The expansion of the Enterprise Management Incentive (EMI) scheme announced in the 2025 Budget is a welcome development for early-stage and growing businesses. While much of the attention has focused on the tax advantages, the scale of the changes also prompts an important question: what are the implications for valuations?

The expansion of EMI is good news

One of the most significant measures for the business sector in the November 2025 Budget was the expansion of the EMI scheme, which is expected to cost the Exchequer nearly £700m by 2030-31.

From April 2026, the cap on the value of EMI options will double from £3m to £6m. The gross asset threshold will rise from £30m to £120m, while the allowable headcount will rise from 250 to 500 employees. In addition, the exercise period will be extended from ten to fifteen years, and certain retrospective actions will be permitted.

Beyond the tax advantages of the scheme - which are generally favourable when compared with other equity-based incentive arrangements - the EMI scheme can also offer benefits in relation to valuation. For one thing, unlike most other share schemes such as growth shares, it is possible to submit the valuation to HMRC for advance approval.

Historically, the eligibility requirements - designed to limit access to independent, early-stage businesses - meant that individual valuations were relatively immaterial from HMRC’s perspective, and the associated workload was more manageable. This often allowed for a degree of pragmatism, with reasonably conservative valuation assumptions being accepted without challenge.

A new landscape?

It will be interesting to see how HMRC responds to this increased workload arising from the expanded scope of the scheme. This may be driven not only by the greater number of valuations submitted for approval, but also by their increased materiality and complexity. Larger, more established businesses may, for example, have more sophisticated capital structures as a result of earlier fundraising activity.

HMRC has already announced that additional staff members will be recruited into their Share and Asset Valuation (SAV) team to deal with the anticipated increase in valuation work following recent changes to Business Property Relief, therefore a similar approach in relation to EMI valuations wouldn’t be unexpected.

For businesses that would not previously have been eligible for EMI participation - and potentially even for those that were - there may be a greater likelihood of challenge, as HMRC may now view individual cases as more worthwhile from a resourcing perspective. In some instances, more detailed modelling may also be required to reflect the additional complexities associated with operating at a greater scale.

While the practical impact of these changes remains to be seen, it would not be surprising if we see an evolution in how EMI valuations are prepared, reviewed and assessed.

The fundamentals that remain

HMRC’s approach to agreeing EMI valuations has not fundamentally changed. One often overlooked aspect of the agreement process is that acceptance is given “without prejudice” and “without detailed examination”. In practice, this means that advance agreement does not provide an absolute guarantee, and HMRC has been known - albeit rarely - to challenge valuations even where prior approval has been granted.

Another factor that requires consideration is that EMI options will, upon exercise, dilute the existing shareholders. This is generally accepted as a necessary trade-off to incentivise management and align interests. However, where shareholders perceive that the balance has shifted too far, this can create wider tensions - a risk that may be heightened by the doubling of the option cap.

The challenge for valuers and clients therefore remains unchanged: arriving at a share valuation that minimises tax exposure while providing confidence to HMRC and other stakeholders that the valuation is robust and sits within an appropriate range. The inherent subjectivity of valuation work is a constant - as is the value of experience in navigating it effectively.

If you would like support with your Enterprise Management Incentive (EMI) schemes, our Valuations and Business Tax teams would be happy to help.