Enterprise Management Incentive (EMI)

An Enterprise Management Incentive (EMI) scheme is a registered scheme that allows employers to give tax-free shares to their employees as a reward for their efforts at work.

What to do if you’re receiving Enterprise Management Incentive options

First things first, what’s an option? It’s an agreement to buy shares in the future at a set price, called the strike price. Through the scheme, you don’t need to pay Income Tax or National Insurance if you buy shares for the strike price. And you pay a reduced rate of Capital Gains Tax when you sell the shares for a profit. This rate is 10%.

How do EMI options work?

• You join a startup and you’re given 1,000 EMI share options (not part of your salary)
• The strike price is £10 per share
• The market price at the time is also £10 – don’t forget that this is the condition that allows you not to pay any Income Tax or NI
• You exercise your options – this means you buy the shares – a year later, when the market value is £15 per share
• Because they are EMI shares, you still don’t owe any tax
• You sell the shares five years later when they’re worth £50 per share
• Your profit is £40,000 (£50,000 at market value minus the £10,000 that you paid for them)
• You pay Capital Gains Tax on the profits that exceed your £3,000 CGT allowance (2024/25)
  • Check out our CGT calculator for more details!

What difference does the scheme make to my profits?

Being part of the scheme makes a large difference. Without it, you’d owe Income Tax and National Insurance on the initial £5,000 profit you made one year after purchase. Depending on your salary and tax code, this could be anywhere between £0 to £3,000. Then you’d have to pay the higher rate of Capital Gains Tax when you sell the shares.