Earlier this year, we wrote about the significant expansion of Enterprise Management Incentives (EMI) from 6 April 2026 (see Outgrew EMI? The 2026 reforms could put it back on the table). Those changes brought many growing companies back within the scope of EMI by increasing the gross assets limit from £30 million to £120 million, doubling the employee limit from 250 to 500 and increasing the overall company option limit from £3 million to £6 million.
The Autumn 2026 Budget builds on those reforms with some welcome changes to the Company Share Option Plan (CSOP), now rebranded as EMI2. Unlike EMI, EMI2 is available to companies of all sizes and across all sectors, making it particularly useful for companies which have outgrown EMI or are unable to qualify because of their activities. The new name, EMI2, helpfully signposts the regime as both a complementary scheme that can operate alongside EMI, and as a next step for growing companies that have moved beyond its scope.
What is changing?
From 6 April 2027, EMI2 will become considerably more generous:
- the value of tax-advantaged options an employee can hold under EMI2 will double from £60,000 to £120,000 (valued at the date of grant);
- the existing interaction between EMI and EMI2 will be removed, allowing the two schemes to operate independently; and
- the maximum period for exercising an EMI2 option while retaining its tax advantages will increase from 10 years to 15 years. This will apply retrospectively, so existing CSOP option agreements can be amended to benefit from the new maximum period.
The removal of the interaction between the two schemes is particularly helpful. At present, CSOP options count towards an employee’s £250,000 EMI limit, potentially restricting the ability to make further EMI awards. With this gone, companies will have greater freedom to use EMI and EMI2 alongside each other.
From 6 April 2027, EMI will also become more flexible:
- the exercise window following a disqualifying event will double from 90 days to 180 days. This 180-day window will also apply to existing EMI options where the disqualifying event occurs on or after 6 April 2027;
- companies with arrangements in place to become controlled by an Employee Ownership Trust (EOT) will retain access to EMI;
- shares and share options may be reserved by third parties for up to 15 years (increased from 10 years) without triggering the disguised remuneration rules; and
- giving effect to a measure announced in the 2025 Budget, the requirement to notify HMRC separately of an EMI option grant will be removed from 6 April 2027. EMI option grants will instead be reported through the existing EMI end-of-year return.
EMI or EMI2?
For companies that qualify, EMI remains the more generous tax-advantaged regime. Unlike EMI2, granting an EMI option at a discount to market value does not result in the entire option losing its beneficial tax treatment (although an Income Tax charge will still arise on the discount), and EMI options are not subject to a minimum holding period. Individuals can hold up to £250,000 of EMI options (valued at the date of grant). EMI also provides enhanced access to Business Asset Disposal Relief (BADR), although this advantage will become less significant following the reduction in the lifetime gains limit from £1 million to £500,000 from April 2027.
EMI2, however, has no equivalent company size or sector restrictions. It can therefore provide a valuable alternative for a company which does not qualify for EMI, or a natural next step for an EMI company as it continues to grow or its trade brings it outside of the remit of EMI.
An opportunity to review your employee reward strategy
Taken together, the 2026 and 2027 changes give growing companies considerably more flexibility to use tax-advantaged option schemes to attract, incentivise and retain talented people. For companies already operating an EMI or EMI2 (CSOP) scheme, now is a good time to consider whether your existing incentive structure will make the best use of the available reliefs come April 2027. Importantly, the two regimes can now work together to enable your incentive arrangements to grow as your company does.
