Budget: Greater flexibility for EMI announced

Interaction of individual limits

This interaction between the CSOP/EMI2 and EMI individual limits will be removed. This will mean that the EMI individual limit (£250,000) will, from 6 April 2027, no longer need to take into account any options granted to the same individual under a CSOP/EMI2, and individuals can be granted options under a CSOP/EMI2 up to the new £120,000 limit under that plan, in addition to their full EMI entitlement.

Therefore, from 6 April 2027, an eligible employee participating in both EMI and CSOP/EMI2 will be able to participate up to a maximum of £370,000 (up from £250,000).

More time to exercise following a disqualifying event

Currently, an employee has 90 days following a ‘disqualifying event’ to exercise their EMI option before the most favourable tax treatment is lost. A disqualifying event can occur in a wide range of circumstances, including events occurring in relation to the company, the employee (e.g. a reduction to their committed working time), or the option (e.g. certain amendments have been made to the terms of the option or to the company’s share capital).

Under the Budget announcements, the 90 day period will double to 180 days from 6 April 2027. Importantly, the announcements also state that the change may apply to EMI options granted before that date, where the disqualifying event occurs on or after 6 April 2027.

This extension to the time limit should help provide greater flexibility, including within the context of transactions and other corporate events. However, companies will need to consider this change in the context of how their existing EMI plan rules are drafted. For example, it may be the case that if companies wish to take advantage of this change the plan rules will need updating to provide for a longer exercise window.

We expect that Finance Bill 2026-27, to be published shortly, will set out further detail on how the changes will operate in practice and the extent to which, and how, existing EMI option terms may be amended.

Notification of EMI option grants

Currently, failing to notify HMRC of the grant of an EMI option (including on a ’rollover’) on or before 6 July following the end of the tax year in which it is granted, generally results in the option not qualifying for EMI tax benefits. In practice, this is a common cause of EMI tax benefits being lost.

This current requirement to notify HMRC of the grant of EMI options is separate from, and additional to, the obligation to submit annual year-end EMI returns.

As part of the Budget announcements, the Government confirmed that it will introduce legislation in Finance Bill 2026-27 to remove the requirement for a company to submit a separate notification of a grant of EMI option to HMRC. However, a company will still be required to notify such a grant through the EMI end of year return. The changes will take effect for options granted on or after 6 April 2027 (the requirement to submit a separate notification of the grant of EMI options continues to apply to options granted before then).

The removal of the separate notification requirement should, in principle, assist in streamlining EMI administration. However, it appears that late submission of the annual EMI return without a reasonable excuse could, in principle, still result in EMI options granted during the relevant tax year losing the expected EMI tax benefits. 

The related policy document which was released on Budget Day suggests an easement will be introduced so that “where EMI options are notified in a late or amended annual return, the options remain qualifying provided that the late or amended annual return is submitted within one year of the deadline date which applies to the annual return for the tax year of grant”. However, we await the draft clauses in Finance Bill 2026-27 to see how this is dealt with.

It also remains to be seen exactly what details HMRC will require, and the nature of the declarations to be made, as part of the year-end return process in respect of the tax year 2027/28 onwards.

Given the proposed changes, it will become even more important for companies to have robust systems and processes in place to ensure the timely submission of their annual year-end EMI returns for 2027/28 and subsequent tax years.

What should companies do now?

Companies operating EMI plans should consider:

• The impact on their grant strategy of the removal of the interaction between the EMI and CSOP/EMI2 individual limits and whether this will provide additional headroom for EMI grants in the future;
• Whether it would be appropriate to adopt a new CSOP/EMI2 plan to allow options to be granted, from April 2027, over shares worth up to £120,000 per individual at the date of grant (noting that these can be granted to an individual who already holds EMI Options over £250,000 of shares);
• Reviewing EMI plan rules, particularly in relation to plan limits and the interaction of exercise periods and disqualifying events, to see whether amendments are necessary to take advantage of these prospective changes; and
• Updating EMI administrative processes ahead of April 2027 to reflect the removal of the separate grant notification requirement.

How can KPMG help?

We advise on all aspects of the design, implementation and operation of EMI plans, and support employers to review, maintain, and manage tax-advantaged status. Please contact the authors or your usual KPMG contact to discuss further what these changes might mean for your business.

For further information please contact:

• Chris Barnes
• Jo Brien