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EMI Option Schemes are popular with UK growth companies for a simple reason, they help you hire and keep great people without burning cash. When the business grows, employees share in the upside. Founders keep momentum. Everyone feels aligned.
There’s a catch though. The tax benefits only stack up if the share valuation at grant can stand up to HMRC review. If the value is wrong, or poorly supported, the option price can be challenged later. That can mean income tax and NIC charges for employees at exercise, extra admin, and awkward questions during a fundraise or exit.
A “defendable valuation” is not about picking the lowest number you can get away with. It means the value is evidence-led, consistent, and documented, so a third party can follow your logic and see you acted reasonably at the time. This matters even more as EMI expands from 6 April 2026 to larger companies, which often have more complex share rights and more scrutiny.
This guide explains what HMRC tends to look for, how to build a valuation that holds up, the mistakes that trigger pushback, and when you should refresh your numbers.
What HMRC expects when you set the share value for EMI options
When you grant EMI options, the share value drives the tax outcome. In plain terms, it sets the exercise price (or helps you decide it) and it influences whether growth is taxed as capital gains rather than employment income.
Where possible, many companies seek an agreed market value with HMRC Shares and Assets Valuation (SAV) before grant. This isn’t compulsory in every case, but it reduces uncertainty. It also gives you a clear audit trail if HMRC asks questions years later.
HMRC’s core question is straightforward: what would a willing buyer pay, at the valuation date, for the shares being optioned, taking account of the rights and restrictions attached? That last part matters. EMI valuations are not “what the whole business could sell for to a strategic buyer”. They are about the value of a specific shareholding in its current form, often a small minority stake with limits on transfer.
A defendable approach also means your assumptions don’t contradict your own paperwork. If your term sheet implies a certain value, or your board minutes describe a major contract win, the valuation should reflect that. Think of it like a home survey. The number is only as strong as the evidence behind it, and the notes that explain what was inspected.
The two values people mix up, and why both matter
Two numbers come up a lot in EMI work:
- Unrestricted market value (UMV): the value of the shares assuming they carry no restrictions (a hypothetical “free to sell” version).
- Actual market value (AMV): the value of the shares as they actually are, with restrictions and real-world limits.
AMV is the key figure for EMI purposes because it reflects the shares “in their restricted form”. Restrictions can be commercial (transfer limits in the articles) or contractual (leaver terms), and they can materially reduce value.
Minority holdings often need discounts because a small shareholder can’t control dividends, strategy, or an exit. There can also be a discount for lack of marketability, because private company shares usually can’t be sold quickly at a known price.
Share classes matter too. If you have preference shares, growth shares, alphabet shares, or investor veto rights, you can’t treat every ordinary share as equal by default. Special rights change who gets paid first and who carries risk, which changes value.
How the SAV agreement process works in real life
In practice, agreeing a valuation with SAV tends to follow a set pattern:
- You prepare a valuation report and a supporting pack (cap table, articles, option plan rules, latest accounts, forecasts, funding documents, and key contracts or KPIs).
- You submit the request to SAV using form VAL231, with the valuation analysis attached.
- SAV may come back with questions. This is normal. They often ask about recent transactions, forecast drivers, and share rights.
- If agreed, the valuation is commonly treated as time-limited. Many companies work on the basis of a short window, often around 90 days, to grant options on the agreed value.
You can grant options before you have agreement, but it increases uncertainty. If the value is challenged later, the “cheap” option price you hoped would motivate staff can become a source of tax stress. The practical aim is to plan ahead, submit early, and grant within the agreement window.
How to build a valuation that is hard to challenge
A defendable EMI valuation is built like a clear chain. Each link should make sense on its own, and also connect cleanly to the next. If a reviewer has to guess how you got from “company value” to “AMV per share”, you’ve created risk.
The strongest valuations are consistent with the company stage and the quality of available data. A pre-revenue business with a fresh funding round shouldn’t pretend it has stable earnings for a multiples model. A profitable business with reliable forecasts should not ignore them and rely only on a dated seed round.
It also helps to write for a non-specialist reader. HMRC reviewers are experienced, but they still need your model to be readable. If you can’t explain your assumptions in plain English, it usually means the valuation isn’t tight enough yet.
