Side by side
| 409A valuation | EMI valuation | |
|---|---|---|
| Country and authority | United States, IRS | United Kingdom, HMRC (Shares and Assets Valuation team) |
| Governing rules | Internal Revenue Code section 409A and Treas. Reg. 1.409A-1(b)(5) | ITEPA 2003, sections 527 to 541 and Schedule 5 |
| Who it covers | Anyone subject to US tax who receives options, wherever the company is based | Eligible employees of a qualifying company: working at least 25 hours a week or 75% of their working time, and holding no more than 30% of the company |
| What it concludes | One figure: fair market value per share of common stock | Two figures: Actual Market Value (AMV), which reflects restrictions on the shares, and Unrestricted Market Value (UMV), which ignores them |
| Standard of value | The reasonable application of a reasonable valuation method, considering assets, future cash flows, comparable companies, recent arm's length transactions, and control premiums or marketability discounts | Market value as defined for capital gains tax (TCGA 1992, Part 8): the price the shares would fetch on a sale in the open market |
| Usual methods | The AICPA guide's allocation methods: option pricing (OPM), probability-weighted expected return (PWERM), hybrid, and backsolve from the latest round | Recent arm's length transactions in the shares first. Where there are none, an appropriate valuation technique for a small minority holding (HMRC SVM110050) |
| How you get certainty | Safe harbor. An independent appraisal dated no more than 12 months before the grant is presumed reasonable, and the IRS can rebut it only by showing it was grossly unreasonable | Advance agreement. The company proposes AMV and UMV on form VAL231 and HMRC agrees them before grant. Optional, but standard practice (HMRC guidance) |
| Who prepares it | An independent appraiser for the main safe harbor. Early-stage companies may instead rely on a written report from a person with at least five years of relevant experience | The company or its advisers. Independence is not required |
| How long it lasts | Up to 12 months, or until new information that may materially affect value, such as a funding round | 90 days from the date of HMRC's agreement, provided nothing changes that could affect the agreed value |
| Limits the value is tested against | None | Measured at UMV: £250,000 of unexercised options per employee and £6 million across the company. Lower limits apply to certain Northern Ireland companies (Sch. 5, paras 5 and 7) |
| Pricing below value | Not workable. An option priced below fair market value at grant is treated as deferred compensation | Permitted. The option still qualifies, but the discount is taxed |
| If the price is too low | Income is taxed as the option vests, plus a 20% additional federal tax and interest at the underpayment rate plus one percentage point, all falling on the employee | Income tax when the option is exercised, on the difference between the price paid and market value at grant, or at exercise if that is lower (s. 531) |
| Accounting use | The common stock value is normally the share price input for ASC 718 expense | A tax valuation. IFRS 2 or FRS 102 expense is measured separately, although the same analysis can inform it |
Sources: 26 U.S.C. 409A; 26 CFR 1.409A-1(b)(5); ITEPA 2003, Schedule 5 and Part 7, Chapter 9; HMRC, Get a share scheme valuation; HMRC manuals SVM110050, ETASSUM51040 and ETASSUM58010; AICPA, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. EMI limits are those in force from 6 April 2026.
Why the two numbers differ
It is tempting to assume that the same shares in the same company must have one value. In practice the two conclusions often differ, for legitimate reasons:
- Different definitions. US fair market value and UK market value are both based on a hypothetical sale between willing parties, but the rules and practice around each have developed separately.
- Restrictions. UK rules split value into AMV, which reflects restrictions on the shares, and UMV, which ignores them. US rules disregard most restrictions that will eventually lapse.
- Discounts. The size of the discounts applied for a small minority holding and for lack of marketability is assessed differently under each regime.
What should not differ is the underlying view of the business: the forecasts, the reading of the most recent funding round, and the enterprise value. If those are inconsistent between the two reports, neither is as defensible as it should be.
When you need both
- A UK company with US hires. EMI for the UK team and a 409A-compliant price for US taxpayers. See 409A valuations for UK companies.
- A US company with a UK subsidiary that qualifies to grant EMI options to its UK employees.
- Individuals taxed in both countries, such as a US citizen working in the UK who holds EMI options.
Setting the price for dual taxpayers
Where one option is subject to both regimes, the exercise price generally needs to be at least the higher of US fair market value and UK market value. A price set at the UK figure alone can leave the option in breach of 409A, with the penalties falling on the employee.
Lining up the timing
The two clocks run differently. A 409A valuation can support grants for up to 12 months. An EMI agreement lasts 90 days. Companies that grant in both countries usually refresh the 409A annually and time the EMI submission so that the 90-day window covers the planned grant date. Our cross-border service runs both from a single engagement.
Frequently asked questions
Do I need both an EMI and a 409A valuation?
Only if you grant options to people taxed in both systems: UK employees under an EMI plan and US taxpayers under a US award, or individuals who are taxed in both countries. A company with only UK employees needs only the EMI valuation, and one with only US taxpayers needs only the 409A.
Which valuation is usually higher?
It varies, but the UK Actual Market Value used for an EMI exercise price is often lower than US fair market value, because the two regimes treat restrictions and minority discounts differently.
Can the same firm prepare both?
Yes, and it helps. A single engagement uses one set of forecasts, one view of the latest funding round, and one allocation model, so the two reports are consistent with each other.
Does HMRC accept a 409A valuation for EMI?
Not as a substitute. HMRC asks for Actual Market Value and Unrestricted Market Value under UK principles, submitted on form VAL231. A 409A report can inform that submission but does not replace it.
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.