Enterprise Management Incentives (EMI)

Q: What happens if I miss the Self Assessment deadline?

The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.

Q: Do I need an accountant or can I file Self Assessment myself?

Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.

Q: How do payments on account work?

When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.

Q: What's the April 2026 EMI expansion + does my growing company qualify now that didn't before?

Finance Act 2025 expanded EMI substantially from 6 April 2026: gross assets test rose from £30m to £120m (4× increase, bringing in many scale-ups previously excluded); employee headcount rose from <250 to <500 FTE; company-wide option pool doubled from £3m to £6m; individual cap stays at £250k. What this means: companies that previously couldn't grant EMI due to size, typically Series B / Series C tech companies at £30m+ gross assets, can now use EMI for the first time. Existing EMI users at the company-cap ceiling can issue more. SAV (HMRC Valuations team) for the option price still required + the qualifying-trade restrictions still apply (banking, insurance, money-lending, property development, professional services, etc.).

Q: How does BADR-on-EMI work without the 5% shareholding requirement?

Normal BADR requires the employee to hold AT LEAST 5% of ordinary share capital + 5% voting rights + 5% distributable profits + 5% assets-on-winding-up for 24 months. Most employees never reach 5%, making standard BADR practically inaccessible. EMI carve-out: EMI shares qualify for BADR WITHOUT the 5% shareholding requirement, provided (1) the EMI option was held for at least 24 months (option + share period combined); (2) the employee was an employee or director throughout that 24-month period; (3) the company was a trading company or holding company of a trading group at disposal. This is the KEY EMI ADVANTAGE, letting employees access BADR rates (14%/18%) on share-based compensation that would otherwise be taxed at standard 24% CGT rate. On a typical £400k gain: BADR at 18% = £72k; standard CGT 24% = £96k. EMI-BADR saving: £24k per employee.

Q: What's the 90-day exercise window on disqualifying events?

Critical timing rule for EMI option holders: when a DISQUALIFYING EVENT occurs, the employee has 90 DAYS to EXERCISE the option + preserve income tax relief. Exercise after 90 days: income tax (+ potentially NIC) applies to the gain between disqualifying event date + exercise date, with total loss of CGT reliefs on the post-event gain. Disqualifying events include: company being acquired (loss of independence); employee leaving employment; employee falling below working-time threshold (25 hours/week OR 75% of working time); variation of option terms; conversion of shares to different class; grant of excess options. NOT a disqualifying event: gross assets limit being exceeded after grant (so growing past £30m → £120m doesn't disqualify existing options). At any corporate transaction, EMI option-holders need rapid decision-making on exercise + tax structuring.

Q: What changed about EMI notification + when?

Two key recent changes: (1) April 2024 (Finance Act 2024): notification deadline EXTENDED from 92 days from grant to 6 July following the tax year of grant, substantial extension giving companies more time to notify. Late notification no longer automatically disqualifies options. (2) April 2027 (Autumn Budget 2025 / Finance Act 2025): standalone EMI notification REQUIREMENT REMOVED for options granted on or after 6 April 2027. The annual ERS (Employment Related Securities) return obligation, deadline 6 July each year, remains unchanged + continues to capture EMI activity. From April 2027, companies just need to file the annual ERS return covering all EMI activity for the year. No separate notification per grant. Until April 2027: continue to notify each grant by 6 July following the tax year of grant.

EMI is the UK's flagship tax-advantaged share option scheme for high-growth companies, designed to let start-ups + scale-ups offer competitive share-based compensation without competing on cash salary. Mechanics: company grants employee an option to buy a fixed number of shares at a price set today (must equal or exceed Unrestricted Market Value at grant). Employee exercises at a future date, typically on exit, IPO, or vesting period completion. Tax treatment: NO income tax + NO NIC on grant. NO income tax + NO NIC on exercise IF granted at or above UMV + qualifying conditions met. ALL the appreciation is taxed as CAPITAL GAIN on disposal, at BADR rates of 14% (2025/26) → 18% from 6 April 2026 for the first £1m of lifetime qualifying gains. KEY EMI ADVANTAGE: NO 5% shareholding requirement for EMI-route BADR (vs the 5% requirement for non-EMI BADR routes). AUTUMN BUDGET 2025 / Finance Act 2025 EXPANSION (effective 6 April 2026): gross assets test £30m → £120m (4×); employee headcount <250 → <500; company-wide option pool £3m → £6m. Individual cap remains £250,000. APRIL 2027 SIMPLIFICATION: standalone EMI notification requirement REMOVED; only annual ERS return remains.

