The UK equity landscape
Most UK startups are private limited companies (Ltd) and grant employee equity through options rather than direct share awards, because options let the company defer dilution and defer tax until a later event. The choice of scheme depends mainly on whether the company and the employee meet the qualifying conditions for EMI, the most generous regime, with CSOP as a second tax-advantaged option and unapproved options or growth shares used when neither fits.
- EMI: best tax treatment, but strict limits on company size, trade and option value
- CSOP: fewer restrictions on the company but a lower individual limit than EMI historically had
- Unapproved options: no restrictions, but income tax and National Insurance apply at exercise
- Growth shares: real shares with a hurdle, giving capital gains treatment from day one
Selecting UK schemes based on asset size
| Scheme | Typical user | Tax on exercise | Main limit |
|---|---|---|---|
| EMI | Early stage qualifying startups | Usually none, if strike is at fair value | Gross assets under 30 million pounds |
| CSOP | Larger private or listed companies | None, if conditions met | 60,000 pounds per employee |
| Unapproved | Anyone else | Income tax and NIC on the spread | None |
| Growth shares | Senior hires, founders' associates | None at grant if priced correctly | Valuation complexity |
A company can operate more than one scheme at the same time, for example EMI options for early UK employees and unapproved options for staff who fall outside the EMI limits.
Ensuring compliance with HMRC eligibility rules
Because EMI carries such favourable tax treatment, HMRC scrutinises whether companies and employees genuinely qualify. A mistake in eligibility, valuation or the notification deadline can disqualify an option retrospectively, turning what employees expected to be a low tax outcome into an income tax and National Insurance liability. Getting professional advice before the first grant is standard practice, and companies weighing EMI against CSOP should do so before the first offer letter goes out.
This page is a general guide. It is not legal or tax advice, and rules, limits and rates should be confirmed with a UK adviser before granting any equity.
Choosing between EMI, CSOP and unapproved
- Is EMI always the right choice for a UK startup?
- It usually is where the company qualifies, because of the tax advantages for employees. Companies that fail the qualifying trade, size or independence tests need to use CSOP, unapproved options or growth shares instead.
- Can a UK company run EMI and unapproved options together?
- Yes. Many companies grant EMI to employees who qualify and unapproved options to non-employee consultants or staff who exceed the EMI individual limit.
- Do all UK share schemes need to be reported to HMRC?
- Yes. Any company operating an EMI, CSOP or unapproved option arrangement must file an annual ERS return, even in a year with no new grants.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.