Two steps trip founders up more than any other in an EMI scheme: the valuation and the annual filing. Set the valuation wrong and the income-tax-free treatment on exercise may not hold. Miss the 6 July deadline, even with a nil return in a quiet year, and the scheme's tax-advantaged status is at risk. What follows is the full sequence: what AMV and UMV actually mean, how to get both agreed with HMRC Shares and Assets Valuation, and exactly what you file and when.
How EMI options are valued and why it matters
Before or at the point of grant, take the option value to HMRC Shares and Assets Valuation (SAV) and get it agreed. Two figures come out of that exercise: Actual Market Value (AMV), which fixes the exercise price at which no income tax arises on exercise, and Unrestricted Market Value (UMV), which is higher and feeds the ERS report. Skip the agreement and HMRC can later challenge the whole tax-advantaged treatment. This is the technical linchpin of every EMI grant.
The obligation sits with the company, not the employee. An incorrect or informally documented valuation is one of the most common reasons EMI schemes fail HMRC scrutiny years later, usually at the point when employees are trying to exercise their options.
Actual market value vs unrestricted market value
Both figures are required for an EMI grant, and they serve different purposes within the scheme. Understanding the distinction is essential before you approach HMRC Shares and Assets Valuation.
Actual Market Value (AMV)
AMV is the value of the shares as they actually are at the point of grant, taking into account any restrictions placed on them. Common restrictions include growth conditions, vesting cliffs, transfer limitations and leaver provisions. Because restrictions reduce what a willing buyer would pay, AMV is typically lower than UMV. AMV is the figure that sets the exercise price: if employees exercise at or above AMV, no income tax arises on exercise under EMI treatment.
Unrestricted Market Value (UMV)
UMV is the value of the shares ignoring all restrictions: the price a willing buyer and willing seller would agree if the shares were unrestricted. Because restrictions are stripped out, UMV is higher than AMV for any shares that carry meaningful conditions. UMV is used in ERS reporting and in calculating the employment-related securities position for the grant.
Worked example: AMV and UMV on a single grant
The figures below are illustrative only. Take a company whose shares would be worth £1.00 each with no strings attached, but where the option shares carry leaver provisions and a vesting cliff. Because a buyer would pay less for shares they cannot freely hold, SAV agrees a restriction discount, say 20%.
| Figure | Value per share (illustrative) | What it does |
|---|---|---|
| UMV (unrestricted) | £1.00 | Feeds ERS reporting and the employment-related-securities position at grant |
| Restriction discount agreed with SAV | 20% | Reflects the leaver and vesting conditions on the option shares |
| AMV (restricted) | £0.80 | Set the exercise price at £0.80 and no income tax arises on exercise |
So an employee exercising at the £0.80 AMV pays no income tax on exercise, and the £0.20 gap to UMV is what SAV signs off. The discount is never a fixed number: for a growth-share company where the ordinary shares sit above a hurdle, the gap between AMV and UMV can be far wider than 20%. Both figures have to be agreed with HMRC SAV on your actual share structure, not lifted from a rule of thumb.
If your options are granted over shares that carry restrictions, consider reading the section 431 election guide alongside this page, because the two elections interact where restricted securities are involved.
Agreeing the valuation with HMRC Shares and Assets Valuation
Agreeing the AMV and UMV with HMRC SAV before or at grant gives certainty that the exercise price is set at the correct level and that the scheme's tax-advantaged status is protected. Without an agreed valuation you are relying on your own internal assessment, which HMRC can challenge on enquiry.
The process runs through HMRC's SAV team. It used to start with the standalone VAL231 request form, but that form is no longer available at its old address, so begin instead from the current HMRC EMI guidance and the ERS service pages.
When preparing your SAV submission, you will typically need:
- A description of the company's share structure and any restrictions attaching to the option shares
- Recent financial accounts or management accounts
- Details of any recent arm's-length transactions in the company's shares
- An explanation of any valuation methodology applied
Once HMRC SAV agrees the AMV and UMV, you have a defensible basis for the exercise price on each grant. The agreed values are used when completing the ERS return (see below). There is no fixed validity period stated in current HMRC guidance: if circumstances change materially, seek a fresh agreement before the next grant rather than relying on an older figure.
Why the valuation is the compliance linchpin
A wrong or undocumented valuation puts the whole scheme at risk. The income-tax and NIC advantages of EMI depend on the exercise price being set at or above the agreed AMV at grant. If HMRC disagrees with the valuation on enquiry, the difference between an approved exercise price and the true AMV at grant becomes a taxable employment income charge, with potential NIC consequences as well.
This is the most common failure mode we see in inherited EMI schemes: the options were granted with an informally documented valuation, years pass, the company raises a funding round that crystallises value, and employees discover on exercise that the price was set incorrectly. The retrospective fix is difficult and expensive.
