In brief
- EMI eligibility increases from April 2026: Significant increases to key thresholds in the EMI regime take effect in April 2026, enabling larger companies to access the flexible, tax-advantaged, employee share option scheme.
- IP licence revenue can sometimes jeopardise EMI status: Brands earning substantial income from royalties or licensing should periodically assess their position.
- Ambassador equity deals require specialist structuring: Equity-for-endorsement arrangements may face regulatory hurdles. Phantom (or Virtual) Share Options are sometimes a more feasible solution for non-employee influencers' incentives.
Recent and incoming changes to the legal landscape around remuneration and equity incentives make this an ideal time to revisit your reward strategy for 2026 and beyond.
A well-designed, evolving, effective and efficient incentives offer is fundamental to a brand's longevity and growth. As highlighted in our previous article, today's workforce expects a curated mix of cash, benefits, equity and culture. This shift in employee reward expectations means brands must adapt the structuring and communication of their incentive arrangements to secure brand loyalty from employees.
Equity-for-endorsement deals are also on the rise, particularly among early-stage challenger brands seeking to reward influential ambassadors when cash is tight.
What's new for 2026?
When selecting an employee share scheme - there are (as our prior article sets out), many to choose from. Despite the increase in tax rates (gains are no longer charged at 10%), the Enterprise Management Incentive (EMI) arrangement is flexible, tax-advantaged and remains the top choice employee share option plan for qualifying businesses. The good news: more brands will be eligible to grant EMI awards from April 2026.
Landmark changes to the EMI regime
From 6 April 2026, certain limitations applying to EMI will be relaxed:
- Employee limit
Currently, companies must have fewer than 250 full-time equivalent employees (at the date of grant) to be eligible for EMI. This threshold is doubling to 500, meaning more established brands might now qualify.
- Gross assets
Currently, a company's gross assets must not exceed £30 million at the date of grant. This limit quadruples to £120 million, opening EMI to larger companies and those that have secured more substantial investor funding.
- Option limit
The total value of share options a company can grant doubles from £3 million to £6 million. (The individual maximum of £250,000 per person remains unchanged.)
- Exercise period
The maximum exercise period for EMI options will increase from 10 to 15 years, giving companies with long-term growth plans more flexibility to preserve tax efficiency.
Tax-advantaged share plans not only reduce or eliminate employer national insurance contributions (currently 15%) on a significant portion of reward but also align incentives with long-term strategic objectives.
However, one area of the EMI regime remains unchanged and requires careful navigation for brands diversifying their activities, as explained below.
Licence fee revenues – An EMI share plan consideration
As brands diversify revenue streams (directly or indirectly via collaborations) - through product hire, leasing, franchising, or IP licensing - there are important implications for EMI qualifying status. While these strategies can boost resilience and customer reach, they may also create unintended hurdles for EMI eligibility.
If you're considering an EMI scheme, pay particular attention to IP licence revenue. Receiving royalties or licence fees is generally treated as a non-qualifying trade unless:
- the royalties or licence fees are attributable to the exploitation of 'relevant intangible assets'; or
- such revenues do not amount to a 'substantial' part of the business' overall activities.
('Substantial' in this context is explained in our circular economy article.)
A "relevant intangible asset" means:
- an asset created by the company issuing the EMI options; or
- an asset created by a company that was a qualifying subsidiary for the whole of the period during which it created the asset.
Under these provisions (italics added for emphasis), existing assets can be transferred to a new subsidiary that was not in the group at the time the assets were created, without qualifying status being lost. However, obtaining an IP asset via acquisition of another business (perhaps a synergistic bolt-on) can present a more significant challenge if material revenues are derived therefrom without need for extensive further development of the asset.
Brand ambassador equity
Brand sponsorship deals have long boosted the earnings of elite athletes and celebrities. Traditionally, this meant cash for endorsement, but there's a growing trend for ambassadors of new brands to receive equity interests. While conceptually simple, granting equity to influencers is complex in practice, particularly under UK securities laws and tax rules. Employee share scheme exemptions do not apply to ambassadors who are not employees or office holders. This means the ambassador will need to meet another exemption under the UK regulatory regime.
If the securities law requirements cannot be navigated regarding a share-based offer, a phantom equity offer might be a suitable alternative. Phantom equity is cash-settled but tracks a notional equity interest, with formulaic payouts triggered by defined events or milestones.
Re-evaluation required
The incoming changes to EMI in April will enable larger, more developed, brands to revisit their potential eligibility. However, companies must remain mindful of the impact of licence fee revenue on EMI status and note that other criteria (such as the need to be an independent company) remain unchanged.
When crafting any equity offer, the feasibility and approach will differ depending on whether the recipient is an employee or not, and on the jurisdictions of both the company and the individual.
As the legislative landscape continues to evolve, brands should adopt a holistic approach to incentivisation - re-evaluating now whether any changes are desirable to optimise outcomes for the year ahead.
For further information, please get in touch.