If you want to reward your team with a stake in the business, you'll quickly run into the phrase "employment related securities". It sounds technical, but the idea is simple: you're giving employees shares, or the option to buy them, as part of their pay.
The catch is that HMRC has strict rules on how you set these schemes up, register them, and report them each year. Get it right and your people can receive shares with little or no tax to pay. Get it wrong and they can be left with an unexpected tax bill, while you collect penalties.
This guide explains what employment related securities are, the four tax-advantaged schemes, the EMI changes arriving on 6 April 2026, and exactly what you have to file with HMRC. It's written for company directors and finance leads at UK SMBs and startups.
What are employment related securities?
Employment related securities (ERS) are shares, or options to buy shares, that a company gives to its employees and directors because of their employment. The term covers tax-advantaged schemes approved by HMRC and ordinary, non-advantaged share awards alike.
Think of it as giving your team a stake in the business rather than just a salary. Shareholders can receive dividends and share in any growth in the company's value, so the people building the business also benefit when it does well.
What makes the approved schemes attractive is the tax treatment. Depending on the scheme, employees may pay no Income Tax or National Insurance on the value or growth of the shares they receive, provided the rules are followed.
For employers, that's a powerful way to attract and keep good people, especially when cash is tight or you're up against larger firms on salary.
Why do companies use ERS schemes?
A few reasons come up again and again with the founders we work with.
Attracting and keeping talent. Share schemes let you compete for skilled people even when you can't match a bigger company's salary. The promise of future gains can be just as motivating as cash now.
Aligning interests. When employees own a slice of the business, they have a direct stake in its success. That tends to sharpen focus on the things that actually move the company forward.
Tax efficiency. Many ERS schemes are tax-advantaged, so employees pay little or no tax on what they receive. That makes them a cost-effective alternative to simply raising salaries.
Managing cash flow. You can offer a competitive package without draining your bank balance, because you're rewarding people partly with future value rather than immediate outlay.
In practice, the mistake we most often see is treating a share scheme as a one-off favour and forgetting that HMRC still needs to be told about it. More on that below.
What types of ERS scheme are there?
Book a free Tax Health Check →
ERS schemes split into two camps: tax-advantaged and non-tax-advantaged.
Tax-advantaged schemes meet conditions set out by HMRC and carry specific tax breaks. There are four: Share Incentive Plans (SIPs), Save As You Earn (SAYE), Company Share Option Plans (CSOPs) and Enterprise Management Incentives (EMIs).
Non-tax-advantaged schemes don't carry those breaks but give you more freedom over how you structure the award. Employees are generally taxed when they acquire the shares or exercise an option.
The right choice depends on how many people you want to include, the size and stage of your company, and how much admin you can take on. Let's look at each tax-advantaged option.
How do the tax-advantaged schemes compare?
Here's how the four approved schemes stack up. The figures below are HMRC's published limits.
| Scheme | Who it's for | Key limit | Main tax benefit |
|---|---|---|---|
| SIP | All employees, on similar terms | £3,600 free shares and £1,800 partnership shares per year | No Income Tax or NI if held 5 years (3 years for dividend shares) |
| SAYE | All employees, on similar terms | £5 to £500 saved per month over 3 or 5 years | Up to 20% discount, no Income Tax or NI on the gain, no downside risk |
| CSOP | Selected employees and full-time directors | Options over up to £60,000 of shares per employee | No Income Tax or NI on the growth if held 3 to 10 years |
| EMI | Qualifying smaller companies (see limits below) | £250,000 per employee, £3,000,000 company total (2025/26) | Most tax-efficient option; no Income Tax or NI on the growth |
EMI limits change from 6 April 2026. The figures in the table are the rules for options granted up to and including 5 April 2026. See the EMI changes section below.
What is a Share Incentive Plan (SIP)?
A Share Incentive Plan is one of the most flexible tax-advantaged schemes. If you get shares through a SIP and keep them in the plan for at least five years, you won't pay Income Tax or National Insurance on their value. Take them out earlier and a tax charge can apply.
There are four ways to get shares under a SIP.
Free shares. Your employer can give you up to £3,600 of free shares in any tax year.
Partnership shares. You can buy shares out of your pre-tax salary, up to £1,800 a year or 10% of your income for the tax year, whichever is lower.