Agreeing the valuation with SAV at the outset costs time but eliminates the single largest compliance risk in an EMI grant. For companies within the EMI qualifying tests, it is the step that turns a well-structured scheme into a defensible one. See our EMI vs unapproved options calculator to compare the tax outcomes under a correctly valued EMI grant versus an unapproved option.
Registering the scheme and the annual ERS return
Before you can grant options or file notifications, the EMI scheme must be registered with HMRC through the Employment Related Securities (ERS) service. Registration is a one-time step, but the obligations that follow are annual. Every registered scheme must file an ERS return by 6 July after each tax year end, regardless of whether any events occurred during that year. A nil return is required where nothing happened.
The ERS return covers:
- Option grants made during the year (date, employee, number of shares, AMV and UMV at grant)
- Exercises, lapses or other events during the year
- Details of any valuations agreed with SAV
Source: HMRC guidance on ERS returns.
Compliance timeline
| Step | Action | Source |
|---|---|---|
| Before or at grant | Agree AMV and UMV with HMRC Shares and Assets Valuation (SAV) | EMI guidance |
| Before first grant | Register the EMI scheme via the ERS online service | ERS guidance |
| At grant | Issue option certificates with agreed AMV exercise price | EMI guidance |
| 6 July after tax year end | File annual ERS return (including nil return if no events occurred) | ERS guidance |
| 6 July after tax year of grant | File EMI grant notification (same 6 July deadline as ERS return) | ERS guidance |
The 6 July grant notification deadline
EMI grant notification must be filed with HMRC by 6 July following the end of the tax year in which the grant was made. This runs on the same deadline as the annual ERS return. A grant made at any point in the 2025/26 tax year (6 April 2025 to 5 April 2026) must be notified by 6 July 2026. A grant made in 2026/27 must be notified by 6 July 2027. Source: HMRC ERS guidance.
What you file and when
| Event | Obligation | Deadline | Nil return required? |
|---|---|---|---|
| EMI option grant | Grant notification via ERS return | 6 July after tax year of grant | N/A (event did occur) |
| No events in year | Nil ERS return | 6 July after that tax year end | Yes, mandatory |
| Option exercise | ERS return including exercise details | 6 July after tax year of exercise | N/A (event did occur) |
| Option lapse | ERS return including lapse details | 6 July after tax year of lapse | N/A (event did occur) |
The nil-return requirement catches many founders off guard. Once a scheme is registered, the filing obligation persists every year until the scheme is formally closed, even in years when no grants, exercises or lapses occurred. Missing a nil return is treated as a failure to file, and repeated failures can affect the scheme's standing.
What happens if you miss notification or use a stale valuation
The consequences of notification failures and valuation errors are different, but both carry meaningful risk.
Missing the 6 July notification deadline
Late grant notification risks the EMI tax treatment for the affected grants. HMRC has some discretion to accept late notifications in limited circumstances, but this is not guaranteed. Depending on when the error is caught, the options may need to be treated as unapproved options for tax purposes, which means income tax and NIC on exercise rather than the CGT treatment available under EMI. HMRC penalties for late ERS returns are also a risk. Source: HMRC ERS guidance.
Using an undocumented or incorrectly set valuation
If the exercise price was set without an agreed SAV valuation and HMRC considers the true AMV to have been higher, the difference becomes a taxable employment income charge on exercise. This can produce a significant income tax and NIC bill for an employee who exercised expecting only a CGT liability. The company may also face secondary NIC exposure. Source: HMRC EMI guidance.
Using a stale valuation after material change
If a funding round, acquisition offer or other event has materially changed the company's value since the SAV agreement, the old agreed figure may no longer reflect AMV at the point of the new grant. Making a new grant using an outdated valuation carries the same risk as using no valuation at all: HMRC can assert that the true AMV at grant was higher than the exercise price. Seek a fresh SAV agreement before each new grant where circumstances have changed.
Getting valuation and notification handled
Correctly valuing EMI options and meeting the annual notification obligations are specialist steps. Both require the same input: a clear picture of your share structure, restriction terms and company financials at the point of each grant. Getting them right at the outset is far less expensive than fixing a mis-valued scheme at the point employees try to exercise.
Our EMI scheme setup service covers the full sequence: agreeing AMV and UMV with HMRC SAV, registering the scheme, drafting option certificates and keeping the annual ERS filing on track. Once the scheme is running, we handle the 6 July deadline, including nil returns in quiet years.
If you are still assessing whether your company qualifies, start with the EMI qualifying company rules guide. If you are concerned about events that might affect existing options, the disqualifying events guide covers the most common traps. For funded founders whose shares carry restrictions, the section 431 election guide is also relevant, and the funded startups hub maps the broader compliance picture for companies that have raised external capital.