Enterprise Management Incentives (EMI) is the first-choice tax-advantaged option scheme for qualifying UK companies: up to £250,000 of unexercised option value per employee and £3m per company, for businesses with gross assets of £30m or less and fewer than 250 full-time-equivalent employees. Once a company or an employee breaches any of those limits or qualifying tests, EMI options can no longer be granted. The standard tax-advantaged fallback is the Company Share Option Plan (CSOP), which allows up to £60,000 of options per employee. Knowing which threshold you are about to cross, and having the CSOP grant ready before you do, is what keeps a growing team's equity tax-advantaged rather than falling back to unapproved options by default.
Why EMI is the first choice
EMI is the most generous HMRC-approved option scheme available to smaller companies. The per-employee limit of £250,000 (measured across unexercised options granted in the rolling three-year window) and the £3m company-wide pool together give a meaningful stake to a broad team. The qualifying company must have gross assets of no more than £30m, fewer than 250 full-time-equivalent employees, and must not carry on excluded activities. Employees must also meet the working-time requirement. The gross-assets test is applied at the date of each grant; a detailed description of how HMRC applies it is in the ETASSUM user manual.
EMI also carries a capital gains advantage that no other option route matches. Where most shareholders have to own 5% of the company to claim Business Asset Disposal Relief (BADR) at 18%, EMI shares reach it on the two-year holding rule alone, a bar almost no startup employee could otherwise clear. For a key hire sitting on options worth several hundred thousand pounds, that gap between 18% and the 24% main CGT rate is real money. For the company size and working-time rules in full, see the qualifying-company guide.
The triggers that push you from EMI to CSOP
The five EMI-to-CSOP triggers break into company-level and employee-level. When any one fires, new grants under EMI are no longer possible for the affected company or employee. Existing granted options may also be affected: a breach can constitute a disqualifying event, so timing matters. See the disqualifying-events guide for the mechanics.
Company-level triggers
- Gross assets over £30m. Measured at the date of each grant, not at the date of scheme set-up. A company that was under £30m at its first EMI grant can breach the test at a later grant if assets have grown. Source: ETASSUM52030.
- 250 or more full-time-equivalent employees. The headcount test counts FTE employees across the company and any subsidiaries. A Series B or C company scaling aggressively will hit this before the gross-assets test in many cases. Source: gov.uk EMI.
- £3m company limit reached. Once the total of all unexercised EMI options across the whole company reaches £3m (measured by market value at the date of grant), no further EMI grants can be made until the pool falls back below the limit through exercise or lapse.
- Excluded activity. If the company starts or acquires an excluded activity (for example, certain financial activities, property development, or legal services), EMI qualification is lost for future grants. Check the activity list at the time of any corporate change.
Employee-level triggers
- £250,000 individual limit reached. An employee who already holds £250,000 of unexercised EMI options (at grant-date value, rolling three-year window) cannot receive further EMI grants. CSOP options can still be granted to that individual if the company otherwise qualifies.
- Working-time requirement breached. The employee must work at least 25 hours a week for the company or, if less, at least 75% of their total working time. A move to part-time or a consultancy arrangement that drops below that removes eligibility for new EMI grants for that individual.
Trigger map at a glance
| Trigger | Level | Effect on new grants |
|---|---|---|
| Gross assets exceed £30m | Company | No further EMI grants for anyone in the company |
| 250 or more FTE employees | Company | No further EMI grants for anyone in the company |
| £3m unexercised pool reached | Company | No further EMI grants until pool falls below £3m |
| Excluded activity adopted | Company | No further EMI grants for anyone in the company |
| Employee's unexercised options reach £250,000 | Employee | No further EMI grants to that individual only |
| Employee's working-time requirement not met | Employee | No further EMI grants to that individual only |
What CSOP gives you: the £60,000 fallback
A Company Share Option Plan (CSOP) allows up to £60,000 of options per employee. It is the statutory tax-advantaged fallback for companies that have grown past the EMI tests or for individual employees who have hit the EMI per-person limit. CSOP can sit alongside an existing EMI scheme: a company whose pool is full, or whose senior hire has already used up their £250,000 EMI allowance, can grant that person a CSOP option for the next tranche.
Unlike EMI, CSOP sets no gross-assets ceiling and no employee-number limit on the company, which is exactly why it works once those EMI tests fail. The company does have to be independent, or listed on a recognised stock exchange, and the options must be over ordinary, fully paid, non-redeemable shares. The favourable tax treatment (no income tax on the exercise gain) then depends on the option being held to a normal exercise window, broadly three years from grant. How the CGT position falls on exercise and disposal depends on the share terms, take advice at the time of grant rather than assuming an EMI feature carries across. HMRC's CSOP guidance sets out the full conditions. For a valuation of the options, see the valuation guide.
