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The Government has announced a further package of changes to the Enterprise Management Incentives (EMI) regime, alongside a significant enhancement and rebranding of the Company Share Option Plan (CSOP). Together, the reforms are intended to create a more flexible tax-advantaged incentive framework for businesses as they grow.
Although the new branding suggests two versions of EMI, “EMI2” is not a new statutory scheme. It is the new public-facing name for the existing Company Share Option Plan, or CSOP. The legislation will continue to refer to CSOP.
The EMI changes already in force
The first stage of the reforms took effect on 6 April 2026. For EMI options granted on or after that date:
- the company-wide limit on unexercised EMI options increased from £3 million to £6 million;
- the gross assets limit increased from £30 million to £120 million;
- the employee limit increased from fewer than 250 to fewer than 500 full-time equivalent employees; and
- the maximum period within which an EMI option must be capable of exercise increased from 10 to 15 years.
The first three changes apply to options granted on or after 6 April 2026. They do not retrospectively convert an earlier non-qualifying grant into a qualifying EMI option.
The longer exercise period can, however, be applied to existing EMI options which have not expired or been exercised. Existing option agreements may be amended without losing their EMI tax advantages, provided the amendment complies with the legislation.
The higher limits are intended to allow larger scale-up companies to remain within EMI for longer.
Building on what has come before
The amendments announced in the Budget, which take effect on 6 April 2027, continue to build on government’s stated intention to simplify the compliance around EMI schemes, as well as to provide more opportunity to entrepreneurial businesses to incentivise their employees.
Longer period following a disqualifying event
The window allowing employees to exercise their EMI options following a disqualifying event will increase from 90 days to 180 days. The disqualifying event must occur after 6 April 2027.
This should give companies and employees more time to respond to events such as a loss of the company’s qualifying status, although the relevant option terms will need to permit exercise during the extended period.
Employee Ownership Trust (EOT) transactions
The existing exception for EOTs within the EMI rules (i.e. a company owned by an EOT is considered to meet the independence requirement) will be extended to companies where arrangements are in place for a company to become controlled by an EOT.
Simplified grant notification
For EMI options granted on or after 6 April 2027, companies will no longer have to submit a separate notification to HMRC following each grant. Instead, the grant will be notified through the company’s EMI annual return.
Companies must not discontinue the present notification process prematurely. Options granted before 6 April 2027 remain subject to the rules applying at the time of grant, including the current separate notification requirement.
What is EMI2?
From 28 October 2026, CSOP has been re-branded as “EMI2”. The intention is to position it both as:
- a complementary scheme which can be used alongside EMI; and
- a follow-on arrangement for companies which have outgrown EMI.
The underlying statutory scheme remains a CSOP and this is an important point: EMI and CSOP schemes remain different tax wrappers for option schemes, each with their own eligibility requirements and timings for exercise of options. The changes announced at the Budget are designed to facilitate greater interaction between the schemes.
The following substantive EMI2 changes take effect on 6 April 2027:
- the maximum value of shares over which an employee may hold EMI2 options will double from £60,000 to £120,000, measured by reference to market value at grant;
- the maximum exercise period will increase from 10 to 15 years for options granted on or after that date; and
- the existing interaction between the EMI and CSOP individual limits will be removed.
Existing CSOP agreements may be amended to take advantage of the new 15-year exercise period without losing their tax advantages, provided the amendment is made consistently with the legislation.
How will EMI and EMI2 work together?
The most significant practical change is the removal of the interaction between the EMI and EMI2 individual thresholds.
At present, CSOP options count towards an option holder’s £250,000 EMI individual limit. From 6 April 2027, the two limits will operate independently. An employee’s EMI2 options will no longer reduce the available EMI limit, including where the employee already holds EMI options.
Subject to the relevant qualifying conditions and valuations, an employee could therefore hold:
- EMI options over shares with a market value at grant of up to £250,000; and
- EMI2 options over shares with a market value at grant of up to £120,000.
This produces a potential combined tax-advantaged option capacity of £370,000 per employee.
In practice, EMI should generally remain the starting point where the company and employee satisfy its conditions. EMI2 can then provide additional capacity, accommodate employees who cannot receive further EMI options, or operate as a successor scheme once the company no longer qualifies to make new EMI grants. The important point here is that the automatic default need no longer be unapproved options with the attendant income tax and NICs consequences: rather extended capital gains tax treatment can be secured.
What should companies with existing EMI schemes do now?
Companies should undertake a focused review of their existing scheme and incentive strategy.
Check current eligibility and headroom. Companies which were previously outside EMI may now be able to make new EMI grants. Existing EMI companies may also have additional capacity under the £6 million company limit.
Review option expiry dates. Companies should identify unexercised options with a ten-year term and consider whether extending them to 15 years supports the commercial purpose of the scheme. Any amendment should be formally approved and documented, and the tax and contractual position checked before it is made.
Examine disqualifying-event provisions. Existing rules may require or permit exercise within 90 days. Companies should decide whether their documents need amending to make effective use of the 180-day window applying to disqualifying events occurring after 6 April 2027.
Consider a combined EMI and EMI2 framework. Remuneration committees should identify which employees are approaching the £250,000 EMI limit and whether EMI2 should provide supplementary awards from 6 April 2027. Companies expecting to exceed the EMI eligibility limits should consider establishing EMI2 before new grants are required.
Maintain grant compliance. The simplified annual-return process applies only to EMI options granted from 6 April 2027. Companies should continue to comply with the existing notification requirements for earlier grants and maintain accurate valuation, board approval, option and annual return records.
The overall direction is positive: EMI will accommodate substantially larger businesses, while EMI2 should provide greater capacity alongside EMI and a more credible tax-advantaged route for companies which move beyond it.
The Michelmores Corporate Tax and Incentives team will be pleased to discuss these changes with you and the opportunities they present. Please do get in touch.