Changes announced to the UK’s Enterprise Management Incentive regime

The UK Government has announced significant reforms to the Enterprise Management Incentive (“EMI”) regime, taking effect from 6th April 2026. These changes represent the most substantial expansion of EMI since its introduction and are intended to modernise the scheme for today’s high‑growth economy.

Overview of the EMI regime

The EMI scheme is the UK’s most tax‑advantaged employee share option plan. Employees are granted EMI options giving them the right to buy company shares at a later date for a price agreed at the time of grant. It’s attractive because companies can incentivise and retain key staff without needing to offer large cash salaries or bonuses, while employees gain a tax‑efficient way to participate in the company’s future growth as they can benefit from significant tax savings, with no income tax or NIC payable on the grant of an option or when its exercised (assuming the exercise price is at least the same as the market value of the shares at the time of the grant) and subject to holding the option for at least two years, access to Business Asset Disposal Relief when they ultimately sell the option shares.

EMI has historically been restricted to smaller companies, with thresholds that no longer reflected the scale or pace of modern high‑growth businesses. The 2026 reforms aim to address this by widening access and updating the scheme’s limits.

Legislative changes effective from April 2026

1. Increase to the company‑wide option limit: The maximum value of unexercised EMI options a company can grant will increase from £3 million to £6 million which is calculated by reference to the company’s unrestricted market value (“UMV”). UMV is used as it represents the price the shares would receive if sold on the open market without restrictions. This doubling of the limit gives companies greater capacity to issue options across their workforce and to structure more substantial awards where required.
2. Increase to the gross assets threshold: The gross assets limit for EMI eligibility will rise from £30 million to £120 million. In the context of an EMI scheme, HMRC clarified that gross assets are the total value of everything company owns, taken from its balance sheet before deducting liabilities. This increase is designed to reflect the capital requirements of modern scaling businesses, many of which exceed the previous threshold due to various investments and funding rounds. The new threshold allows a broader range of companies to remain within the EMI regime for longer.
3. Increase to the employee headcount limit: The maximum number of employees a company can have while still qualifying for the EMI regime will increase from 250 to 500. This change recognises that many businesses expand their teams rapidly, particularly after securing investment or entering new markets. The increased limit ensures that companies can continue to use EMI as they grow their workforce.
4. Increase in holding period: From 6th April 2026, the maximum period during which EMI options may be exercised while retaining their tax‑advantaged status will increase from 10 years to 15 years. This change reflects the longer growth and exit timelines now common in many businesses.
5. Future simplification measures: The Government has also indicated that further simplification measures are expected from April 2027. While details have not yet been published, the Government’s aim is to streamline compliance and reduce administrative burdens associated with the EMI regime. This may include refinements to notification requirements, valuation processes or working‑time rules.

Practical implications for employers

1. Eligibility assessments: Companies that previously exceeded the asset or headcount thresholds may now fall within the expanded criteria. Businesses should now revisit their eligibility status to determine whether EMI can be adopted or reinstated as part of their remuneration strategy.
2. Review of existing EMI plans: Companies already operating EMI schemes may wish to review their plan rules, grant processes and expand their option pool size in light of the increased limits. The expanded thresholds may allow for broader participation or more substantial awards to key individuals. It’s important to note that the changes can apply to existing options not yet exercised or expired.
3. Corporate governance considerations: Companies should ensure that their articles of association, shareholder agreements and valuation processes remain appropriate for the updated regime. As with any equity‑based incentive arrangement, careful attention should be paid to the dilution of shares, vesting conditions, leaver provisions and treatment on exit.
4. Interaction with other share plans: Companies using a Company Share Option Plan (CSOP) or unapproved options may wish to consider whether future awards should be made under an EMI scheme instead, given the more favourable tax treatment.
5. M&A and investment due diligence: As more companies become eligible for the EMI regime, due diligence exercises in corporate transactions will increasingly need to address EMI compliance. Buyers and investors will expect clear evidence of proper valuation and adherence to the statutory requirements to ensure that options retain their tax‑advantaged status.

Next steps

The expansion of the EMI regime marks a significant shift in the UK’s approach to employee equity incentives. If they haven’t done so already, Companies should begin looking to take full advantage of the new rules from April 2026, and legal advisers have an important role in guiding clients through the transition.

If you or your business has any corporate matters you would like advice on, including the matters raised in this article, please contact our corporate team by email on [email protected].