EMI vs CSOP: side-by-side comparison
| Feature | EMI | CSOP |
|---|---|---|
| Per-employee value limit | £250,000 unexercised (rolling 3-year window) | £60,000 per employee |
| Company-wide option pool limit | £3m total unexercised | No company-wide pool limit |
| Gross assets test | £30m or less at date of grant | No gross-assets limit |
| Headcount test | Fewer than 250 FTE | No employee-number limit |
| Company eligibility | Must not be under another company's control | Independent, or listed on a recognised exchange |
| Share terms | Ordinary shares | Ordinary, fully paid, non-redeemable shares |
| Working-time requirement | At least 25 hours a week or 75% of working time | No working-time test |
| Holding period for the tax break | None fixed; BADR rewards a 2-year hold | Broadly 3 years from grant to a normal exercise window |
| BADR treatment | 18% on disposal; qualifies under 2-year rule without 5% personal-company test | No EMI-style concession; standard BADR conditions, depends on the share terms, take advice |
| ERS return deadline | 6 July after tax year end (nil returns included) | 6 July after tax year end (nil returns included) |
| Grant notification deadline | 6 July after tax year end | 6 July after tax year end |
The BADR row is where founders most often go wrong. The two-year concession that waives the 5% personal-company test is specific to EMI and does not extend to CSOP, so a CSOP option holder is back to the standard BADR conditions. How those conditions land depends on the share terms, so confirm the CGT position against HMRC CSOP guidance before any grant.
What CSOP does not replace
CSOP is a different statutory scheme with its own conditions. It is not a simple plug-in substitute for EMI and does not carry every EMI advantage. The points to note:
- The per-employee limit is £60,000 versus £250,000 for EMI. For senior hires expecting a significant equity stake, a CSOP grant may need to be supplemented by unapproved options to reach the intended economic interest.
- The BADR concession that lets EMI shares qualify under the 2-year rule without the 5% personal-company test is specific to EMI. Do not assume it transfers to CSOP. The CGT position on CSOP options at exercise and disposal depends on the share terms, so confirm it at grant.
- CSOP has its own company eligibility conditions: the company must be independent or listed, and the options must be over ordinary, fully paid, non-redeemable shares. These are not the EMI qualifying tests and should not be inferred from the EMI rules.
- The £60,000 limit may interact with existing EMI grants if both schemes are in use simultaneously. The precise interaction, including how the limits stack, should be reviewed with a share schemes adviser before any grant is made.
For a fuller picture of what happens at the point of a disqualifying event on existing EMI options, see the disqualifying-events guide. For the option pool planning question (how much to reserve, who to include), see option pool basics for UK founders.
When neither EMI nor CSOP works: growth shares and unapproved options
If a company qualifies for neither EMI nor CSOP, or if the economics require something outside the statutory limits, the remaining routes are growth shares and unapproved (non-tax-advantaged) options. Both fall under the general employment-related-securities rules: income tax and (where relevant) National Insurance arise on the value acquired above any amount paid, and the timing of those charges depends on whether the securities are restricted and whether a section 431 election is in place.
Growth shares are a separate share class designed to give holders economic exposure only to value created above a hurdle. They are useful when the company's current valuation makes a standard option uneconomic but the company cannot use EMI or CSOP. The growth shares guide covers the mechanics. For an indicative comparison of the unapproved route versus EMI on a specific grant value, see the EMI vs unapproved calculator.
What to do next
If your company is approaching any EMI threshold, or if you have already granted EMI options and are planning the next tranche, the time to review is before the breach, not after. The practical steps:
- Audit your current position. Map total unexercised option value across the company against the £3m pool limit, and per-employee against the £250,000 individual limit. Check your gross assets and headcount against the company-level tests.
- Agree a valuation before each new grant. Take the option value to HMRC Shares and Assets Valuation before you grant, EMI or CSOP alike, so the exercise price is defensible if HMRC looks at it later. See the option valuation guide.
- Plan the CSOP top-up if needed. If an individual employee's EMI allowance is full but the company otherwise qualifies, a CSOP grant may cover the next tranche. If the company itself no longer qualifies for EMI, a CSOP review for the whole scheme is the next step.
- Register and file on time. Both EMI and CSOP options must be registered with HMRC, and an annual ERS return (including nil returns) is due by 6 July after each tax year end. EMI grant notifications share the same 6 July deadline. Missing it attracts penalties.
For a funded startup approaching Series A or B, the scheme review typically sits alongside the funding round diligence. Our share schemes service covers EMI set-up, CSOP transition planning, valuation coordination, and ERS registration and filing. If your position involves an immediate breach, speak to us before the next grant is issued.