The Autumn Budget 2026 included a number of welcome changes to the UK’s tax-advantaged employee share schemes. For growing businesses looking to attract, incentivise and retain key employees, the reforms provide greater flexibility and significantly increase the scope for tax-efficient equity participation. The government has also rebranded the Company Share Option Plan (CSOP) as Employee Enterprise Incentives 2 (EMI2), signalling its intention that the scheme should sit alongside EMI as a practical option for companies that have outgrown EMI or do not qualify for it.
EMI v EMI2: Understanding the Difference Between the UK’s Employee Share Option Schemes
Although EMI and EMI2 are both HMRC-approved share option arrangements, they have historically been aimed at different types of businesses.
EMI
EMI remains the gold standard for qualifying growth companies. It is available only to eligible trading companies meeting specific size and qualifying conditions, and generally offers the most favourable tax treatment for employees. Eligible employees can currently hold EMI options over shares with a market value of up to £250,000.
Key features include:
• Available only to qualifying trading companies.
• Individual employee option limit of £250,000.
• No income tax or NICs on grant.
• Typically no income tax or NICs on exercise if granted at market value.
• Potential access to favourable capital gains tax treatment on a future sale of shares.
EMI2 (formerly CSOP)
EMI2 is designed for companies that cannot access EMI, whether because they have become too large, are within excluded sectors or otherwise fail to meet EMI eligibility requirements.
Historically, CSOPs have been popular with larger and more established businesses but have offered lower participation limits and less flexibility than EMI. The Budget reforms are intended to narrow that gap.
What Changes Are Being Made to EMI2 Share Options from 6 April 2027?
The government’s reforms significantly enhance EMI2 and remove some of the practical barriers between the two schemes.
- Doubled EMI2 Option Limit
The current individual EMI2 (formerly CSOP) option limit of £60,000 will increase to £120,000. This gives employers considerably more flexibility when structuring incentive arrangements for key employees. - EMI and EMI2 Limits Can Be Used Together
Previously, employers often needed to consider the interaction between EMI and CSOP limits. From 6 April 2027, the interaction will be removed, allowing eligible employees to access the full EMI allowance and the full EMI2 allowance separately. This potentially enables significantly larger tax-advantaged equity awards for senior management teams. - Longer Exercise Periods
The maximum exercise period for EMI2 options will increase from 10 years to 15 years. For many scale-up businesses, where an exit event may take longer than originally anticipated, this additional flexibility will be particularly valuable. - A New Identity for CSOP
The renaming of CSOP as EMI2 (Employee Enterprise Incentives 2) is intended to make the market easier to understand and reinforce the scheme’s position as the natural successor to EMI for businesses that have outgrown the traditional EMI framework.
Additional EMI Share Scheme Reforms Announced in the Autumn Budget 2026
The Budget also introduced a number of practical improvements to EMI itself.
- Longer Grace Period Following a Disqualifying Event
Where an employee experiences a disqualifying event, the period during which options can be exercised whilst retaining EMI tax advantages will extend from 90 days to 180 days from 6 April 2027. This gives employees significantly more flexibility and reduces the risk of losing valuable tax benefits. - EMI and Employee Ownership Trusts
Companies transitioning to an Employee Ownership Trust (EOT) structure will continue to have access to EMI arrangements. This removes a potential obstacle for founder-owned businesses considering employee ownership as part of their succession planning. - Greater Flexibility for Long-Term Incentives
The government will also allow shares and share options set aside for employees to be held for up to 15 years without triggering disguised remuneration concerns. - Administrative Simplification
One of the more practical changes is the removal of the separate EMI notification requirement. Currently, a company must separately notify HMRC when EMI options are granted. From 6 April 2027, that notification will instead be made through the existing annual EMI return process, reducing administrative burden and the risk of technical compliance failures. - Venture Capital Schemes also Benefit
The Budget also included technical reforms to the:
• Enterprise Investment Scheme (EIS);
• Seed Enterprise Investment Scheme (SEIS); and
• Venture Capital Trust (VCT) regimes.
The objective is to make these schemes easier to use, improve compliance and strengthen the Advance Assurance process for growing businesses seeking investment.
What Do the EMI and EMI2 Changes Mean for Employers and Growing Businesses?
The message from the government is clear: employee share ownership remains a key part of the UK’s growth and innovation strategy.
The introduction of EMI2, increased option limits and greater flexibility across both schemes provide businesses with more tools than ever to attract and retain talented employees, whilst aligning management teams with long-term value creation.
For many companies, particularly those approaching or exceeding EMI eligibility limits, now is an ideal time to review existing incentive arrangements and consider whether a future EMI, EMI2 or blended structure could help support growth objectives.
FAQs on EMI and EMI2
What is EMI2?
EMI2 is the new name for the Company Share Option Plan (CSOP) and is intended to provide a tax-advantaged employee share option scheme for businesses that do not qualify for EMI.
What is the EMI2 option limit?
From 6 April 2027, the individual EMI2 option limit will increase from £60,000 to £120,000.
Can an employee hold both EMI and EMI2 options?
Yes. From 6 April 2027, employees can access both the full EMI allowance and the full EMI2 allowance separately.
Is EMI still available?
Yes. EMI remains available to qualifying trading companies and continues to offer favourable tax treatment for eligible employees.
Whether you are implementing your first employee share option scheme, reviewing an existing EMI arrangement or considering how EMI2 could support your growth strategy, our corporate team can help. We advise founders, investors and management teams on EMI, EMI2, employee ownership and wider incentive structures. To discuss your options, please contact us.
