Why growing businesses are turning to EMI schemes

The Recruitment Problem

In today’s economic climate, attracting and retaining key talent is more difficult than ever. Higher salary expectations and tighter corporate budgets have resulted in an ever-widening gap between what employers can afford and what candidates expect. For growing businesses, this poses a particular challenge: how can a small or medium-sized company attract and retain talent when it is unable to compete with the salaries and benefits offered by larger organisations?

However, salary is not the only tool available to employers. Increasingly, businesses are exploring incentive arrangements that reward loyalty and encourage long-term commitment without placing additional strains on cash flow.

Introduced under the Finance Act 2000, EMI (Enterprise Management Incentives) schemes have  gained traction following recent reforms, which have widened the scope of the scheme and enabled more companies to qualify. For SMEs (Small and Medium-Sized Enterprises), EMI schemes can provide a way to compete with larger employers by offering employees a stake in the future growth and success of the business.

What Are EMI Share Options?

An EMI scheme is a highly flexible and tax efficient way to attract, motivate and retain talented employees by enabling them to benefit directly from the business’s long-term growth.

Small and medium-sized businesses grant employees the option to buy company shares in the future at a pre-agreed price, helping businesses recruit and retain key talent without heavy upfront cost. By linking reward to company performance, EMI schemes can also encourage employees to take on a more leadership-minded attitude, with the potential value of their options increasing as the business grows.

EMI schemes can be structured so that options are exercisable only in certain circumstances, such as on a sale of the company, death or retirement (often referred to as “exit-only” arrangements), or after a specified performance period, depending on the company’s objectives, meaning employees may need to remain employed for a specified period or achieve certain performance targets before they can exercise their options.

Importantly, EMI schemes are distinct from simply awarding employees shares outright. The employee does not become a shareholder in the company unless and until the share options are exercised, which is often timed to coincide with a sale of the company, meaning that business owners maintain control in the meantime.

Provided certain conditions are met, EMI options can offer favourable tax treatment for both employees and employers when compared with other forms of compensation.

Recent Reforms Have Increased Flexibility

Since April 2026, qualifying EMI options can now generally remain in place for up to 15 years, rather than the previous 10-year limit, offering flexibility for businesses to plan long-term succession and allowing employees a longer period in which to benefit from the success of the company. The reforms have also widened the eligibility criteria by increasing the employee, gross asset and company option limits, bringing larger companies within the scope of the regime. These reforms demonstrate the Government’s continued support for employee share incentives and have helped bring EMI schemes back into focus for many SMEs.

A Practical Example: How an EMI Scheme Might Work

A company is valued at £1 million and is looking to incentivise a key employee to remain within the business.

It grants the employee EMI options over 3% of the company’s shares. The options are granted with an exercise price of £30,000, reflecting the value of a 3% shareholding at the time of grant (3% × £1 million).

Five years later, the business has grown significantly and is sold for £5 million.

The employee exercises their options and acquires 3% of the company’s shares. Those shares are worth £150,000 on the sale (3% × £5 million).

The employee pays the £30,000 exercise price and receives shares worth £150,000, resulting in a gain of £120,000 (before tax). The tax treatment will depend on the circumstances and the terms of the option, but EMI schemes can often offer significant tax advantages when compared with other forms of remuneration such as traditional cash bonuses.

By offering EMI options, the company was able to retain a key employee without offering a traditional salary rise or bonus.

Could an EMI Scheme Work for You?

Given the potential tax advantages available under an EMI scheme, the eligibility criteria are relatively strict. However, if you operate a small or medium-sized business, there is a good chance that your company may qualify. Equally, if your business already has an EMI scheme in place, it may be worth reviewing your existing arrangements in light of the recent reforms to ensure you are making the most of the flexibility now available.

We have experience of working with clients and their accountants in putting EMI schemes in place.

If you would like to explore whether an EMI scheme could work for your business, or discuss your existing arrangements, please contact Charlotte Howe in our Corporate and Commercial team on 01634 887343.