The EMI revolution: A strategic guide for founders and boards

The contents of this page should not be construed as tax advice. Please seek independent advice.
Regulatory landscape is subject to change.

The new EMI limits: Breaking the ceiling 

The Autumn Budget delivered a major expansion of the Enterprise Management Incentives (EMI) scheme, eliminating the growth penalty successful UK scale-ups have faced up to now.

For the past decade, as soon as a company achieved significant traction and surpassed 250 employees or raised enough capital to exceed £30mn in gross assets – it aged out of the EMI scheme. This forced boards to switch to Unapproved Options or Company Share Option Plans, which are significantly less tax-efficient for employees – often incurring 45%+ marginal tax versus 10% for EMI.

The Autumn Budget 2025 dismantled this barrier. By quadrupling the asset limit and doubling the headcount cap, the government has effectively extended the EMI gold standard to the mid-market.¹

For founder teams and boards, this is not just a tax tweak; it is a recruitment weapon. It enhances their toolkit to attract and retain talent by offering equity packages that are taxed at 10-18% rather than as income. It also aligns with the trend for companies to stay private longer, allowing companies to incentivise staff over a longer horizon (15 years) without the pressure of a premature exit.

Effective 6 April 2026, the eligibility criteria will expand radically. This applies to new grants made on or after this date.

Metric	Current limit (pre-April 2026)	New limit (post-April 2026)	Strategic implication
Gross assets	£30 million	£120 million	Allows for significant Series B/C fundraising without disqualification.2
Employee limit	250 FTE	500 FTE	Supports labour-intensive scaling (e.g., sales teams, ops).
Company option limit	£3 million	£6 million	Doubles the aggregate value of equity you can grant tax-efficiently.2
Exercise window	10 years	15 years	Retrospective: Can apply to existing options to prevent lapsing.2

What does this mean for founders and management teams?

Previously, once you hit 250 employees, your ability to attract key hires with tax-advantaged equity evaporated. You had to offer Unapproved Options, which meant the employee kept less of the upside (due to Income Tax/NICs). You can now offer EMI options up to 500 employees. This means a £100k gain for an employee could be worth £82k net under EMI versus ~£53k net otherwise. This difference in the cash value of equity incentives is an ideal tool to convince future hires to join and to set your scaling company apart from large corporates.

Many UK tech companies founded in the early 2010s are approaching their 10th anniversary without an IPO or Trade Sale. Under the old rules, EMI options would lapse at 10 years, destroying employee wealth or forcing a premature exercise event. The limit is now extended to 15 years. Crucially, this can be applied retrospectively to existing options.²

In practice that means, if your company (and option scheme) has been around for 10 years or more, identify all option holders approaching the 10-year mark and amend the option agreements to extend the term. Beware this is not automatic.

How to future-proof your option scheme:

• Amend option agreement: For example, by executing a Deed of Variation for each option agreement.
• Timing: Do not execute this before the Finance Bill 2025-26 receives Royal Assent (expected Spring 2026). Executing early carries a risk that HMRC views the amendment as a “release and regrant,” resetting the tax base cost.
• Board approval: Pass a resolution approving these amendments for all eligible employees to support retention.

With greater scale, comes greater scrutiny

With up to £120mn gross assets, the valuations of some of the companies benefitting from the EMI scheme will be higher. HMRC tends to scrutinise applications more closely for larger entities. Once your company reaches the higher echelons of company value, ensure your valuation report uses robust methodology (e.g., Black-Scholes or Probability-Weighted Expected Return) to justify the strike price.

Compliance reality check: Unchanged rules

While the financial limits have expanded, the strict qualifying criteria remain. A company with £100mn gross assets can still be disqualified if it fails these tests:

• The independence test: The company must not be a 51% subsidiary of another company. This remains the biggest blocker for VC-backed companies where a single investor holds >50%.
• Trading activities: The list of excluded activities (banking, farming, property development, legal services) remains unchanged. If your trade pivots into fintech lending or property management, you may lose EMI status regardless of size.
• Working time requirement: Employees must still work at least 25 hours per week or 75% of their paid time for the company preventing non-executive directors or part-time advisors from receiving EMI options.³
• Individual limit: The maximum grant per individual remains £250,000 (unrestricted market value at grant).

What do I need to do before the changes come into effect on 6 April 2026?

If you are currently eligible (<£30mn assets / <250 staff), continue granting EMI options as normal.

If you are currently ineligible (e.g., 300 staff), stop granting “Unapproved Options” and wait until 6 April 2026 to grant EMI options then. Why? Granting Unapproved Options now locks employees into a 45% tax liability. Waiting 5 months allows you to grant EMI options with a ~10-18% tax liability.

In a nutshell

The Autumn Budget 2025 has effectively “future-proofed” the EMI scheme for the UK startup eco-system. By raising the ceiling to £120mn assets and 500 employees, the government has ensured that tax policy no longer acts as a brake on ambition.

The catch? You’ll need to work closely with your board and investors to actually tap into this new breathing room.

Here’s is how to make the most of the scheme changes:

• Audit eligibility: Confirm if you fall into the new “Goldilocks zone” (£30mn-£120mn assets / 250-500 employees).
• Pause unapproved grants: If eligible from April 2026, halt any planned unapproved option grants to employees until the new rules take effect.
• Amend existing options: Identify all options approaching the 10-year mark. Prepare Deeds of Variation to extend these to 15 years (execute only after Royal Assent of the Finance Bill).
• Update scheme rules: Review your Option Plans. Remove any hard caps of “£3mn” and ensure shareholder authorities cover the new £6mn capacity.
• Valuation refresh: Prepare for a new VAL231 submission in Q1 2026. Be ready for higher scrutiny from HMRC on valuations if your gross assets could fall below the new limits.

A victory driven by data: Thank you!

Last but not least, we want to thank all that have contributed to make this change happen. The expansion of the EMI scheme, as well as the VCT and EIS programmes, are a direct victory for the UK’s high-growth ecosystem. It is the result of a targeted, evidence-based campaign led by The Startup Coalition and The Entrepreneurs’ Network. Their seminal report, “Keeping options open”⁴, successfully argued that the previous limits – unchanged for over a decade – were penalising success by forcing scaling companies out of the scheme just as they needed it most.

We want to also acknowledge the Venture Capital Trust Association (VCTA), who’s broader “Growth beyond limits” campaign highlighted that a thriving VCT investment environment requires an equally robust talent retention framework. ⁵

A special thanks to our portfolio companies for all the data they provided over the years that showed the need for these changes.

References 

1. Gov.uk – EMI limit expansion and 15-year rule policy paper
2. Gov.uk – EMI changes effective date 6 April 2026
3. Gov.uk -Tax and Employee Share Schemes
4. Startup Coalition – Keeping Options Open
5. VCTA – Growth Beyond Limits campaign

 

 

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Marieke Christmann Portfolio Director, Gresham House Ventures	Ashan Abeywickrema Portfolio Analyst, Gresham House Ventures