What is an EMI valuation and why do I need one?

To receive the full tax benefits of EMI, you must first submit an EMI valuation to HMRC to agree on an Actual Market Value (AMV) for your company's shares. If you set the option exercise price at or above this agreed AMV, your employees will typically incur no Income Tax when they exercise their options to convert them into shares.

When submitting your EMI valuation to HMRC, your goal is to achieve a lower AMV for your shares - the exact opposite of the high valuation you would target when pitching to investors. Securing a lower agreed AMV allows you to set a lower exercise price without triggering tax implications for employees upon exercise, maximizing their potential financial gain.

For example, if you are granting options in the same share class investors bought in your last round, you can still achieve an AMV below the investor share price by applying other discounts. If you grant options in a different share class with fewer rights (like B Ordinary non-voting shares), you can argue for an even lower AMV with HMRC.

Once HMRC approves your EMI valuation, then you are free to grant share options to employees at the agreed AMV within a period of 90 days from the date of HMRC's acceptance letter. 

You can read more about why you need a low EMI valuation here.