Matching shares. Your employer can give you up to two free matching shares for every partnership share you buy.
Dividend shares. If the company pays dividends, you can reinvest them in more shares within the plan. Dividend shares only need to be held for three years, rather than five, to be free of Income Tax.
SIPs suit businesses that want to include everyone, because HMRC requires you to offer the plan to all employees on similar terms.
How does Save As You Earn (SAYE) work?
Save As You Earn, also called Sharesave, pairs regular saving with a share option.
You agree to save a fixed amount from your salary each month, between £5 and £500, over either a three-year or five-year period (36 or 60 monthly contributions). The money goes into a dedicated savings arrangement.
At the start, you're granted an option to buy company shares at a fixed price. That price can be set at a discount of up to 20% below the market value on the grant date.
When the savings period ends, you choose what to do. If the shares are worth more than your option price, you can buy them at the original price and benefit from the difference. If they've fallen, you simply take your savings back, plus any tax-free bonus. There's no downside risk to your cash.
You won't pay Income Tax or National Insurance on the difference between the option price and the market value when you buy. You may owe Capital Gains Tax if you later sell at a profit, but you can use your annual exempt amount, which is £3,000 for 2025/26.
One useful planning point: you can transfer SAYE shares into an ISA within 90 days of taking them out of the scheme, which shelters future gains from Capital Gains Tax.
What is a Company Share Option Plan (CSOP)?
A CSOP lets a company grant selected employees and full-time directors options to buy shares, without anyone needing to save up first.
The company grants you an option over up to £60,000 of shares (the limit since 6 April 2023). The exercise price must be at least the market value of the shares on the grant date, so there's no built-in discount.
The benefit comes from growth. If you exercise the option between three and ten years after it was granted, you won't pay Income Tax or National Insurance on the difference between what you pay and what the shares are worth.
Capital Gains Tax may apply when you eventually sell, but you can set your annual exempt amount of £3,000 for 2025/26 against the gain.
CSOPs are popular with medium-sized companies that want to reward key staff and senior managers without the qualifying conditions that EMI demands.
What are Enterprise Management Incentives (EMIs)?
EMIs are designed for smaller, high-growth companies and are usually the most generous of the four schemes. Not every business qualifies.
For options granted in 2025/26 (up to 5 April 2026), your company must have gross assets of £30 million or less and fewer than 250 employees. That makes EMI a natural fit for startups and scale-ups that want to attract talented people but can't compete on salary alone.
Under an EMI scheme, you can grant an individual employee options over shares worth up to £250,000 over any three-year period. The total value of options your company can have outstanding is capped at £3,000,000.
If the option is exercised at a price no lower than the market value of the shares when it was granted, the employee pays no Income Tax or National Insurance on the gain. If you grant options at a discount to the grant-date value, the employee faces an Income Tax (and possibly NI) charge on that discount.
For employees, the trade-off is clear: potentially lower cash now in exchange for tax-efficient gains later if the company succeeds. For employers, EMI is a strong tool for keeping the people who drive that growth.
EMI options also need an agreed share valuation. It's well worth using a qualified accountant or tax adviser, because an incorrect valuation can trigger a disqualifying event and an unexpected tax charge.
What EMI changes start on 6 April 2026?
The government is expanding the EMI scheme through legislation in Finance Bill 2025-26. The changes apply to EMI contracts granted on or after 6 April 2026, and they widen access for larger and faster-growing companies.
| Limit | Up to 5 April 2026 | From 6 April 2026 |
|---|---|---|
| Company options total | £3,000,000 | £6,000,000 |
| Gross assets | £30 million | £120 million |
| Employee number | Fewer than 250 | Fewer than 500 |
| Maximum exercise period | 10 years | 15 years |
The individual limit of £250,000 over three years is unchanged.
One detail is worth flagging. The extension of the exercise period from 10 to 15 years can apply retrospectively to existing EMI contracts that haven't already expired or been exercised, provided any amendment follows the legislation. The other expanded limits apply to options granted on or after 6 April 2026, not to options already granted.
If you're weighing up an EMI scheme and the wider limits would help, it can make sense to plan the grant timing around 6 April 2026. The current rules still apply to anything granted before that date. For the official detail, see HMRC's note on expanding the EMI eligibility limits.
