We’re now into December and we’ve all had some time to digest Rachel Reeves’ Autumn Budget. The overall mood in the business community is gloomy, with a fear that our economy is at risk of stagnating due to lower growth and higher inflation. However, right now I’m going to pull out one of the positive targeted measures that the Chancellor announced, that being the major expansions to EMI eligibility and flexibility, which presents startups and scale-ups with a great opportunity.
I’m sure everyone is familiar with the stats by now, but for ease, here are the changes that were announced to take effect from April next year:
- Employee headcount limit: doubled from 250 to 500 employees
- Gross assets threshold: quadrupled from £30 million to £120 million
- Company-wide unexercised options cap: doubled from £3million to £6million
- Exercise period: extended from 10 years to 15 years, even for existing options (if amended in line with legislation)
- Administrative simplification: from April 2027, there will no longer be a need to notify HMRC of each EMI grant (annual reporting remains)
This expansion truly transforms EMI into a growth enabler for scale-ups. High-growth companies that previously “outgrew” EMI right at a critical point on their journey can now reintroduce it, making equity-based incentives viable for later stage businesses without needing to turn to less tax-efficient or complex hybrid arrangements, which are naturally trickier to educate and excite your team about. A more simplistic equity landscape will not only make your CFO and HR team happier, it will provide for a much smoother diligence process during investment rounds or on exit. Trust us, we know from experience.
At equiCraft we really do bang the drum about the power of equity to attract critical talent without compromise. This greater strategic flexibility will improve the alignment between employee reward and company growth as scaling companies are able to offer more meaningful, competitive share option packages to a wider pool of employees. The increased cap on the pool size will give founders genuine headroom to make the awards they want, in particular to the later stage specialist hires who will be critical to the next phase of growth.
As half of new jobs in Britain are created by scale-up businesses, the Government has committed to, “Make Britain the best place in the world to start up, scale up and stay”. Whilst this remains very much a work in progress, these changes to EMI confirm that we are firmly on the map in terms of competing for talent globally. Whilst the venture capital market remains challenging and borrowing costs high, employee equity that eases the pressure on cash flow is as valuable as ever.
Now is the time to review your equity strategy and plan ahead for April 2026. And don’t forget to keep educating your team about the benefits of the EMI scheme you have implemented. We can help you on the journey from reviewing your award framework to reintroducing an EMI scheme to providing team education sessions.