EMI options – is my company carrying out a qualifying trade?

Companies that wish to grant Enterprise Management Incentive (“EMI”) share options need to meet various tests to qualify for the tax advantages – for example, companies need have fewer than 250 full time equivalent employees and gross assets of less than £30m.

Companies also need to be trading on a commercial, profit making basis, or preparing to do so. The trade must be a “qualifying trade” and not consist “substantially” of excluded trading activities. For example, companies in the financial services sector may not always qualify for EMI options.

“Preparing to trade”

If the company is preparing to trade, it must do so within 2 years or any EMI options that have been granted will be disqualified.

“Profit-making basis”

The company of course doesn’t have to be profitable immediately – plenty of start up businesses grant EMI share scheme options at a time when turning a profit is still something to look forward to! In fact, a company that’s carrying out R&D activities, which will result in a trade, can be treated as trading in itself.

“Qualifying trading activities”

The extent to which a company is trading, or carrying out excluded trading activities, may not always be a straightforward question. A recent case (Jacqueline Potter and Neil Potter v HMRC [2019] UKFTT 0554 (TC)) found that a company in severe difficulties that had (amongst other things) issued no invoices for a number of years was still trading (for the purposes of an entrepreneurs’ relief claim). This was on the basis that its activities were focused entirely on seeking new business to continue the trade once market conditions had improved.

That case also considered, briefly, the question of what percentage of activities carried out by a company amounted to excluded trading activities. This is another area that may need considering for EMI qualifying companies, particularly where (for example) a proportion of income is derived from a non-qualifying trade such as investments.


It’s reasonably easy to identify how many full-time qualifying employees a company has at any one time, but some of the questions relating to a qualifying trade may be more challenging. Advance clearance can be sought from HMRC if there is doubt.

RM2 can assist with identifying any “grey areas” relating to EMI qualification, including assisting with approaches to HMRC. To speak to one of our consultants on a no-costs, no-commitment basis, please call 0208 949 5522, or email us at enquiries@rm2.co.uk.