Failing to notify HMRC of the grant of an Enterprise Management Incentives (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.
Following a number of recent enhancements to the EMI regime, draft legislation has now been published to remove the requirement for a separate notification to HMRC of the grant of EMI options. This change, which was announced at Budget 2025, will apply to EMI options granted from 6 April 2027 (the requirement to submit a separate notification of the grant of EMI options continues to apply to options granted before then).
Under the draft legislation (which is expected to form part of Finance Bill 2026-27 in due course), companies will instead be required to notify HMRC of the grant of EMI options (and to confirm compliance with the relevant EMI qualifying requirements) as part of the annual year-end EMI return.
The removal of the separate notification requirement should, in principle, assist in streamlining EMI administration. However, if the draft legislation is enacted in its current form, it appears that late submission of the annual EMI return without a reasonable excuse could still result in EMI options granted during the relevant tax year losing the expected EMI tax benefits. However, it is not certain that this is an intended consequence of the draft legislation, and we will be seeking HMRC’s clarification on this.
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.
Granting EMI options can be a great way to recruit, incentivise, and retain employees and, due to increases to certain qualifying limits from 6 April 2026, more companies can, in principle, now qualify to do so.
However, the availability of EMI tax relief depends on a number of requirements being met on the date of grant, and on some requirements being met continuously until the date of exercise of the option. These requirements can be complex and will not be impacted by the removal of the separate grant notification requirement outlined above.
This means that it will remain the case that 'disqualifying events' (such as 'excluded activities' becoming a substantial part of the company’s trade) may occur, or it may turn out that the options were not qualifying to begin with. Where this happens, unexpected income tax charges can arise on exercise of the option, and Business Asset Disposal Relief that could otherwise have been available on a sale of EMI shares might be lost.
However, companies can minimise these risks if they periodically review their qualifying status. This is particularly important in relation to older EMI options where there has been more time for potential issues to arise. In the future, longer-term options may increase in prevalence as in most cases they may now be granted with (or in some cases existing options may be amended to provide for) a 15-year term and still qualify for EMI tax relief (previously the maximum lifespan for EMI tax relief was 10 years).
To ensure their EMI plan will deliver the expected tax and commercial benefits for employees and the business, companies should consider reviewing the qualifying requirements and anything that has happened since the options were granted. Points to consider include whether:
We advise on all aspects of the design, implementation and operation of EMI plans, and support employers to review, maintain, and remediate tax-advantaged status. Please contact the authors or your usual KPMG contact to discuss further what these changes might mean for your business.
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