For any startup founder, the mission is clear: build a brilliant team to execute a brilliant idea. 

Yet, one of the first major hurdles is competing for top-tier talent. 

Ambitious, skilled individuals are in high demand, and early-stage companies rarely have the cash reserves to match the salaries offered by established corporations. 

So how do you attract and retain the people who will turn your vision into a reality?

The answer for many of the UK’s most successful startups lies in giving your team a genuine stake in the company’s future. This is achieved through employee share schemes, and the most powerful, tax-efficient, and government-approved version for small to medium-sized enterprises is the Enterprise Management Incentive, or EMI scheme.

For innovative startups across West Sussex, from the emerging tech scene in Horsham to the ambitious new ventures in Crawley’s enterprise zones, an EMI scheme can be a complete game-changer.

What Is an EMI Scheme and Why Should You Care?

At its core, an EMI scheme is a government-backed programme that allows you to grant share options to key employees in a highly tax-efficient way. 

It is specifically designed to help smaller, high-growth companies attract and keep the talent they need to flourish.

First, let’s clarify what a "share option" is. 

It is not a share itself. It is the right to buy shares in the company at a fixed price, at some point in the future. 

The price is agreed upon today, when the company is young and its value is relatively low. If the company succeeds and its value increases, the employee can exercise their option to buy shares at the original low price and then sell them at the new, higher value, realising a significant financial gain.

This structure delivers three killer benefits for your startup:

1. Attracting Top Talent: When you cannot offer a market-leading salary, you can offer something potentially more valuable: ownership. It changes the conversation from "what is the salary?" to "what could this be worth if we succeed?".
2. Retaining Key Staff: EMI options almost always have a "vesting period." This means the employee earns the right to their options over a set period, for example, four years. If they leave the company before the options have fully vested, they forfeit the remainder. 
3. Boosting Motivation: When an employee has a stake in the outcome, their mindset shifts. They think more like an owner. The company's success is their personal success. 

Does Your Company Qualify for an EMI Scheme?

The generous tax advantages of EMI schemes mean that HMRC has strict eligibility criteria for both the company and the employees. 

Before you go any further, you need to ensure you meet these requirements.

The HMRC Checklist for Company Eligibility:

As of July 2025, your company must meet the following conditions to qualify for setting up an EMI scheme:

• Gross Assets: Your company must have gross assets of £30 million or less at the time the options are granted.
• Employee Numbers: You must have fewer than 250 full-time equivalent employees.
• Independence: Your company must be an independent entity. This means it cannot be a 51% subsidiary of another company, nor can it be controlled by another company or partnership.
• A Qualifying Trade: Most commercial trades qualify for EMI. However, HMRC excludes certain activities, which include: banking, insurance, finance, property development, farming, forestry, legal services, and leasing. If your business operates in one of these areas, you may not be eligible.
• A UK Presence: The company must have a permanent establishment in the United Kingdom, such as an office or factory. This is naturally met by any West Sussex based business.

The Rules for Employee Eligibility:

Not every person associated with your company can receive EMI options. The scheme is designed for employees.

• Working Time: An eligible employee must work for your company for at least 25 hours per week or, if they work less, their time with you must represent at least 75% of their total working time.
• No Material Interest: The employee cannot already have a "material interest" in the company. This means they, along with their associates, cannot control more than 30% of the company's ordinary share capital. This rule ensures the scheme benefits employees rather than major existing shareholders.

The Step-by-Step Process of Setting Up an EMI Scheme

While the concept is straightforward, the implementation of an EMI scheme requires a formal process to ensure it is compliant with HMRC rules. Getting a step wrong can invalidate the tax benefits.

Step 1: Get Professional Advice 

This is not a do-it-yourself project. 

The first and most important step is to engage with professionals, like your accountant or a solicitor, who have experience in setting up EMI schemes. They can ensure the process is managed correctly and structured to meet your company’s specific goals.

Step 2: Design the Scheme and Option Pool 

You need to decide on the fundamental rules of your scheme. 