Last reviewed: 23 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

What this relief is, in plain English

EMI is the structural mechanism that lets UK start-ups + scale-ups compete for talent against larger companies that pay competitive cash salaries. The scheme grants an EMPLOYEE the right (the OPTION) to buy a fixed number of shares at a fixed price (the EXERCISE PRICE), exercisable at a future date, typically on company exit, IPO, or vesting period completion. If the company grows + the shares appreciate, the employee captures the appreciation. The tax design is extraordinary: NO income tax on grant; NO income tax on exercise (if priced at market value at grant + held appropriate period); ALL the appreciation taxed as CAPITAL GAIN (not income) on eventual disposal, at BADR rates of 14% (2025/26) → 18% (April 2026) for the first £1m of qualifying gains. Autumn Budget 2025 was the biggest EMI reform since the scheme's 2000 introduction. Effective 6 April 2026, the eligibility thresholds expand substantially: gross assets test £30m → £120m (4×), employee headcount <250 → <500 FTE, company-wide option pool £3m → £6m. Individual cap stays at £250,000. The expansion brings Series B / Series C-stage scale-ups into EMI eligibility for the first time + lets existing EMI users grant more options. April 2027 brings further simplification, the standalone notification requirement is removed, leaving only the annual ERS return. KEY EMI ADVANTAGES vs other share schemes: BADR at 14%/18% without the standard 5% shareholding requirement (the most valuable EMI feature for typical employees); no income tax at grant or exercise (vs income tax on exercise for non-tax-advantaged share options); significant administrative simplification from April 2027. Common pitfalls: missing the 90-day exercise window on disqualifying events; valuation disputes with HMRC SAV team (UMV vs AMV); independence test breach on pre-sale arrangements (HMRC's October 2024 guidance tightened interpretation); excluded-activities creep (e.g. SaaS companies adding payments functionality risking financial-services classification).

How it works

Grant mechanics, option at or above UMV

Company grants employee an option to buy a fixed number of shares at a fixed exercise price. Exercise price must equal or exceed the Unrestricted Market Value (UMV) of the shares at grant, established via HMRC's Shares and Assets Valuation (SAV) team pre-approval (form VAL231, valid 90 days from agreement). No income tax + no NIC at grant. Option agreement specifies exercise window (typically tied to exit, IPO, or vesting + employment period). Notification to HMRC required (until April 2027) by 6 July following tax year of grant.

Exercise mechanics, no income tax if priced correctly

Employee exercises the option by paying the exercise price + receiving the shares. NO income tax + NO NIC on exercise IF (a) granted at or above UMV; (b) qualifying conditions still met; (c) no disqualifying event since grant. Disqualifying event triggers 90-day window: company acquisition; employee leaving; falling below working-time threshold; option-term variation; share-class conversion; excess option grant. Exercise after 90 days post-disqualifying-event → income tax on post-event gain + loss of CGT reliefs.

Disposal mechanics, BADR-eligible at 14%/18%

On disposal of EMI shares, gain taxed as CAPITAL GAIN (not income) at: standard CGT 18%/24% OR BADR rates 14% (2025/26) → 18% (April 2026) if qualifying. BADR-on-EMI requires: 24-month combined option + share holding; employee or director throughout; company trading at disposal. NO 5% shareholding requirement (the KEY EMI advantage). £1m BADR lifetime cap applies. Above the cap: standard CGT rates. Company gets CT deduction equal to the spread between exercise price + market value at exercise, even though employee paid no income tax.

April 2026 expansion + April 2027 simplification

6 April 2026 (Finance Act 2025): gross assets test £30m → £120m; employee headcount <250 → <500 FTE; company-wide option pool £3m → £6m. Individual cap unchanged at £250,000. 6 April 2027: standalone EMI notification requirement REMOVED. Only annual ERS return (deadline 6 July each year) continues. Substantial administrative simplification. NO RETROSPECTIVE EFFECT: existing pre-April-2026 EMI options remain on their original terms; new grants from 6 April 2026 use the expanded thresholds.

