Attracting and retaining top talent is one of the biggest challenges early-stage startups face. While you can offer flexibility, purpose, and the thrill of building something from scratch, you’re often up against companies with deeper pockets. That’s where EMI schemes come in.

The Enterprise Management Incentive (EMI) scheme is a standout government incentive tailored for startups aiming to build a strong, motivated team without draining cash. If you're planning for long-term success, it’s worth understanding how EMI works and how it can support your growth plans.

What is an EMI Scheme?

The EMI scheme is a government-approved share option scheme specifically designed for UK startups and scaleups. It allows you to offer employees the right to buy shares in your company at a fixed price, often the current market value, at a later date.

If your company grows and the share price rises, employees benefit from the increase in value. Importantly, they are not taxed when the options are granted, and when they eventually exercise those options, the tax they pay is often at a significantly reduced rate.

It’s a way to reward your team not just for joining, but for committing to building something valuable over time.

Why EMI matters for early-stage startups

Most startups operate lean. You're focused on building your product, getting traction, and securing funding. Big salaries aren’t usually on the table. EMI share options offer a way to provide long-term financial upside in place of short-term compensation.

But EMI isn’t just a stopgap for cash-strapped startups. It can help you:

• Align your team’s interests with the company’s success

• Retain key talent by vesting options over time

• Foster a culture of ownership and accountability

• Strengthen your investor pitch with a scalable incentive structure

EMI can play a transformational role in your hiring and retention strategy. And in a market where great people make all the difference, that matters.

Who qualifies and who doesn’t?

To offer EMI options, your company must meet several eligibility requirements:

• Be an independent UK-based company

• Have gross assets of £30 million or less

• Employ fewer than 250 full-time employees

• Operate in a qualifying trade (most sectors are eligible, but there are exclusions such as banking, farming, and legal services)

There are also limits on how much can be granted:

• Each employee can hold up to £250,000 worth of EMI options, based on the market value at the time of grant

• Across the whole company, the total value of unexercised EMI options must not exceed £3 million

If you're a typical seed or Series A startup, you’ll likely qualify. But if you've taken on investment or operate across multiple jurisdictions, it's worth double-checking.

What makes EMI so tax-efficient?

The real power of EMI lies in how it's taxed:

• No income tax or National Insurance contributions are due when the options are granted or when they vest, provided the strike price is at or above market value at the time of grant

• When the employee eventually sells the shares, they typically pay Capital Gains Tax (CGT) instead of income tax

• If the shares have been held for at least two years from the date of grant, the employee may qualify for Business Asset Disposal Relief, reducing CGT to just 10 percent

One caveat: For Business Asset Disposal Relief to apply, the employee must usually hold the shares for at least two years and meet other qualifying conditions. Time spent holding the option can count toward this, but it is the ownership period of the shares that ultimately matters.

This favourable tax treatment is what makes EMI far more attractive than unapproved share schemes, where tax charges can be significantly higher.

Why investors like EMI too

EMI schemes don’t just benefit employees. Investors often view them as a signal that your startup is planning for scale and managing equity proactively.

A well-structured EMI scheme can:

• Demonstrate that you’ve thought about how to scale your team effectively

• Avoid unexpected surprises in your cap table during fundraising

• Help investors ringfence employee-related dilution in a clear and managed way

Some investors may even expect you to have an EMI scheme in place before finalising a funding round, especially at Series A and beyond.

How to get started

Setting up an EMI scheme typically involves:

• Getting a valuation agreed with HMRC

• Drafting an option agreement and setting vesting rules

• Notifying HMRC within 92 days of granting options

You can work with legal providers or use digital platforms that simplify the setup and ongoing admin.

Final thoughts

If you’re serious about building a company that attracts great people and keeps them long enough to make a difference, EMI should be a central part of your equity strategy. It aligns incentives, boosts morale, and rewards commitment with real financial upside. Best of all, it does so without straining your cash flow or causing tax headaches later on.

If you haven’t explored EMI yet, now’s the time. Because equity isn't just about ownership. It’s about building something worth owning.