) on exercise, which can eat up nearly half of the gain for higher earners.

2. Talent attraction 

EMI is a signal that a company is serious about rewarding its hires and has structured its scheme to maximise employee benefits. 

This is key for companies competing with the big guns that will now fall under the new regime. 

3. Retention through vesting 

EMI is a powerful retention mechanism since options typically vest over years, and with milestones which are more flexible than the CSOP. 

When equity is this flexible and tax-efficient, it's a meaningful part of total long-term compensation.

4. Capacity to grant meaningful equity 

This is one of the biggest practical advantages of EMI, especially under the new 2026 rules. CSOP limits individuals to £60,000 of unexercised options, which can be restrictive. 

EMI options still allow up to £250,000 per person at grant, but for qualifying companies, the total value of unexercised options will double to £6 million, giving more flexibility to offer competitive, meaningful equity awards.

5. Competing with venture-backed firms 

Startups backed by venture capitalists (VCs) have been using EMI for years. They offer junior employees meaningful equity packages that could be life-changing if the company succeeds. Larger companies without EMI have struggled to match this, until now!

Should you move from CSOP to EMI?

You can't simply convert existing CSOP grants to EMI. You'd need to cancel the CSOP grants and re-grant them under the EMI, which could trigger tax issues and requires careful structuring.

Many companies will keep existing CSOP grants in place and issue EMI going forward.

Moreover, EMI still has its limits, and these remain a factor. It's only valid for employees who work at least 25 hours per week (or 75% of their total working time) for the company granting the options, and who are subject to UK tax and National Insurance.

Employees working abroad, even if technically employed by your UK entity, generally don't qualify (though there are some exceptions depending on their circumstances). 

If you have teams in Europe, the US, or Asia, you'll need separate schemes for them: CSOP for UK-resident employees who don't meet EMI's working time requirements, or unapproved options for truly international staff.

What implementing EMI involves 

EMI is a government-approved scheme with its own rules to follow to stay on HMRC’s good side and yield maximum benefits. 

First, the board will need to approve EMI schemes formally. Dilution will be an important topic as every option granted will dilute existing shareholders.  Investors will have views on dilution levels. Some are supportive, others less so. 

Before making grants, companies need to determine how much equity they'll need and whether the current option pool covers it. If not, the pool needs to be topped up, which would require shareholder approval.

Key EMI eligibility points 

When setting up EMI, there are a few rules companies must keep in mind to preserve tax advantages:

• Employees must meet the working-time requirement for the entire option-holding window, which is at least 25 hours per week or 75% of total working time.

• Certain “disqualifying events” can affect EMI status, including changes in company control, shifts into excluded activities, material share restructurings, or an employee no longer meeting the working-time test.

• The company must remain independent, meaning it cannot be controlled by another company. 

Setting up operations 

Companies need a valuation HMRC will accept (ideally agreed in advance with HMRC, though this isn't legally required), legal documents (option agreements and board resolutions), and a way to track grants, vesting, exercises, and leavers.

On the operational side, Vestd automatically handles tracking, generates HMRC reports, and keeps everything in one place so nothing falls through the cracks. 

Compliance and reporting 

EMI brings specific reporting obligations to HMRC. Annual returns are mandatory, though from April 2027, the separate notification requirement for individual grants is abolished.

For accounting, companies book an IFRS 2 charge for options granted, which reduces reported profit. 

When employees exercise, there's no PAYE tax or NICs to collect (if conditions are met), and companies can typically claim corporation tax relief on gains (because the gain represents a form of compensation). 

Looking ahead 

The EMI expansion is one of the most meaningful changes to equity compensation in years. 

For scaleups, it removes a major sticking point – losing access to the best share scheme just as you're scaling fastest. But access alone isn't enough.

To get value from EMI, you need to implement it properly, communicate it effectively, and integrate it into your broader talent strategy. Half-hearted implementation or poor communication will waste the opportunity.

Vestd makes it easy to set up, manage, and communicate EMI schemes to your team. Book a free consultation with our team to see how we can help.

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