How do I register an ERS scheme with HMRC?
You register an ERS scheme through your PAYE Online account by adding the Employment Related Securities service. If you're not already enrolled for PAYE, you'll need to set that up first, which can take a few working days.
The deadlines depend on the scheme:
- Tax-advantaged schemes (SIP, SAYE, CSOP): register by 6 July following the end of the tax year in which the scheme was set up. Set up a SIP in August 2025 and you'd register it by 6 July 2026.
- Non-tax-advantaged schemes: register by 6 July following the tax year in which the first reportable event happened.
- EMI options granted on or after 6 April 2024: you tell HMRC about the grant by 6 July following the end of the tax year in which the option was granted. The old 92-day notification window only applies to options granted before 6 April 2024.
Miss an EMI notification deadline and the options can lose their tax-advantaged status, which is exactly the outcome the scheme is meant to avoid. Calendar reminders are your friend here, and this is an area where it pays to have an accountant managing the dates for you.
What is an ERS return?
An ERS return is an annual report you submit to HMRC for each live scheme, tax-advantaged or not.
Even if you didn't award, exercise or transfer any shares during the year, you still have to file a "nil return" for each active scheme. It's how you confirm to HMRC that the scheme exists but nothing happened that year.
The return is due by 6 July following the end of the tax year you're reporting on. You file it through the ERS Online service using the Government Gateway details you set up when you registered the scheme. Choosing the correct template for your scheme type avoids delays.
This annual filing sits alongside Zmartly's wider corporation tax services, so for many of our clients the ERS return is handled as part of their year-end routine rather than a separate scramble.
What are the penalties for filing late?
HMRC applies automatic penalties for a late ERS annual return, even a nil return. Based on HMRC's published guidance, the escalation works like this:
- £100 automatically if the return isn't submitted by 6 July.
- A further £300 if the return is still outstanding 3 months after the deadline.
- A further £300 if it's still outstanding 6 months after the deadline.
- £10 a day once the return is more than 9 months late.
Paying a penalty doesn't clear your obligation. You still have to file the return to stop further charges building up.
Separately, missing an EMI notification deadline doesn't trigger these return penalties directly, but it can cost the options their tax-advantaged status, leaving employees with Income Tax and National Insurance bills they weren't expecting. That's usually the more expensive mistake.
FAQs about employment related securities
What is an employment related securities scheme? It's an arrangement where a company gives shares or share options to employees and directors because of their employment. Many schemes are tax-advantaged if set up correctly and registered with HMRC.
When is the ERS return deadline? 6 July following the end of the tax year you're reporting on. You file one return for each live scheme, including a nil return where nothing happened that year.
When do I register an ERS scheme with HMRC? By 6 July following the end of the tax year the scheme was set up (for tax-advantaged schemes) or in which the first reportable event happened (for non-advantaged schemes).
Does the 92-day EMI notification rule still apply? No. For EMI options granted on or after 6 April 2024, you notify HMRC by 6 July following the end of the tax year of grant. The 92-day rule only applies to options granted before 6 April 2024.
What are the EMI changes from 6 April 2026? For options granted on or after 6 April 2026, the company options limit rises from £3,000,000 to £6,000,000, gross assets from £30 million to £120 million, and the employee limit from fewer than 250 to fewer than 500. The maximum exercise period extends from 10 to 15 years, and that extension can apply retrospectively to existing unexpired options.
How much can an employee receive through EMI in 2025/26? Up to £250,000 of options over any three-year period, with the company limited to £3,000,000 of options outstanding for grants up to 5 April 2026.
What is the CSOP limit for 2025/26? Options over up to £60,000 of shares per employee, priced at no less than market value on the grant date.
What are the penalties for a late ERS return? £100 automatically, a further £300 at 3 months late, a further £300 at 6 months late, then £10 a day once the return is over 9 months late.
Talk to Zmartly about share schemes
Choosing between SIP, SAYE, CSOP and EMI, getting an EMI valuation agreed, and keeping every HMRC deadline is exactly the kind of work that's easy to get wrong and costly to fix. Want help setting up the right scheme and staying compliant? Book a free 20-minute call with a Zmartly accountant at zmartly.co.uk/contact.