Before you start modelling, gather your evidence and keep it in one place: latest cap table, share class rights, board-approved forecasts, management accounts, details of any share transactions (fundraisings, secondaries, conversions), and a short narrative of what has changed since the last valuation date.
Start with enterprise value, then bridge to equity value and share value
Most valuation methods start by valuing the business as a whole (enterprise value). Then you adjust to reach equity value, then value per share, then AMV for the specific shares under option.
A clean “bridge schedule” makes this easy to follow. It’s usually a short reconciliation that shows, for example:
- enterprise value
- plus cash (and cash-like items, if appropriate)
- less debt (and debt-like items)
- less other claims (for example, preference terms that sit ahead of ordinary shares)
- adjusted equity value for ordinary shares
- allocation across share classes
- per-share UMV and then AMV after restrictions and discounts
How to determine EMI Actual Market Value (AMV)
| Component | Definition | Impact on EMI |
| Enterprise Value | Total value of the business operation. | The starting point for all methods. |
| Equity Value | Enterprise Value +/- Cash, Debt, & Prefs. | The pool available to shareholders. |
| UMV (Unrestricted) | Value per share without sale limits. | Used for the £250k individual limit. |
| AMV (Actual) | Value per share with restrictions applied. | The price employees actually pay. |
HMRC tends to respond better when the audit trail is obvious. It signals you’ve thought about the capital structure, not just applied a headline multiple and divided by the number of shares.
Choose a method that fits your stage, and show your working
Common methods in EMI valuations include:
- Recent funding rounds: often the most persuasive evidence if the round is recent and at arm’s length. You still need to adjust for time and material changes since the round (good or bad).
- Comparable multiples: useful where you have stable revenue or earnings and a sensible peer set, with adjustments for size, growth, and risk.
- Discounted cash flow (DCF): more credible when forecasts are robust and supported by trading history, not hope.
For larger or more complex cases, you may need methods that reflect different outcomes and rights, such as probability-weighted approaches or option-pricing techniques. This is common when you have preference shares with strong protections, multiple share classes, or a wide range of potential exit values.
Whatever method you use, show your working. Include the key inputs and why they’re reasonable: term sheets, cap table, customer metrics, pipeline evidence, churn, margins, and any third-party offers (even if they didn’t proceed). A valuation is easier to defend when it reads like a measured explanation of reality.
Explain discounts and share rights in plain English, with evidence
Discounts are often where valuations fall apart, not because discounts are wrong, but because people apply them without support.
These are common discount types seen in private company EMI valuations:
| Adjustment | What it reflects | Why it matters for EMI |
|---|---|---|
| Lack of marketability | You can’t easily sell private shares | A buyer pays less for an illiquid asset |
| Minority interest | A small stake has little control | Control affects dividends, exits, and decisions |
| Share restrictions | Leaver terms, transfer limits, and other constraints | Restrictions reduce what a buyer would pay |
The size of any discount depends on facts. Leaver provisions can cut value if someone could be forced to sell cheaply. Transfer restrictions can reduce value if sales need board consent. Drag and tag rights can help or hurt, depending on how they work. Preference terms can shift value away from ordinary shares in lower exit outcomes, which can change the per-share value for EMI options.
The key is consistency. If your fundraising documents describe certain rights, your valuation should reflect them. If Companies House filings and internal records show a certain share structure, your report should match it. Keep the language simple and avoid “because that’s market practice” as your only support.
Mistakes that trigger HMRC pushback, and how to avoid them
Most HMRC valuation problems are avoidable. They come from missing evidence, inconsistent facts, or treating EMI like an exit valuation.
Use a practical approach. Ask: if someone challenged this in two years’ time, could we prove what we knew at the grant date, and why we chose this value?
Below are common triggers for questions, delays, or rejection, along with the fix.
Weak evidence packs, unrealistic forecasts, and ignoring recent transactions
HMRC will query numbers that don’t match the story of the business.
Problems that often cause pushback include forecasts that jump without clear drivers, a pipeline with no supporting data, or a valuation that ignores a recent funding round or secondary share sale. If money changed hands recently, HMRC will expect you to explain why that price is relevant, or why it isn’t.
