The Autumn Budget 2026 delivered some welcome news for businesses using employee share incentive schemes. With the introduction of EMI2 from April 2027, now could be the ideal time for employers to revisit their existing arrangements.
Employee share option schemes have long been one of the most effective ways for growing businesses to attract, motivate and retain talented people.
For employees, they provide an opportunity to share in the financial success of a business they have helped to build. For employers, they can be a powerful alternative to increasing salaries or paying substantial cash bonuses, while aligning the interests of employees and shareholders.
The announcement of Enterprise Management Incentives 2 (EMI2) in the Autumn Budget 2026 is therefore particularly welcome.
Although the name suggests an entirely new scheme, EMI2 is a significant enhancement and rebranding of the existing Company Share Option Plan (CSOP).
More importantly, the proposed changes could create valuable opportunities not only for businesses considering share incentives for the first time, but also for those with existing EMI and CSOP arrangements.
What’s changing under EMI2?
From 6 April 2027, the Government intends to introduce several improvements to the existing CSOP framework.
The principal changes are:
- Doubling the individual option limit: Employees will be able to hold qualifying EMI2 options over shares worth up to £120,000 at grant, compared with the current CSOP limit of £60,000.
- Longer exercise period: The maximum exercise period will increase from 10 to 15 years, providing greater flexibility for businesses with longer-term growth or exit strategies.
- Removing the interaction with EMI limits: The existing interaction between EMI and CSOP individual option limits will be removed, potentially allowing employees to benefit from both schemes.
These changes build upon the improvements to EMI introduced in April 2026, which substantially increased the size of companies eligible to operate EMI schemes.
Taken together, the reforms represent a meaningful expansion of the UK’s tax-advantaged employee share incentive framework.
What does this mean for existing EMI option holders?
One of the most interesting announcements is the removal of the interaction between the EMI and CSOP individual option limits.
Under the current rules, employees holding EMI options can face restrictions on the value of additional CSOP options they can receive.
Removing this interaction could provide considerably more flexibility.
For example, an employee who already holds EMI options with a grant-date value of £250,000 may potentially be eligible for additional EMI2 options worth up to £120,000.
That represents a combined £370,000 of tax-advantaged share options, subject to the relevant qualifying conditions.
For businesses that have already awarded substantial EMI options to senior management or other key employees, this could be particularly attractive.
Rather than having exhausted their ability to provide further tax-advantaged equity incentives, employers may have an opportunity to make additional awards.
It could also provide a useful way of recognising employees who have played an important role in the company’s growth since their original options were granted.
Importantly, this does not mean that existing EMI options need to be replaced or amended. Indeed, changes to existing option agreements should always be approached carefully to avoid inadvertently affecting their tax treatment.
The opportunity may instead lie in introducing complementary EMI2 awards alongside existing arrangements.
What about businesses with existing CSOP schemes?
For businesses already operating CSOP arrangements, the increase in the individual limit from £60,000 to £120,000 could be equally significant.
An employee who has already received options up to the existing £60,000 limit may potentially be eligible for further awards once the new rules take effect.
This could allow employers to refresh incentive packages without necessarily redesigning their entire scheme.
However, there are some important considerations.
The increased limit should not be assumed to automatically increase the value of existing option grants. Additional awards may require new option agreements, appropriate valuations and consideration of the company’s existing scheme rules.
Businesses will also need to consider whether their existing arrangements remain commercially appropriate.
For example, an option scheme established several years ago may have been designed around a particular growth strategy, anticipated exit or management structure.
Those circumstances may have changed considerably.
EMI2 provides a useful reason to revisit those arrangements, rather than simply increasing the number of options available.
Why could EMI2 be particularly useful for growing businesses?
One of the challenges facing successful growing businesses is retaining the people who have helped them reach their current position.
As companies expand, they may find themselves competing with larger organisations that can offer more substantial salaries, bonuses and benefits.
Employee share options provide a different proposition: the opportunity to participate directly in the future growth in the value of the business.
The enhanced EMI2 limits could make that proposition more attractive.
