In order to get the full tax benefits of EMI, you need to agree the price of the share option you are offering to employees with HMRC. This is because when the employee decides to exercise their share options to convert them into actual shares, they have to pay the strike price per share agreed with HMRC so they do not get taxed upon the exercise event.
When agreeing the strike price with HMRC, you aim to argue for a low company valuation - i.e. the contrary to what you would be doing when negotiating your company’s valuation with investors. The lower the strike price, the greater the benefit for the employee.
If you are offering share options that are of a share class which is the same or similar to a share class that investors paid for during a previous funding round of your company, then the strike price agreed with HMRC will be close to the price per share paid by the investors for this share class.
If you are offering share options under a completely different share class (e.g. B Ordinary (Non Voting) shares), you can argue a very low strike price with HMRC, even if you had a funding round in the past for a different share class.
Once HMRC accepts the proposed strike price, then you are free to grant share options to employees at the agreed strike price within a period of 120 days* from the date of HMRC's acceptance letter.
You can read more about why you need a low EMI Valuation here.
*Please note that due to Coronavirus, any EMI Valuations that expire on or after 1 March 2020, and any new EMI Valuations created on or after 1 March 2020 can automatically be treated as having been extended by 30 days, so that they are valid for a total of 120 days. ( See HMRC Employment Related Securities Bulletin 35 (June 2020)).
This will be valid up until the 1 December 2022. Any EMI valuation agreement letters issued by HMRC on or after that date will be valid for 90 days only