EMI admin to be simplified: HMRC consults on removing option grant notifications

On 13 July 2026, HMRC published draft legislation for Finance Bill 2026-27 that would abolish the requirement for companies to notify HMRC separately of each grant of enterprise management incentive (EMI) options.  For options granted on or after 6 April 2027, the grant would instead be reported once a year through the existing EMI annual return.  The draft legislation is open for technical consultation until 7 September 2026.

If enacted as drafted, this removes the most notorious procedural trap in the EMI regime.  It is a small piece of legislation with a disproportionate practical effect, and companies granting options between now and April 2027 need to understand what it does not yet change as much as what it will.

Where the law stands today

EMI is a creature of statute: Part 7 of, and Schedule 5 to, the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).  An option is only a ‘qualifying option’, carrying EMI’s capital gains treatment on exercise and sale, if the grant is notified to HMRC in time.

For options granted before 6 April 2024, the deadline was 92 days from the date of grant.  For options granted on or after 6 April 2024, the deadline is 6 July following the end of the tax year of grant: so options granted in the 2026-27 tax year must be notified by 6 July 2027.

Miss the deadline without a reasonable excuse and the option will not qualify (although Schedule 5 contains a reasonable-excuse saving, its availability depends on the particular circumstances and should not be assumed).  On exercise, the option holder will generally face income tax on the difference between the market value of the shares at exercise and the exercise price. If the shares are readily convertible assets, employee’s and employer’s National Insurance contributions may also arise and PAYE will normally apply. Any further increase in value after exercise remains within the capital gains regime.

That is a hard cliff for a largely administrative failure, particularly given that the government now considers grant information can instead be collected through an expanded annual return.

What HMRC is proposing

The draft clauses amend section 527 of, and Schedule 5 to, ITEPA 2003.  The definition of a ‘qualifying option’ is revised so that no separate notification of grant is required; instead, notice of the grant is to be given through the annual return.  The draft legislation also defines the termination date of a scheme and gives HMRC power to require information or declarations to determine that an option meets the EMI conditions.

The measure applies to options granted on or after 6 April 2027.  The end of year return will be updated to collect grant details beginning with the return for the 2027-28 tax year, which will be submitted from 6 April 2028.

HMRC estimates that the change will affect around 5,200 small, medium-sized and scale-up companies, with continuing administrative savings of £1.1 million a year across all users.  The per-company saving is modest.  The real saving is not measured in minutes of form-filling: it is the removal of an entire category of compliance risk.

Why this matters on transactions

In our experience, EMI schemes rarely fail on the substantive conditions: the qualifying trade, the gross assets test, the working time commitment.  They fail on process, and the late or missing grant notification is the classic example.

Every venture financing and every exit involves due diligence on whether each EMI grant was notified in time.  A missed notification discovered in diligence means disclosure, indemnities, price adjustment or a late scramble to assess whether the failure can be remedied and since HMRC’s ability to accept late notifications is tightly constrained, often it cannot.  The employee will ordinarily bear the resulting income-tax cost, while the employer may also face employer’s National Insurance contributions and transaction-related exposure.

For options granted from 6 April 2027, that whole class of diligence finding disappears.  Warranty suites, disclosure letters and option scheme diligence questionnaires may be shorter for post-April 2027 grants.

What does not change

First, this is draft legislation published for technical consultation, not law.  The final contents of Finance Bill 2026-27 remain subject to decision by the Chancellor.  The direction is clear, but nothing should be assumed until the Bill is enacted.

Second, and most importantly: the notification requirement remains fully in force for options granted before 6 April 2027.  A company granting options in March 2027 and again in May 2027 will have one grant requiring a separate notification and another that must instead be reported through the annual return. Diary discipline therefore remains essential for every grant made before 6 April 2027.

Third, the annual return survives — and becomes load-bearing.  From the 2027-28 return, it will be the only place grant details are reported, so registration of the scheme on HMRC’s employment related securities service and accurate, punctual annual filings will matter more, not less.

Fourth, everything else about EMI is untouched by this measure, including the underlying company, employee and option requirements, the £250,000 individual limit, disqualifying events and the required option documentation.

The direction of travel

This is the second EMI liberalisation in quick succession.  At Budget 2025, the government announced an expansion of the eligibility limits with effect from 6 April 2026: the employee threshold increased from fewer than 250 employees to fewer than 500 employees, the gross assets limit from £30 million to £120 million, the company-wide limit on unexercised options from £3 million to £6 million, and the maximum exercise period from ten to 15 years.

Taken together, the message is unambiguous: the government wants EMI to be bigger, to reach scale-ups that had outgrown it, and to be easier to operate.  For a targeted relief that has historically punished administrative slips more harshly than almost any other part of the tax code, that is a welcome correction.

What to do now

Keep notifying.  Any option granted before 6 April 2027 still requires a notification by 6 July following the end of the tax year of grant.  Nothing about the consultation changes that.

Audit the back book.  If you are heading towards a fundraise or exit, check your historic notifications now.  Problems are far cheaper to address before diligence finds them.

Respond if you have views.  The technical consultation closes on 7 September 2026, with comments to HMRC’s employment income policy team.

Tighten the annual return.  From April 2028 the return does the work the notification used to do.  Make sure the scheme registration is in order and the filing process is owned by someone who will still be at the company next July.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice and is not to be relied upon.  Much of the above will no doubt fall out of date and conflict with future law and practice one day.  None of the above should be relied upon.  Always seek your own independent professional advice.

Humphreys Law