There are also businesses that cannot qualify for EMI because of their size, ownership structure or trading activities.
For these companies, EMI2 may provide a valuable alternative.
Unlike EMI, CSOP is not subject to the same company size and excluded activity restrictions, although its own eligibility requirements still apply.
The extended 15-year exercise period may also be helpful for businesses pursuing longer-term growth strategies, particularly where an immediate sale or other exit event is not anticipated.
And, importantly, the availability of tax-advantaged options can allow businesses to offer meaningful incentives without the immediate cash-flow implications of equivalent remuneration.
Are there other improvements to EMI?
Yes, and one change could be particularly helpful in practice.
The Government has announced that the period for exercising EMI options following certain disqualifying events will increase from 90 days to 180 days.
This could provide greater flexibility where a business undergoes a transaction, restructuring or other event affecting its EMI eligibility.
The additional time may be particularly valuable where employees need to consider their position or where the exercise of options forms part of a wider corporate transaction.
There are also plans to simplify the reporting of EMI option grants.
For options granted from 6 April 2027, the separate requirement to notify HMRC of each grant will be replaced by reporting through the annual employment-related securities return.
Both measures are welcome developments, although the practical implications will depend upon the final legislation and individual scheme arrangements.
Should businesses wait until April 2027?
Not necessarily.
Although the new rules are not expected to take effect until 6 April 2027, there is a strong argument for reviewing existing employee share incentive arrangements now.
In particular, businesses should be considering:
- Are our existing option schemes still fit for purpose?
Schemes established several years ago may no longer reflect the company’s current valuation, growth ambitions or management structure.
- Have key employees reached their existing option limits?
Employees who have already received substantial EMI or CSOP awards may become eligible for additional tax-advantaged options under the new arrangements.
- Are there employees we would like to incentivise but haven’t been able to?
The increased limits and greater flexibility may create opportunities to extend equity participation to additional members of the management team.
- Do our existing scheme rules accommodate further awards?
Existing documentation, shareholder agreements and option terms should be reviewed before any new grants are contemplated.
- What is our longer-term exit strategy?
The interaction between employee options, company valuations, future investment and an eventual business sale remains critically important.
A well-designed option scheme should support the commercial objectives of the business, rather than simply maximise the available tax reliefs.
A welcome opportunity – but the detail matters
The EMI2 announcement is undoubtedly positive.
The increased limits, greater flexibility and ability to operate EMI and EMI2 arrangements alongside one another could make employee share incentives more attractive to a much wider range of businesses.
However, it is important to recognise that we are still at the announcement stage.
The Government intends to legislate through Finance Bill 2026–27, and the detailed rules, including transitional arrangements and their application to existing options, will need to be considered carefully.
In particular, businesses should not assume that existing options can automatically be extended, increased or converted into EMI2 arrangements without potential consequences.
There are also important differences between EMI and EMI2, particularly concerning eligibility, exercise conditions and the capital gains tax treatment of shares acquired through the schemes.
The two arrangements should therefore be viewed as complementary rather than interchangeable.
Our view: now is the time to revisit your share incentives
At Edwards Chartered Accountants, we regularly advise businesses on the design, implementation and ongoing operation of EMI and CSOP schemes, including share valuations, option arrangements and the tax implications of corporate transactions.
We have seen how effective a properly structured share incentive scheme can be in rewarding key employees, supporting succession planning and aligning management with the longer-term objectives of a business.
The announcement of EMI2 presents a valuable opportunity for businesses to reconsider what their existing arrangements could achieve.
For some, that may mean making additional awards to existing option holders.
For others, it could mean introducing a share incentive scheme for the first time, or redesigning an arrangement that no longer reflects the business’s circumstances.
The key message is that businesses do not need to wait until April 2027 to start thinking about EMI2.
Whether your business already operates an EMI or CSOP scheme, or you are looking to review your existing employee share incentive arrangements, our tax team can help you understand the opportunities presented by EMI2 and plan for the changes ahead.
Contact Steven Holden and our tax team at Edwards Chartered Accountants to discuss how the proposed changes could affect your business.