EMI share valuations: how HMRC agrees the value of your options.

What is an EMI valuation?

The valuation matters because the employee's tax outcome depends on the gap between the exercise price and the market value at grant. Set the exercise price at or above the agreed value and the employee generally pays no income tax on exercise, with growth charged to capital gains tax instead. Set it below and income tax is charged on the discount.

What is the difference between AMV and UMV?

Actual Market Value (AMV) is the value of the shares taking into account the restrictions attached to them, such as transfer restrictions, forfeiture provisions or leaver terms in the articles. Unrestricted Market Value (UMV) is the value of the same shares with those restrictions ignored. AMV is normally the basis for the exercise price and for the income tax position at exercise. UMV is used to test the scheme limits: the £250,000 that any one employee can hold under EMI options and the £6 million company-wide limit on unexercised options.

Both figures go on the submission to HMRC. In most private companies the restrictions are the standard ones found in venture-backed articles, so AMV sits a few percent below UMV. Where the restrictions are unusually onerous, the gap can be wider and must be justified.

Does HMRC have to agree an EMI valuation?

No. There is no legal requirement to have HMRC agree the value before granting EMI options. The standard practice, though, is to submit form VAL231 to HMRC Shares and Assets Valuation (the specialist team that deals with unquoted share values) and obtain advance agreement. Once agreed, the valuation is normally valid for 90 days, during which options can be granted at that value.

Advance agreement matters because the consequences of getting the value wrong land years later, when options are exercised or shares are sold, and they land on the employee as much as the company. Agreement largely removes that risk; without it, the company must defend the figure if HMRC later queries it.

The VAL231 sets out the proposed AMV and UMV, the share class under option, the number of shares and the intended grant date. It is accompanied by a valuation report explaining the methodology, the latest accounts and forecasts, the articles, a cap table and details of any recent share transactions. HMRC typically responds within a few weeks, either agreeing the figures or asking questions. The 90-day window runs from the date of agreement, so plan the grant date around it.

Which companies qualify for EMI?

A company qualifies for EMI if it is independent, carries on a qualifying trade, has gross assets of no more than £120 million and has fewer than 500 full-time equivalent employees. Those size thresholds were raised in the Autumn 2025 Budget from £30 million and 250 employees. The same Budget raised the company-wide limit on unexercised options from £3 million to £6 million and extended the maximum option life from 10 to 15 years. The individual limit remains £250,000, measured by UMV at grant.

Independence means the company is not a 51% subsidiary of another company or otherwise under its control. In a group, the parent grants the options and every subsidiary must itself qualify. The qualifying trade test excludes dealing in land, shares or commodities; banking, insurance and other financial activities; leasing; receiving royalties or licence fees (except from intellectual property the company created itself, which is why most software and life science companies qualify); property development; farming; and hotels or nursing homes. Some excluded activity is tolerated provided it is not a substantial part of the trade.

How is the share value actually calculated for EMI?

The value is built in three steps: establish the value of the company as a whole, allocate that value across the share classes on the cap table, and apply discounts to reflect that a small minority holding of ordinary shares in a private company is worth less per share than the company as a whole. HMRC will expect the report to show its working at each step.

The first step uses one or more of three families of method. The market approach looks at prices actually paid: a recent funding round, the trading multiples of comparable listed companies, or comparable transactions. The income approach, usually a discounted cash flow (DCF), projects future cash flows and discounts them to today at a rate that reflects their risk. The net assets approach values the balance sheet; it is rarely right for a growing technology or life science business, but gives a floor for a company winding down or holding mostly cash. Where a method gives an enterprise value (the value of the operating business), cash is added and debt deducted to reach equity value.

A recent investment by third parties at arm's length is the strongest single piece of evidence, and HMRC gives it considerable weight. But the price paid for preference shares is not automatically the value of an ordinary share. Investors buy a different instrument, with a liquidation preference, anti-dilution protection and sometimes a dividend, and those rights belong to the preference shares. The older the round, the less weight it carries.

The second step is allocation, needed whenever preference shares exist. A waterfall works through the order of payment on an exit at a given value. An option pricing model (OPM) treats each share class as a series of call options on the equity and spreads value across the range of possible outcomes using volatility and time to exit. The OPM suits early-stage companies; a scenario-based waterfall suits companies closer to a known exit.