Who qualifies

UK Ltd Co or qualifying corporate partner within Corporation Tax charge
Qualifying trade, excludes banking, insurance, money-lending, debt-factoring, hire-purchase financing, leasing, legal/accountancy services, property development, farming, forestry, shipbuilding, hotel management, coal/steel production
20% non-qualifying activities tolerance (mixed-trade companies)
UK permanent establishment
Gross assets <£30m (rising to £120m from 6 April 2026)
Employee headcount <250 FTE (rising to <500 from 6 April 2026)
Not a 51% subsidiary; not under control of another company
Independence test, no arrangements for loss of control (HMRC's October 2024 guidance applies)
Employee genuinely employed or executive director (not contractor / consultant)
Employee works 25+ hours/week OR 75% of working time on company's business
Employee + associates hold <30% ordinary share capital (material interest test)
Individual option cap £250,000 UMV (unchanged); company-wide cap £3m / £6m from April 2026

Interactions with other reliefs

BADR (Business Asset Disposal Relief)

EMI shares qualify for BADR WITHOUT the standard 5% shareholding requirement, the KEY EMI advantage. 24-month combined option + share holding required. BADR at 14% (2025/26) / 18% (April 2026) on first £1m lifetime gains. Above £1m: standard CGT 24%. For typical EMI participants (sub-5% individual stake), this is the difference between accessing BADR or not.

CSOP is the natural fallback when company exceeds EMI eligibility (size, employee count, excluded trade). CSOP £60k cap per employee (doubled from £30k April 2023). NO 5% BADR advantage, standard BADR mechanics apply. Many companies operate BOTH: EMI for senior employees within EMI's individual cap; CSOP for broader employee share schemes.

R&D Tax Credits + Patent Box

Start-up + scale-up EMI users typically also access R&D Tax Credits during development phase + Patent Box once commercialised. The three reliefs combine: R&D credit funds the loss-making R&D phase; EMI compensates the employees building the IP; Patent Box reduces CT on the IP-generated revenue once commercial.

SEIS + EIS (investor side)

SEIS/EIS provide investor reliefs (50%/30% income tax + CGT exemption after 3 years); EMI provides employee share scheme. Complementary not competing. Most EMI-using start-ups raised SEIS / EIS earlier. The combination structures the cap-table: founders + EMI employees + SEIS/EIS investors all hold tax-advantaged share positions at exit.

Common mistakes + audit triggers

Granting options below UMV without realising the income-tax-on-discount consequence on exercise
Missing the 90-day exercise window on disqualifying events (especially company acquisition events)
Late notification to HMRC (deadline 6 July following tax year of grant; pre-April-2024 92-day rule no longer applies)
Excluded-activities creep, SaaS company adding payments functionality may trigger financial-services classification
Independence test breach via pre-sale heads-of-terms or swamping rights (October 2024 HMRC guidance tightened)
Forgetting that employee must be employee throughout 24-month qualifying period for BADR-on-EMI
Confusing AMV (Actual Market Value, with restrictions) with UMV (Unrestricted Market Value, ignoring restrictions), options must be at or above UMV
SAV valuation used outside 90-day validity window (now extended to 90 days from previous 60 in September 2024)

Worked example

Olufemi, Cambridge - Senior software engineer joining biotech start-up via EMI option scheme, exit 5 years later (2025/26 + 2026/27 exit)

Olufemi joined Cambridge biotech scale-up at year 3 of operations (£15m gross assets, 80 employees, comfortably within EMI thresholds). Granted EMI option over 50,000 shares at £2/share UMV (total option value £100,000, well below £250k individual cap). 4-year vesting + 5-year holding period to exit. Company acquired Q3 2026 for £80m total; Olufemi's option position values at £450,000 (shares worth £9/each on exit, 50,000 × £9 = £450k value; £100k paid in exercise = £350k gain).

Calculation: Timeline: • Year 0 (2021): EMI option granted at £2/share UMV. No tax at grant. • Year 1-4 (2021-2025): options vest over 4 years. No tax events. Notification filed to HMRC by 6 July following tax year of grant. • Year 5 (Q2 2026): all options vested. Olufemi still employed + working 40+ hours/week. • Q3 2026: Company sold to US trade buyer for £80m. Olufemi exercises immediately pre-completion. Exercise mechanics (Q3 2026): • Olufemi exercises 50,000 options at £2/share = £100,000 paid to company • Shares received: 50,000 worth £9/each = £450,000 • NO income tax + NO NIC on exercise (granted at UMV, qualifying conditions met) • Base cost £100,000 Disposal mechanics (Q3 2026): • Gain: £450,000 - £100,000 = £350,000 • BADR eligibility: 24-month combined hold ✓; employee throughout ✓; company trading ✓; NO 5% requirement for EMI route ✓ • BADR rate (Q3 2026, post-April-2026): 18% on first £1m lifetime gains • CGT: 18% × £350,000 = £63,000 • Net to Olufemi: £450,000 - £100,000 exercise - £63,000 CGT = £287,000 cash Comparison: same compensation paid as salary. To deliver equivalent £287,000 net to higher-rate-taxpayer as additional gross salary: • Gross salary needed: £287,000 / (1 - 42% combined IT+NI) ≈ £494,000 • Plus employer NI 15% × £494,000 = £74,000 • Total company cost for £287,000 net via salary: ~£568,000 EMI route company cost: company gets CT deduction on the spread = £350,000. CT relief 25% × £350,000 = £87,500. Net company cost: -£87,500 (i.e. company gains CT relief). EMI saves company £513,500+ vs salary route on equivalent £287,000 net-to-employee compensation. Strategic implications: (1) EMI delivers extraordinary tax efficiency at exit, 18% effective rate vs 42%+ marginal on salary; (2) April 2026 BADR rate increase (14% → 18%) reduces the EMI advantage modestly but the scheme remains highly favourable; (3) April 2026 EMI expansion brings many more companies into eligibility; (4) from April 2027, the administrative burden reduces further.