A key decision is how much equity to set aside in the "option pool." This is the total percentage of the company reserved for employees. For early-stage startups, a pool of 10% to 15% of the total share capital is common.

Step 3: Perform a Company Valuation 

This is the most critical technical step. 

You must agree on a valuation for your company's shares with HMRC before you grant any options. This valuation sets the "exercise price," which is the price the employee will pay for the shares in the future. 

You will need to agree on two figures with HMRC:

• Actual Market Value (AMV): The value of the shares today, taking into account any restrictions they might have.
• Unrestricted Market Value (UMV): The value of the shares without any restrictions. To gain the full tax benefits, the exercise price must be set at or above the AMV agreed with HMRC.

Step 4: Draft the Scheme Rules and Option Agreements 

These are the legal documents that govern the scheme. They must be drafted carefully and will include details such as:

• Vesting Schedule: How employees will earn their options. A typical schedule is a four-year period with a one-year "cliff," meaning no options are earned until the first anniversary, after which 25% vest, with the rest vesting monthly thereafter.
• Leaver Provisions: What happens if an employee leaves? A "good leaver" (e.g., due to retirement or illness) may be treated differently from a "bad leaver" (e.g., one who resigns to join a competitor).
• Exercise Conditions: When can employees exercise their options? Often, this is restricted to a major liquidity event, such as the sale of the company.

Step 5: Obtain Board and Shareholder Approval 

The scheme needs to be formally adopted by your company. This requires passing a board resolution and, typically, a shareholder resolution to authorise the creation of the option pool.

Step 6: Submit the Valuation to HMRC 

Your accountant will help you prepare and submit a company valuation to HMRC using Form VAL231. HMRC will review your submission and, if they agree, will provide a valuation agreement letter. This valuation is then locked in and valid for 120 days.

Step 7: Grant the Options to Employees 

Once the valuation is agreed upon with HMRC, you can formally grant the options to your chosen employees. This must be done within the 120-day validity period of the valuation agreement.

Step 8: Notify HMRC of the Grant 

This is a final, critical, and time-sensitive step. 

You must notify HMRC of all EMI options you have granted. This notification must be submitted online within 92 days of the grant date. Failure to meet this 92-day deadline will disqualify the options, and all the associated tax benefits will be lost.

The Tax Implications: Why EMI Is So Attractive

The reason the EMI scheme is so popular is its unparalleled tax advantages for both the employee and the company.

The Tax Benefits for Your Employees:

• On Grant: When the employee is given the option, there is no Income Tax or National Insurance to pay.
• On Exercise: When the employee later exercises their option to buy the shares, there is still no Income Tax or National Insurance to pay, provided the exercise price was at least equal to the market value (AMV) at the time of the grant.
• On Sale: The employee only pays tax when they eventually sell their shares. The profit they make (the sale price minus the exercise price) is subject to Capital Gains Tax (CGT), not Income Tax. CGT rates are significantly lower than income tax rates.

Furthermore, EMI shares that meet the qualifying conditions are eligible for Business Asset Disposal Relief (BADR). 

As of 2025, this relief reduces the CGT rate to a flat 10% on qualifying gains up to a lifetime limit. This is a massive tax saving for the employee compared to receiving a cash bonus, which would be subject to much higher rates of Income Tax and National Insurance.

The Tax Benefits for the Company:

The advantages are not just for the employee. When an employee exercises their EMI options, the company can typically claim a Corporation Tax deduction. 

This deduction is equal to the market value of the shares at the time of exercise minus the exercise price paid by the employee. This can generate a significant tax saving for the company, effectively helping to fund the scheme.

Your Partner in Growth

An EMI scheme is one of the most valuable strategic tools available to a UK startup. It transforms your ability to build a world-class team by aligning everyone’s interests towards a single, shared goal: the long-term success of the business.

While the benefits are enormous, the path to implementing a compliant and effective scheme is detailed and complex. The rules are strict, the deadlines are absolute, and expert handling is required to navigate the process successfully.

For businesses in Crawley, Horsham, and across West Sussex looking to build an exceptional team that can compete on any stage, getting this right is paramount.