Share schemes have quietly become one of the busiest areas of owner-managed business advice. Rising employer National Insurance, the increased minimum wage, and general pressure on cash flow are pushing more business owners to ask the same question: how do we reward and retain people without paying them more cash?
On the latest episode of TaxCalc TV, Nick Wright, Head of Corporate Tax at Jeremy Miller, joined us to revisit share schemes in detail and talk through the recent changes to EMI. The conversation was a useful reminder that the technical rules are only half the job. As Nick put it, you won't design the right scheme without asking the right questions first and a lot of advisers miss that step.
Here's a rundown of the key points, the EMI changes worth knowing about, and the questions worth putting to any client who mentions wanting to "give someone a bit of the business."
Nick's team sees share scheme work from two angles: designing new schemes, and picking up the pieces when one goes wrong during due diligence on a sale. The trend, he says, is unmistakably upward. Business owners who can't stretch to a 10% pay rise can often stretch to a 10% equity stake instead, with no immediate cash outflow. If the business is sold in a few years, the employee shares in the proceeds and because it's structured correctly, that's taxed as a capital gain rather than income.
It isn't only about retention. Share schemes are increasingly used to attract talent too, particularly for smaller businesses that can't compete with larger employers on salary but can offer a meaningful stake instead, a way of saying "we can't match the salary, but here's 20% of the business."
Before any scheme design conversation, there's a more basic question: does the client want to give away shares, or options over shares?
Issuing shares outright creates an immediate income tax charge on the value given, because the recipient has "real skin in the game" from day one. Most clients prefer options instead, the right, but not the obligation, to acquire shares later, often tied to a performance target or a sale event. Nothing happens, and no tax arises, until the option is exercised. Unless the client specifically wants the employee to receive dividends now, or have a vote sooner, options are usually the more flexible and more tax-efficient route.
Enterprise Management Incentive (EMI) options remain the gold standard for incentivising key employees, and the qualifying rules have just become significantly more generous.
What hasn't changed:
The company must be a trading company. Legal and accountancy services remain an excluded trade, TaxCalc's software business would qualify; Jeremy Miller's own accountancy practice would not.
Options must be granted over shares in the ultimate holding company, not a subsidiary. This still catches out groups where, say, a trading business sits under a property-holding parent, the fix is usually to keep the group structure clean, or demerge, before granting options.
What has changed, effective from April 2026:
Full-time equivalent employee limit: up from 250 to 500.- Gross assets limit: up from £30 million to £120 million.
Total unexercised options limit: doubled from £3 million to £6 million.- Exercise window: extended from 10 to 15 years and this change is retrospective, meaning existing option agreements can be amended to take advantage of it.
Taken together, these increases open EMI up to a much larger pool of medium-sized businesses that would previously have fallen outside the limits.
Not every client will qualify for EMI, and Nick was clear that a well-stocked toolkit matters:
CSOP (Company Share Option Plan) is the next tax-advantaged option for key employees. The individual limit doubled to £60,000 in 2023, still well below EMI's £250,000 but the qualifying conditions are more relaxed, and it doesn't carry EMI's excluded-trade restrictions in the same way. Options must be held for three years (rather than EMI's no minimum) to get the tax benefit, and exercised within three to ten years.
Growth shares are the classic fallback when EMI conditions can't be met and, as Nick noted, they're often used alongside EMI options for the same employee. Growth shares aren't a tax-advantaged scheme at all; they don't appear anywhere in tax legislation. Instead, they're designed to have a low value on day one by only sharing in growth above a set "hurdle", for example, 10% of everything a £5 million company is worth above £5.5 million. Get the hurdle and the valuation right, and the shares can be issued with little or no upfront tax cost. Get the valuation wrong, and HMRC will assess tax on the shortfall.
Share Incentive Plans (SIPs) and Save As You Earn (SAYE) schemes extend the benefit to the whole workforce rather than a handful of key people, typically through free, matching or partnership shares held in trust until a sale or a qualifying leaving event. These suit businesses with a genuine long-term ownership story to tell the whole team, though they tend to work best for larger, more stable workforces rather than a team of employees who move on every couple of years.
