The new EMI landscape: wider access, unchanged pitfalls

The Enterprise Management Incentive (EMI) regime is a highly effective tool for attracting talent in scaling businesses. By allowing key employees to share in long‑term value creation with significant tax advantages, EMI helps employers compete for talent beyond salary alone.

 

Legislative changes that took effect on 6 April 2026 have expanded the scope of the scheme, bringing larger and more established businesses back within EMI. However, EMI remains subject to a range of qualifying conditions and technical constraints. For business and HR leaders, the opportunity is real, but careful design and execution remain essential.

 

 

The changes and what they mean for businesses

From 6 April 2026, the company eligibility thresholds for EMI have been substantially relaxed. The gross assets ceiling has increased from £30 million to £120 million, and the maximum workforce size has doubled from 250 to 500 full‑time equivalent employees.

 

For options granted on or after that date, the company‑wide limit on the value of unexercised EMI options has increased from £3 million to £6 million, and the maximum option term has been extended from 10 to 15 years. In certain circumstances, these extensions can also be applied to existing EMI options without automatically losing their tax‑advantaged status.

 

 

What are the common mistakes with EMI?

Despite the wider thresholds, many businesses and individuals will continue to fall outside the regime. In practice, problems tend to arise in three areas: company eligibility, individual eligibility, and poor documentation or valuation. These issues are often identified during due diligence in the run‑up to a sale, when there is little opportunity to put matters right.

 

Company eligibility

Businesses must still satisfy the independence requirement, carry on a qualifying trade and have a compliant group structure at the point options are granted. Fast‑growing companies frequently encounter difficulties following fundraising or acquisition activity.

 

EMI also remains unavailable to businesses that do not carry on a qualifying trade. Activities such as financial services, property development or investment, leasing, and professional services can fall outside the regime. As a result, some businesses are excluded regardless of size or growth trajectory.

 

Company eligibility continues to be a challenge for many private equity‑backed businesses. While the increased size limits will bring some PE‑backed portfolio companies back into scope, EMI remains unavailable where the company is controlled by a non‑qualifying corporate shareholder. Common PE ownership structures can still cause a company to fail the independence test even if it comfortably meets the new asset and headcount thresholds. The private equity industry is lobbying for reform in this area, making it one to watch.

 

Fundraising and acquisition activity can also create issues. A company may become controlled by a non‑qualifying investor, acquire subsidiaries carrying on non‑qualifying activities, or begin to generate material non‑trading income. Any of these developments can prevent EMI options from being granted, even if the core business remains unchanged.

 

Joint venture structures are another common blocker. Companies in 50:50 joint ventures will often fail the EMI control tests where corporate shareholders exercise joint control, even if the business operates independently in practice. More broadly, changes in ownership, activities or income mix can quickly disqualify a company, meaning eligibility must be kept under constant review.

 

For private equity‑backed and joint venture businesses, the EMI reforms raise expectations, but control, not company size, often remains the deciding factor.

 

Individual eligibility

EMI is designed for employees who are genuinely committed to the business over the long term. Minimum working time requirements remain in place and are frequently misunderstood.

 

Senior hires with multiple board roles, portfolio careers or group‑wide responsibilities may fail the 25‑hour or 75 per cent working time tests. Part‑time or flexible working arrangements can also create issues if eligibility is not assessed carefully.

 

The material interest exclusion is another frequent trap. EMI is not available to employees who hold, or are treated as holding, a material interest in the company, broadly more than 30 per cent of the ordinary share capital or voting power, including interests attributed through associates, often family members. This commonly catches founders, early executives and family‑owned businesses by surprise.

 

Documentation and valuation issues

Poor execution can cause otherwise qualifying EMI options to fail. Inadequate valuations or non‑compliant documentation can cause options to fall outside EMI and trigger unexpected income tax and NICs, often only discovered on exit.

 

 

Constant review in a constantly evolving business

High‑growth businesses change quickly. Assets increase, headcount expands, activities diversify and group structures become more complex. The practical consequence is that EMI should be treated as an ongoing governance process, not a static plan. EMI considerations need to sit firmly at board or remuneration committee level, rather than being treated as a purely HR or tax exercise.

 

Will there be an HMRC backlog?

It is likely that the reforms will lead to a surge in EMI valuations and advance assurance applications, particularly as larger and more complex businesses enter the regime. This may result in longer HMRC response times.

 

Businesses can mitigate execution risk by confirming eligibility before making commitments, preparing valuations and documentation early, and factoring EMI requirements into future growth plans.

 

 

A powerful but precision instrument

The EMI reforms create a genuine opportunity for larger businesses to use this powerful incentive. However, EMI remains a precision instrument. For business and HR leaders, success will depend on understanding not just the expanded thresholds, but the structural, control and governance constraints that continue to apply.

 

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Kate Schmit is a Partner at Stevens & Bolton, and Rebecca Sutcliffe is an Associate

 

Main image courtesy of iStockPhoto.com and ljubaphoto