The third step is discounting. HMRC accepts substantial discounts for small minority holdings of ordinary shares in private companies because the hypothetical purchaser the law envisages has no control over dividends, management or the timing of any sale, and no market in which to sell. Combined discounts for minority interest and lack of marketability are commonly significant, and larger for very small holdings in early-stage companies with no exit in sight. The discount must be reasoned from the company's stage, exit prospects and share rights, not simply asserted.

How is EMI different from a US 409A valuation?

A 409A valuation is a US safe-harbour mechanism: an independent valuation done properly shifts the burden of proof to the IRS, but nothing is agreed in advance and it must be refreshed at least every 12 months or after a material event. An EMI valuation is agreed with HMRC before grant and is valid for 90 days. The two serve the same purpose, pricing options so that employees are not taxed on grant, but run on different clocks.

Discount conventions differ too. 409A practice leans on allocation models and a typically moderate discount for lack of marketability. UK practice, shaped by case law on what a hypothetical purchaser would pay for a minority holding, supports deeper discounts for small ordinary shareholdings. The same company can therefore have a defensible UK ordinary share value below its 409A common stock value, and that difference is legitimate.

Groups with both US and UK option holders should run both valuations from one set of inputs: one enterprise value, one cap table, one set of forecasts and one allocation, with the jurisdiction-specific judgements on top. Running them separately invites inconsistent numbers that are hard to explain to either tax authority.

What are the most common EMI valuation mistakes?

The most common mistakes are using the investor price per share as the ordinary share value, letting the 90-day window lapse before grant, missing the notification deadline, ignoring restrictions or growth share hurdles in the articles, and submitting figures that do not match the company's own business plan. Each is avoidable.

• Investor price as ordinary share value. Using the preference share price with no allocation or discounts overstates the ordinary share value and sets a needlessly high exercise price.
• Letting the 90-day window lapse. Grants made after the agreed valuation expires are not covered by it, and a fresh submission is needed.
• Missing the notification deadline. EMI options must be notified to HMRC through the online Employment Related Securities service. The deadline was historically 92 days after grant; for options granted from 6 April 2024 it is 6 July following the end of the tax year of grant. Miss it and the options lose EMI treatment.
• Ignoring growth share hurdles or restrictions. Growth shares that only participate above a hurdle are a different instrument from plain ordinary shares and are valued differently. Restrictions in the articles affect AMV.
• Inconsistent figures. If the forecasts in the VAL231 differ from the business plan shown to investors, HMRC can ask to see both.

What information do you need for an EMI valuation?

You need a current cap table and share register, the articles of association and any shareholders' agreement, the latest filed and management accounts, financial forecasts, details of the most recent funding round and a schedule of the proposed grants. With those, a valuer can complete the work.

• Cap table and share register, including every outstanding option, warrant or convertible.
• Articles and shareholders' agreement, which drive both allocation and AMV.
• Accounts: last filed statutory accounts and latest management accounts.
• Forecasts, ideally those shared with the board and investors.
• Latest funding round: date, instrument, price per share, amount and investor rights.
• Proposed grants: recipients, number of shares, class and intended grant date.

How much does an EMI valuation cost, and how long does it take?

The cost depends on complexity. A single share class and a recent priced round is straightforward; multiple preference classes, growth shares, convertibles or a group structure take more work. We agree the scope and the fee upfront, before any work starts. A draft is delivered within 10 business days of a complete intake.

After that, timing is in HMRC's hands. Shares and Assets Valuation typically responds in a few weeks, faster when the submission is well evidenced. Plan backwards from the intended grant date and allow for that response time.

How does Codon approach EMI valuations?

Every engagement is partner-led, with a focus on technology and life science companies, where pre-revenue economics, clinical milestones and intellectual property are the norm. We build each submission to withstand review by HMRC Shares and Assets Valuation: the methodology is explained, the allocation is shown and every discount is reasoned.

For groups with option holders on both sides of the Atlantic, we run the EMI and US 409A valuations under one methodology, from one set of inputs, so the two reports agree. A guided intake collects exactly what is needed, which is what makes the 10-business-day draft possible.

Frequently asked questions

This page is general information, not tax or legal advice. It reflects US and UK rules as we understand them in October 2026; confirm how they apply to your company with your advisers.