Skip to main content
TaxRoot Mode Active
Making Tax DigitalPersonal TaxCorporate TaxCompany FormationFounder ToolsTaxRoot AIAcademy
HMRC EMI — the UK startup equity scheme

Give your team real equity.
Without the tax bill.

EMI is the UK’s most tax-efficient equity scheme — zero income tax or NICs on exercise, Capital Gains Tax on sale (often just 10%). TaxRoot sets up the HMRC valuation, scheme rules, grant docs and ongoing EMI40 compliance for your first hires.

Why EMI wins

Four reasons every UK startup should use EMI.

No income tax or NICs on exercise

If strike price equals market value at grant and EMI conditions are met, employees pay zero income tax and no National Insurance when they exercise. They only pay Capital Gains Tax on sale — often at the 10% Business Asset Disposal Relief rate.

Employer Corporation Tax deduction

Your Ltd gets a CT deduction equal to the gain the employee makes when they exercise (current market value minus strike price). For a £1m exit, that can be a six-figure CT saving.

Flexible vesting and good/bad leaver

Typical schemes use 4-year vesting with a 1-year cliff. Good-leaver (redundancy, death) keeps vested options. Bad-leaver (for cause, resignation) can forfeit unvested and sometimes vested.

Retention without cash burn

Pay competitive total comp to early hires without blowing out payroll. For seed-stage startups with 12-18 months runway, EMI options are how you recruit senior people you can't afford in cash.

Eligibility

Does your company qualify?

Company gross assets
Under £30 million
Employee count
Under 250 full-time equivalents
Trading status
Qualifying trade (most exclude finance, property dev, legal, accounting)
Employee working time
At least 25 hours/week OR 75% of working time on company
Maximum per employee
£250,000 market value at grant (across active EMI options)
Maximum per company
£3 million total unexercised EMI options

Most UK tech, SaaS, consumer product and e-commerce startups qualify. The common disqualifier is exceeding £30m gross assets after a Series B/C round.

Set up EMI BEFORE you raise a priced round.

Post-money valuations become the benchmark for the HMRC strike price. Granting options pre-raise at a lower agreed strike means employees get maximum upside. Raising first and bolting on EMI later is the most expensive mistake UK founders make with equity.

Setup process

From zero to HMRC-agreed scheme.

01

Eligibility + valuation prep

We confirm qualifying trade, gross assets, employee count. Prepare a HMRC valuation methodology based on recent funding, revenue multiples, or DCF as appropriate.

02

Submit VAL231 to HMRC

File the HMRC valuation request. Current HMRC turnaround is 4-6 weeks. Once agreed, the strike price is locked for 90 days for all grants.

03

Scheme rules + grant docs

Bespoke scheme rules (4-year vesting, 1-year cliff, good/bad leaver provisions). Board resolution + individual grant agreements + option holder notifications.

04

HMRC notification + cap table

Notify HMRC of the scheme within 92 days. Update the cap table. Provide each option holder with their grant summary.

05

Ongoing EMI40 + annual review

File EMI40 by 6 July each tax year (covering grants, exercises, cancellations in the prior year). Annual review of disqualifying events, cap table, and top-up grants for new hires.

FAQ

Founder-level EMI questions.

Do I need HMRC valuation approval before granting options?+
Not required but strongly recommended. An agreed HMRC valuation (VAL231) locks in the strike price as market value for 90 days — preventing a later HMRC challenge that would trigger unexpected income tax. TaxRoot prepares the valuation and submits the VAL231 as part of the engagement.
What happens when options are exercised?+
Provided conditions are met, no income tax or NICs for the employee. You must notify HMRC of the exercise via an EMI40 return by 6 July following the end of the tax year. TaxRoot handles the EMI40 as part of year-end payroll.
When do employees pay tax?+
On sale of the shares. They pay Capital Gains Tax on the difference between sale proceeds and the strike price (not the grant-date market value). If they qualify for Business Asset Disposal Relief, the rate is 10% up to a £1m lifetime limit, otherwise 18%/24%.
What is a "disqualifying event" and can it kill my EMI?+
Yes. Common disqualifying events: the employee's working time drops below the threshold, company breaches £30m gross assets, takeover, or a variation in share capital. You have 90 days post-disqualification for tax-advantaged treatment on existing vested options. TaxRoot flags these during year-end review.
Can non-employees receive EMI options?+
No. EMI is for employees only. Non-executive directors, consultants and advisors typically receive unapproved options or Growth Shares instead. TaxRoot can advise on the right instrument for each person.
How much does TaxRoot charge to set up an EMI scheme?+
EMI scheme setup is included in Founder Pro (from £89/month) for up to 10 employees. Above that, a one-off setup fee of £1,200–£2,500 depending on complexity. Includes HMRC valuation (VAL231), scheme rules, grant documents, cap table update and ongoing EMI40 filings.
How long does EMI setup take?+
TaxRoot typically completes setup in 3-5 weeks: week 1 valuation + scheme rules, week 2 HMRC VAL231 submission (HMRC turnaround 4-6 weeks in practice currently — 90-day lock starts from agreement), week 3-5 grant documents + board resolutions + cap table update.
What if we already issued options without a scheme?+
Options issued without the EMI framework are "unapproved" and taxed as income on exercise. You cannot retroactively convert. TaxRoot reviews existing option agreements and, where appropriate, sets up a new EMI scheme going forward while managing the legacy unapproved options separately.

Ready to grant your first EMI options?

Book a free 15-minute call. We’ll confirm qualification, outline the valuation approach, and quote all-in pricing before you commit.