Valuing a business for EMI schemes

Enterprise Management Incentive (EMI) schemes are one of the UK’s most valuable tools available to businesses for growing and retaining 
ambitious talent businesses.

An EMI scheme allows qualifying companies to grant share options to employees in a highly tax-efficient way, aligning staff with the long-term success of the business while keeping immediate costs low.

EMI schemes have historically been only available to businesses with fewer thar 250 employees or with gross assets that do not exceed £30 million. There is also a 10-year limit on the exercise period.

Perhaps in recognition of their importance, the Government in its Autumn 2025 Budget announced significant changes. From April 2026, EMIs will now be open to businesses with fewer than 500 employees or with gross assets that do not exceed £120 million. The exercise period is extended to 15 years.

What hasn’t changed, however, is the process a business must undertake before it is eligible to implement an EMI scheme. And that starts with a valuation of the company’s shares.

Valuation is a formal process

Before EMI options can be granted, the company must agree the market value of its shares with HMRC. The valuation sets the exercise price of the options and therefore determines whether employees can benefit from the full EMI tax advantages.

If the valuation is not agreed or is poorly constructed, employees risk facing income tax and National Insurance on exercise, and the company risks losing EMI relief altogether. In effect, the valuation underpins the entire scheme.

EMI valuations are very different to a sale valuation

A common mistake is to assume an EMI valuation should reflect what the business would sell for. In reality, the two exercises serve completely different purposes.

A sale valuation is a commercial negotiation influenced by growth expectations, strategic value and buyer synergies. An EMI valuation, by contrast, is a technical tax valuation governed by HMRC principles. It assumes no control, no strategic buyer and no liquidity.

The question HMRC asks is simple: What would a willing buyer pay today for these shares, in their current restricted form, on the open market?

The answer is often significantly lower than a headline business valuation – and it is that difference that makes EMI such a powerful incentive tool.

The valuation process

The first stage of the valuation establishes the overall value of the business. Typically, this involves: 

• Reviewing historical financial performance 
• Building realistic financial forecasts 
• Selecting an appropriate valuation methodology (earnings multiple, discounted cash flow or comparable companies) 

This produces the company’s enterprise value, which is then adjusted for debt, cash and any other senior claims to arrive at the total equity value. 

HMRC then require two separate share values:  

• Unrestricted Market Value (UMV) – the theoretical value of the shares with no restrictions 
• Actual Market Value (AMV) – the value of the shares with their real-world restrictions

For EMI purposes, the option exercise price is normally set at the AMV, and calculating this involves applying discounts for: 

• Minority shareholding 
• Lack of control 
• Limited marketability 
• Restrictions on transfer and leaver provisions

These discounts are the reason EMI option prices can remain low even when the business itself is growing strongly.

Once the valuation is complete, it is submitted to HMRC’s Shares and Assets Valuation team for advance agreement. If accepted, HMRC confirms the valuation, which typically remains valid for 90 days.

Only after this approval should options be granted. This agreement effectively locks in the tax treatment for the options, providing certainty to both the company and its employees.

A carefully structured EMI valuation protects the scheme’s tax advantages, keeps options tax efficient for employees, and reduces the risk of future disputes or HMRC challenges, particularly at exit, when valuations are examined most closely.

For growing businesses, EMI is not simply an employee benefit. It is a strategic tool. And the valuation process is the foundation on which the entire scheme stands.

How we can help

We offer a complete EMI service, from setting up your scheme to delivering the required valuation. Our specialist team combines technical tax expertise with commercial insight, supporting you whether you’re exploring EMI for the first time or reviewing an existing plan. Get in touch to see how we can help.