If you’ve started looking into EMI and got as far as “you need a valuation agreed with HMRC” before hitting a wall, you’re not alone. The valuation step is where most startup founders slow down – partly because it sounds more technical than it is, and partly because a poorly handled valuation can quietly undermine the whole scheme.

This post covers what an EMI valuation actually involves, what HMRC’s Shares Valuation team expects to see and the mistakes that are most likely to cause problems. If you’re planning to grant options in the next few months, this is the step to get right first.

Why do EMI options need a valuation at all?

The valuation is what establishes the exercise price – the price at which employees can buy shares when they eventually exercise their options. That price needs to be agreed with HMRC before you grant the options, not after.

The reason it matters so much is tax. The EMI tax advantages only hold if options were granted at or above the Unrestricted Market Value of the shares at the time. If HMRC later decides the exercise price was too low – in other words, that you undervalued the company – the options may not qualify for EMI treatment. That means employees could face income tax and National Insurance on the discount rather than capital gains tax on the gain. Nobody wants to deliver that news to a team member who thought they were set up well.

UMV and AMV: what’s the difference?

Two terms come up consistently in EMI valuations, and it’s worth understanding what they mean.

Unrestricted Market Value (UMV) is the value of a share with no restrictions attached – it’s the baseline HMRC uses to assess whether options were issued at or above market value.

Actual Market Value (AMV) is the real-world value of the shares as they actually are, including any restrictions such as transfer limitations, drag-along clauses or leaver provisions that are standard in most startup share structures. Because these restrictions reduce the attractiveness of the shares, AMV is typically lower than UMV.

For most early-stage startups, the exercise price is set at AMV. That means employees pay a lower price for their shares while still remaining within HMRC’s rules – generally the best outcome for everyone involved.

What does HMRC actually look at?

HMRC’s Shares Valuation team will want to see a credible, well-reasoned basis for the value you’ve put on the company. They’re not setting out to be obstructive – but they need evidence, not guesswork.

What they typically consider includes:

• Your company’s financial position – revenue, losses, assets and liabilities
• Recent funding rounds, if applicable – a third-party investment at an agreed price provides strong evidence of market value
• Comparable transactions – what similar companies at a comparable stage have been valued at
• Your financial model and the assumptions underpinning it
• The terms of your share structure – the class of shares covered by the options and any restrictions that apply

There’s no single formula HMRC follows. They form a view based on the overall picture, which is why the quality and completeness of your supporting documentation genuinely matters.

How to get your valuation agreed

Once you’ve prepared a valuation – usually with professional input – you submit it to HMRC’s Shares Valuation team for review. HMRC will either confirm the value or come back with questions or a counter-proposal.

Technically, you can grant EMI options without HMRC’s formal agreement on the valuation. But if HMRC later challenges the exercise price and concludes options were issued at a discount to market value, the consequences for your employees’ tax position can be significant and difficult to unwind.

Getting the valuation agreed upfront removes that uncertainty. It protects your employees, gives you a defensible exercise price and means you can communicate clearly to candidates about what their options are actually worth. Turnaround times vary – straightforward cases typically take two to four weeks, while more complex valuations can take longer.

The mistakes that cause the most problems

The most common issues we see:

Undervaluing to make options look more attractive. The lower the exercise price, the better the deal appears at grant – but if HMRC substitutes a higher value, employees face unexpected tax on the difference.

Skipping the HMRC agreement altogether. Disputing a valuation after the fact is far more time-consuming and stressful than agreeing it upfront. The few weeks it takes to go through the process properly is time well spent.

Leaving it too late. If you’ve already granted options without an agreed valuation, or missed the 92-day notification window, the scheme may not qualify for EMI treatment at all – and that’s not a position you want to be in.

The EMI valuation is the part of the scheme that most benefits from working with someone who knows what HMRC expects. Done well, it protects your team and makes the whole scheme work as intended. Done badly, it can quietly unravel the advantages that made EMI worthwhile in the first place.