| Tax-advantaged schemes | SIP, SAYE, EMI, CSOP (now also called EMI2) |
| EMI per employee | options up to £250,000 in three years |
| EMI companies since 6 April 2026 | gross assets up to £120 million, fewer than 500 full-time staff |
| CSOP / EMI2 per employee | £60,000; under Budget 2026 £120,000 from 6 April 2027 (announced) |
| Annual return to HMRC | by 6 July after the end of the tax year, even if nil |
Why equity is taxed differently in the UK
In many European countries a share option is first of all employment income for the employee: whatever they gain on exercise is taxed like salary. The UK knows that basic rule too. Shares and options an employer grants outside the supported schemes are subject to income tax and National Insurance, and if the employer deducts nothing through payroll, the employee reports them in their own return.
The difference lies in the four schemes the law expressly supports. Anyone receiving shares through a Share Incentive Plan, Save As You Earn, Enterprise Management Incentives or a Company Share Option Plan pays, within the scheme's conditions, no income tax and no National Insurance on the benefit. Tax then usually arises only on sale, as capital gains tax on the growth.
For a UK subsidiary of a business abroad that is a real argument in the competition for people. The condition is a UK company that pays its staff through UK payroll.
The four supported schemes compared
Two schemes are open to all employees (SIP, SAYE), two are options for selected people (EMI, CSOP). Limits are per employee unless stated otherwise.
| Scheme | What the employee gets | Limits | Tax-free if |
|---|---|---|---|
| Share Incentive Plan (SIP) | free shares, purchase out of gross salary, matching shares | free shares up to £3,600 per tax year; purchase up to £1,800 or 10% of income, whichever is lower; up to 2 matching shares per share bought | the shares stay in the plan for 5 years |
| Save As You Earn (SAYE) | savings contract with an option on shares at a fixed price | up to £500 a month, term of 3 or 5 years | interest, bonus and the discount on purchase are tax-free |
| Enterprise Management Incentives (EMI) | option on shares | up to £250,000 in three years; company with at most £120 million gross assets and fewer than 500 full-time staff | the exercise price is at least the market value at grant |
| Company Share Option Plan (CSOP, also EMI2) | option on shares | shares worth up to £60,000 | exercised between 3 and 10 years after grant |
GOV.UK: Tax and Employee Share Schemes; HMRC: Submit an EMI notification (November 2026)
EMI: the scheme for growing companies
EMI is the model founders and managers of UK subsidiaries ask about most. The employee gets an option to buy shares later at the price they were worth on the day of grant. If they pay at least that market value on exercise, neither income tax nor National Insurance arises. If they get a discount, only the discount is taxed like pay.
Since 6 April 2026 the company limits are much higher: gross assets up to £120 million, fewer than 500 full-time staff and outstanding EMI options of up to £6 million in total. Previously the figures were £30 million, 250 employees and £3 million. For companies within the new limits, the exercise period also extends from 10 to 15 years.
The employee must work for the company at least 25 hours a week or 75 percent of their working time. And not every sector may offer EMI: banking, farming, property development, legal services and shipbuilding are among the excluded activities. For unlisted companies the share valuation on the day of grant needs the most care, because it decides whether a taxable discount arises at all.
The Company Share Option Plan is now also called EMI2. Under Budget 2026 the per-employee limit is to double from £60,000 to £120,000 from 6 April 2027, the exercise period to rise to 15 years and the interaction with the EMI limit to go. That is announced and not yet law; it is to run through the next Finance Act. If you are planning now, you can factor in the new limit, but only rely on it once passed.
What the employer must report
The tax advantages hang on deadlines. They apply to the UK company running the scheme.
- 1
Register the scheme
A new tax-advantaged scheme is registered in HMRC's ERS online service, no later than 6 July after the tax year in which it was set up.
- 2
Notify EMI options
For options granted since 6 April 2024: notify HMRC by 6 July after the end of the tax year of grant. Miss the deadline and the company and employee risk the tax advantages.
- 3
File the annual return
Each scheme needs an annual return by 6 July, even if nothing happened. A one-off free share counts too. Late returns can trigger a penalty.
- 4
Account for unapproved awards
Shares and options outside the four schemes run through payroll or the employee's tax return. Keeping that cleanly separate is a job for UK Payroll.
Employees moving between the UK and another country
It gets interesting when an employee changes country during the life of an option: from the parent abroad to the subsidiary in Manchester, or back. Then both countries often want to tax part of the benefit, because it was earned over years in both. How the benefit is split depends on the tax treaty and both tax authorities' practice; see the UK's tax treaties.
In practice: before an employee with running options is posted to the UK or comes back, document grant date, workdays per country and exercise date. Pull that together only at exit and you may pay twice.
And for you as shareholder: equity schemes dilute your stake. How you take profits out of the company as owner is in salary or dividend.
Sources: GOV.UK: Tax and Employee Share Schemes; HMRC: Submit an Enterprise Management Incentives (EMI) notification; HMRC: Register your employment related securities scheme; HMRC: Submit returns for employment related securities; GOV.UK: Budget 2026 document; HMRC: Changes to employee share schemes (Budget 2026)
