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By LegalEdge News

EMI Options – what’s new?

We’ve previously blogged about EMI option schemes, covering common mistakes, and what happens when an employee leaves.

Since then, there have been a couple of changes to EMI schemes and how they work, which RM2 have helped us to summarize below.  

Using discretion in your option scheme

HMRC has recently announced a firmer view on the use of discretion in EMI option schemes.  If you don’t get the approach right, you could end up losing all the tax benefits associated with EMI.

EMI options allow flexibility and elements of discretion. This might include deciding when an employee can exercise their option, or how many options they can exercise if they meet certain conditions.

For example: you might have set specific performance targets. But the past few years  of the pandemic and economic turmoil may mean targets set in 2019 is now impossible to meet. What happens if you decide an employee  still deserves to keep their options, even if targets aren’t achieved? It is possible, but you need to bear in mind the following:

  • The EMI documents must already include the ability to exercise discretion: if there is no reference to discretion in the original documents, and you amend or remove the performance targets, or you amend them to include a discretion where there wasn’t one previously, HMRC may see this as the grant of an entirely new EMI option. 
  • Any discretion must be exercised reasonably: you can’t change the performance target or remove it entirely without a good reason. Ideally, your original targets should have been clear, measurable and objective, so that you can ascertain the extent to which they should be adjusted. And you should record your reasoning, for example at a board meeting, and document it in the minutes.
  • The discretion should not be too wide: the option holder must have a right to exercise their option. So, an option agreement that merely states that the option can be exercised at the discretion of the directors, without any other trigger, is very unlikely to meet HMRC’s requirements.

If you’ve got pre-existing EMI option documents which include any element of discretion, especially when it comes to changing performance conditions, the timing of exercise, or the treatment of leavers, it’s probably worth checking the wording to make sure they comply with HMRC’s new guidance on best practice.

Spring Budget – simplifying EMI options

In the recent budget they made some helpful announcements, which should make EMI rules easier to follow.  However, details are still awaited, and at least one of the changes does not apply until the next tax year. In particular, for the time being, you must still register your EMI options with HMRC within 92 days of the date of grant, or they will not qualify for the beneficial tax treatment.

The key changes announced at the spring budget were:

  • Registration of options: from April 2024, EMI options will no longer have to be registered within 92 days of date of grant. But they must be registered by the 6 July following the tax year in which the options were granted. This aligns with other share scheme reporting deadlines.
  • Changes to details of option documents: There are some changes to the way option agreements must be drafted. In particular, you no longer need to include a detailed description of the share rights, nor make a declaration that employees have signed a Working Time declaration. These changes will apply from 6 April this year so simplify the plan docs.

If you would like to discuss setting up an EMI Share Scheme or would like advice on your existing scheme you can get in touch with us on

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