EMI Schemes

EMI valuations – Are you getting the right discount?

Alex Barker, Tax Manager explains how EMI discounts work.


We were recently asked to advise on an EMI valuation that had been produced by another adviser. It had already been submitted and agreed by HMRC but, when the company came to implement the scheme, they realised the agreed value was unrealistically high and asked us to review it.

Undiscounted basis

We found that the valuation had calculated a reasonable equity value per share on an undiscounted basis. However, this was then equated to the value of the EMI shares, without any discount having been applied. Furthermore, a 10% uplift was then applied to calculate the value of the shares once free of any restrictions. Although an uplift is standard practice, in this instance it was applied to a value that had not been discounted in the first place and so the result was that the calculated value of the shares without restrictions was higher than the general equity value per share and therefore quite clearly incorrect.


We are now working with the client to resubmit the valuation with appropriate discounts. Discounts play an important role in ensuring that EMI shares are not overvalued and can reduce the price per share significantly. There is no “one size fits all” approach. It is necessary to consider the size of shareholdings (smaller shareholdings command less control and are therefore less valuable), restrictions on shares, voting and distribution rights and tag along provisions.

HMRC involvement

When asking HMRC to agree a valuation it is necessary to submit two values to them. The first of these is the AMV (Actual Market Value) which takes account of the restrictions and the second is the UMV (Unrestricted Market Value) which is the value of the share once the restrictions have been lifted. Most focus will be on the AMV as it is this value that determines whether income tax will be due when the options are exercised, and it is not uncommon for significant discounts to be agreed against the base value.

Preparation is key!

If you are planning on implementing an EMI scheme you will need to go through the process of valuing your company’s shares, whether or not you choose to agree it with HMRC. It is important that whoever produces the valuation considers all relevant factors as a share price that is unrealistically high could result in the options never being exercised, thereby negating the scheme’s intentions. Conversely, a price that is unrealistically low is unlikely to be approved by HMRC. Unfortunately, if you submit a valuation to HMRC that is too high because it does not include the appropriate discounts, HMRC will not alert you to this or correct it for you. Their focus is on ensuring that shares are not undervalued.

Here, at Allegro Tax, we do a wide range of valuations for EMI schemes (as well as for other reasons) and they are always supported by a report that sets out the reasoning behind our methodology and the discounts we have applied. If you have not yet granted your options and think your share valuation for EMI shares is too high please get in touch with us.

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