Statute reference: Finance Act 2000 + Finance Act 2025 (Autumn Budget 2025 expansion) + ITEPA 2003 Part 7 Chapter 9 + Schedule 5 Finance Act 2000 Sch.5; ITEPA 2003 Part 7 Chapter 9; Finance Act 2025 EMI expansion. HMRC manual: ETASSUM50000 onwards.

Frequently asked questions

What happens if I miss the Self Assessment deadline?+

The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.

Do I need an accountant or can I file Self Assessment myself?+

Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.

How do payments on account work?+

When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.

What's the April 2026 EMI expansion + does my growing company qualify now that didn't before?+

Finance Act 2025 expanded EMI substantially from 6 April 2026: gross assets test rose from £30m to £120m (4× increase, bringing in many scale-ups previously excluded); employee headcount rose from <250 to <500 FTE; company-wide option pool doubled from £3m to £6m; individual cap stays at £250k. What this means: companies that previously couldn't grant EMI due to size, typically Series B / Series C tech companies at £30m+ gross assets, can now use EMI for the first time. Existing EMI users at the company-cap ceiling can issue more. SAV (HMRC Valuations team) for the option price still required + the qualifying-trade restrictions still apply (banking, insurance, money-lending, property development, professional services, etc.).

How does BADR-on-EMI work without the 5% shareholding requirement?+

Normal BADR requires the employee to hold AT LEAST 5% of ordinary share capital + 5% voting rights + 5% distributable profits + 5% assets-on-winding-up for 24 months. Most employees never reach 5%, making standard BADR practically inaccessible. EMI carve-out: EMI shares qualify for BADR WITHOUT the 5% shareholding requirement, provided (1) the EMI option was held for at least 24 months (option + share period combined); (2) the employee was an employee or director throughout that 24-month period; (3) the company was a trading company or holding company of a trading group at disposal. This is the KEY EMI ADVANTAGE, letting employees access BADR rates (14%/18%) on share-based compensation that would otherwise be taxed at standard 24% CGT rate. On a typical £400k gain: BADR at 18% = £72k; standard CGT 24% = £96k. EMI-BADR saving: £24k per employee.

What's the 90-day exercise window on disqualifying events?+

Critical timing rule for EMI option holders: when a DISQUALIFYING EVENT occurs, the employee has 90 DAYS to EXERCISE the option + preserve income tax relief. Exercise after 90 days: income tax (+ potentially NIC) applies to the gain between disqualifying event date + exercise date, with total loss of CGT reliefs on the post-event gain. Disqualifying events include: company being acquired (loss of independence); employee leaving employment; employee falling below working-time threshold (25 hours/week OR 75% of working time); variation of option terms; conversion of shares to different class; grant of excess options. NOT a disqualifying event: gross assets limit being exceeded after grant (so growing past £30m → £120m doesn't disqualify existing options). At any corporate transaction, EMI option-holders need rapid decision-making on exercise + tax structuring.

What changed about EMI notification + when?+

Two key recent changes: (1) April 2024 (Finance Act 2024): notification deadline EXTENDED from 92 days from grant to 6 July following the tax year of grant, substantial extension giving companies more time to notify. Late notification no longer automatically disqualifies options. (2) April 2027 (Autumn Budget 2025 / Finance Act 2025): standalone EMI notification REQUIREMENT REMOVED for options granted on or after 6 April 2027. The annual ERS (Employment Related Securities) return obligation, deadline 6 July each year, remains unchanged + continues to capture EMI activity. From April 2027, companies just need to file the annual ERS return covering all EMI activity for the year. No separate notification per grant. Until April 2027: continue to notify each grant by 6 July following the tax year of grant.