Enterprise management incentive (EMI) schemes have become popular since the government introduced them as a simplified way for small businesses to offer stock options to key staff. The UK’s EMI scheme is currently only available to companies and groups with less than £30 million of assets and fewer than 250 employees. Share values under option are capped at £250,000 per person.

These restrictions limit the use of EMI schemes, particularly for startups lacking the liquidity to pay for top talent. At last year’s budget, the government announced a review to determine whether access to EMI schemes should be broadened to help more high-growth companies attract and retain talent. Last month, the government requested guidance on how to expand the scheme while avoiding abuses or unsupported valuations.

More importantly, COVID-19 created the risk that EMI option holders would no longer meet the working requirements if their hours were reduced. Under the original provisions, such employees would not be eligible for new EMI options and they could be disqualified from holding existing ones.

Fortunately, provisions from the draft Finance Bill 2021 to protect the interests of eligible employees and EMI option holders have just been extended to 5 April 2022. The extension should make business and tax valuations for these stock options much easier until the EMI structure is expanded.

It’s likely that the government may minimise some EMI restrictions based on input they receive, to make the plans even more attractive to both employees and smaller businesses. Restrictions on vesting periods and conditions, total option values, and other factors may evolve.