Strong evidence usually looks like this: board-approved forecasts, a short commentary on assumptions, KPI history that links to the forecast (conversion rates, churn, average contract value), and sensitivity checks that show what happens if growth is slower or margins tighten. If you’ve raised funding, include the signed term sheet and the rights attached to the shares issued.
One point that catches companies out is exit planning. If you’re in acquisition talks, or you’ve had serious approaches, you need to consider whether that information affects value. A valuation that ignores known sale discussions is hard to defend if it comes out later during due diligence.
Administrative slip-ups that can break EMI benefits
Valuation is only one part of keeping EMI tax benefits safe. Admin errors can still damage the outcome, even with a solid valuation.
Common issues include missing grant notifications within the required time limits (under current rules, the 92-day deadline is a known risk point), granting options to someone who doesn’t meet eligibility, using the wrong share class, or breaching the working time requirement.
From April 2027, the reporting process is expected to change so that missing separate grant notifications should no longer automatically remove tax benefits, with reporting handled via the annual ERS return. That helps, but it doesn’t remove the need for clean records.
A simple fix is to keep a central EMI register and keep it current: grants, vesting, leavers, exercises, and any amendments. Align board minutes to the valuation date, and keep signed option agreements together with the SAV agreement and valuation pack.
When to refresh your EMI valuation, especially with the April 2026 expansion
An EMI valuation isn’t a “set and forget” document. It should reflect the facts at the grant date. If the business changes, your valuation can go stale quickly.
A practical rule of thumb is this: if a reasonable investor would update their view of your company’s value, you should consider refreshing your EMI valuation too. That doesn’t always mean a full rebuild, but it does mean checking whether your last agreed AMV is still credible.
The 6 April 2026 EMI expansion matters here. Companies with higher gross assets and more employees can now qualify. As firms grow, they often add more share classes, more investor rights, and more complex debt or preference terms. That makes the valuation more technical, and it raises the importance of clear working papers.
Events that usually mean you need a new valuation
Some events are strong signals that you should refresh:
- a fundraising (even a bridge round)
- a material change in revenue run rate or gross margin
- a major contract win or loss
- acquisition talks, term sheets, or offers
- a new share class, or changes to preference terms
- a big shift in forecast, up or down
- a long gap since the last SAV agreement, especially if you are outside the common agreement window
Good news can be the biggest trigger. A step change in traction can lift value fast, which changes the “safe” exercise price for new grants. If you keep granting options using an old low value, you increase the risk of a later challenge.
What changes from 6 April 2026, and what stays the same
From 6 April 2026, new EMI grants can be made by larger companies because key limits increase:
- the total value of unexercised EMI options a company can have increases from £3 million to £6 million
- the gross assets limit increases from £30 million to £120 million
- the employee limit increases from 250 to 500
- the maximum time to exercise increases from 10 years to 15 years
The per-employee limit of £250,000 in unexercised options at grant stays the same.
What doesn’t change is the valuation principle. HMRC still wants a fair, supportable market value based on evidence, with clear treatment of restrictions and rights. The difference is that as companies get larger, there’s often more to explain.
Final Thoughts
A defendable valuation protects the tax benefits that make EMI Option Schemes so attractive. It also makes later fundraising and exit conversations smoother because your paperwork tells a consistent story.
Keep it simple and disciplined: confirm eligibility, gather your cap table and transaction history, pick a method that fits your stage, document your assumptions and discounts, submit to HMRC SAV in good time, and keep records for audits and future grants. If you want support with valuation work and EMI scheme planning, Consult EFC can help you put a clear, evidence-led process in place that matches how your business is growing.
Is your EMI Valuation ready for the 2026 expansion?
For the first time, scale-ups with up to £120m in assets and 500 staff can access EMI tax benefits. But with larger schemes comes greater HMRC scrutiny.
Don’t let a “cheap” valuation trigger an expensive audit or jeopardize your talent retention. At Consult EFC, we provide Big Four-grade valuation reports designed to withstand SAV review and due diligence.
Book Your 15-Minute EMI Strategy Call Zero obligation. We’ll discuss your eligibility, current share structure, and the 2026 ‘Safe Harbour’ window.