Unapproved schemes and LTIPs remain an option for any of the above when the criteria simply aren't met, but they come without the tax-advantaged treatment, income tax applies on exercise, and potentially National Insurance too.
A recurring theme was how much value is lost when share scheme planning starts too late. Options granted right before a sale achieve very little, because by then the shares are effectively worth what they'll fetch on exit, there's no growth left to shelter from tax, and exercising close to a deal typically triggers Income Tax and NI rather than the intended Capital Gains Tax treatment.As a rule of thumb, Nick suggested a minimum of two years' lead time, partly to give Business Asset Disposal Relief (the old Entrepreneurs' Relief, now 18% on the first £1 million rather than the standard 24%) time to bite, since that also has a two-year holding requirement. Five years is a more comfortable window, and five to seven years is close to optimal, giving enough time for both scheme design and any wider restructuring, demergers, separating out property assets, and so on, that needs to happen alongside it.
This is where Nick's due diligence experience was most instructive. EMI is one of the most common issues he sees when a sale is on the table, and it's often invisible until that point:
Missed notifications. EMI options must be registered and notified to HMRC, with annual returns filed every year, even where there's nothing to report. Critically, the legislation doesn't treat a missed notification as a simple penalty, it treats the option as never having qualified. That can turn an 18% CGT outcome into Income Tax and NI on the full gain.
Discretionary clauses added after grant. Any discretion built into an option agreement has to be there from day one. Adding one later isn't just a disqualifying event, it can lapse the original option and create a new one under the legislation, meaning it's treated as unapproved from the outset. This is worth flagging to clients before any "minor" amendment to an existing agreement.
Restructuring without checking the EMI independence requirement. A share-for-share exchange, new holding company, or demerger can automatically disqualify existing options unless it's done under the specific novation provisions and those rules don't mirror the normal Capital Gains Tax share reorganisation rules, so restructuring advice and EMI advice need to be joined up.
Exercising too close to completion. Exercising options once a sale is effectively agreed strips out the minority discount, and brings PAYE and NI into play on top of Income Tax, turning what should be an 18% tax outcome into a combined rate that can approach 45%, plus NI on both sides.
Nick's suggestion for any client with EMI options already in place: build in a pre-sale audit well before a transaction starts, so problems can be fixed while there's still time, rather than found by the buyer's due diligence team.
When a client raises the idea of incentivising staff with equity, the questions worth working through are:
1. Is this for one or two key people, or the whole workforce? That alone points toward EMI/CSOP/growth shares versus SIP/SAYE.
2. Does the company meet the EMI trading, independence and size conditions and are there any excluded assets (such as investment property) sitting in the group that need addressing first?
3. Do you want to give away existing value, or only future growth? This is the fork between ordinary shares/options and growth shares.
4. Do you want the employee to receive dividends or voting rights now, or only on a future exit?
5. How long do you want them locked in, and what happens if there's no sale, is there an exit route, such as a "good leaver" buy-back at market value?
6. How close is a likely sale? If it's inside two years, the tax benefits of a new scheme are limited, and the conversation shifts to protecting what's already in place.
7. Has the group structure changed, or is it likely to, before any exit? If so, check the EMI novation position before restructuring.
Share schemes can be transformative, Nick shared an example of an EMI and growth share structure that helped grow a business from around £3-4 million to a £30 million private equity exit, rewarding the senior managers who built that growth along the way. But the tax advantages depend entirely on getting the detail right: the right scheme for the right circumstances, correct valuations, clean legal drafting, and perhaps most importantly, ongoing administration that doesn't slip once the scheme is in place.
As Nick said, the conditions themselves are usually the easy part. It's everything else, the notifications, the restructuring interactions, the discretionary clauses, that catches people out. If a client mentions wanting to reward key people with equity, or you're reviewing a target company's cap table ahead of a sale, it's worth getting a specialist involved early. As Nick pointed out, an initial scoping call costs nothing, and catching an issue years before a sale is a very different conversation to catching it during due diligence with a buyer already at the table.