Budget 2025: Why EMI, EIS and VCT are still vital for entrepreneurial businesses

While to many, EMI, EIS and VCT tax schemes are a confusing mix of acronyms, for start-up and scale-up businesses in the UK they are valuable taxation incentives to help in raising capital from investors, and to retain and incentivise staff.

All of the schemes have been around for many years, with some changes around the edges to ensure that they work effectively, but all are subject to size limits which have not kept pace with inflation. Refreshing these criteria is the crux of the measures announced in the Autum 2025 Budget, although some other modernising changes have been made.

Enterprise Investment Scheme (EIS) and Venture Capital Trust Schemes (VCT)

The EIS and VCT schemes encourage investment in higher risk, start up companies by providing Income Tax relief to investors of 30% of the value subscribed for new shares, and also providing a Capital Gains Tax exemption on those shares, provided that they are held for 3 years after investment. Dividends from shares held through VCTs are also exempt from Income Tax.

Changes made to EIS and VCT in the 2025 Budget

From April 2026, the amount that companies can raise from these schemes annually, and in their lifetime, will double, as well as the size of those companies (calculated by reference to gross assets), significantly increasing access to investments from these sources.

There is one piece of negative news – from the same date (April 2026) the rate of Income Tax relief will reduce to 20% for VCT investments only (EIS remains unchanged) with the rationale given that this balances out with the dividend exemption.

What this means for businesses and investors

The two schemes exist to provide tax-based incentives to potential investors to invest in higher risk start-up companies, and any enhancement is to be welcomed. 

By increasing the size of companies that qualify for relief, and also the amount of tax incentivised investment that they can raise, this is likely to increase appetite for investors to invest in companies that are further along their scale-up runway, and potentially of lower risk than pure start-ups. Such increased interest is likely to be via EIS rather than VCT investments, due to the lower rate of relief that will now apply.

However, by increasing the potential pool of lower risk investment opportunities, this may reduce the investment appetite for newly formed companies.

Enterprise Management Incentives (EMI)

Enterprise Management Incentives operate to provide share options to incentivise and retain employees in qualifying companies, but in a tax advantaged fashion.  This is achieved by ensuring that if options are priced at the market value at the date of issue, then on exercise the employee will not be subject to employment taxes on exercise, with only Capital Gains Tax payable when they eventually sell the shares. 

This compares with non-EMI options, which are subject to employment taxes when exercised on the full value of the shares at the date of exercise.

However, the schemes are limited by size thresholds to target EMIs at  SME businesses only. This means that employee number 250 may be capable of receiving EMI options, but employee 251 can only receive unapproved options, giving a cliff-edge effect to staff incentive plans while the company is continuing to scale.

Changes made to EMI in the 2025 Budget

Again, the Company size limits, and the value of shares that can be placed under EMI options at any given time, have been significantly increased from April 2026. A more technical change to the option holding period has also been announced, which employers can choose to apply retroactively.

What this means for businesses and investors

These changes are only positive in respect of giving greater access to EMI schemes. The Government anticipates that 1,800 scale-up companies will now take advantage of the EMI scheme, although it is likely that many more companies will be capable of qualification. 

A cliff edge remains – most likely on the employee count rather than the gross assets threshold, but this will impact significantly fewer companies and the recently enhanced CSOP scheme may be a suitable alternative for those companies in that position. 

The quadrupling of the Gross Asset threshold, however, may still be of interest for asset rich but otherwise qualifying  companies (such as those who may recently have raised, but not deployed investment capital received under EIS or VCT schemes) and therefore would fail to qualify for EMI solely by reference to the temporary  value of cash held.

Overall, these measures can only be seen as a positive for start-up and scale up businesses looking to raise investment both now and in the future.  Whilst changes had been mooted – in the past, enhancements to these schemes have often come alongside other restrictions which have impacted the overall benefit – so it is refreshing to see almost only positive news.

For further guidance on any issues raised in this article, please contact Chris Riley.