EMI valuation: what UK companies need to satisfy HMRC
An EMI valuation is the price at which your company's shares can be offered as options to employees without either the company or the option holders falling foul of HMRC. Get it right and the grant is tax-efficient, defensible, and unlikely to be revisited. Get it wrong — or skip it — and years later, on exit, you can find the whole scheme unpicked.
The short answer
An Enterprise Management Incentive (EMI) valuation produces two numbers: the unrestricted market value (UMV) — what the shares would be worth without restrictions — and the actual market value (AMV), which reflects the leaver provisions, pre-emption rights and transfer restrictions in the articles. AMV is the figure that matters for the option exercise price. Both are submitted to HMRC on form VAL231; HMRC's Shares and Assets Valuation team confirms them, usually within 4–6 weeks, and the agreement holds for 90 days.
Why the AMV/UMV split matters
Almost every private company's shares carry restrictions: bad-leaver forfeit, good-leaver put/call, board consent on transfers, drag and tag. HMRC accepts that these restrictions reduce what a hypothetical arm's-length buyer would pay. The discount from UMV to AMV is often 15–35%, sometimes more where the leaver regime is aggressive. That difference lowers the strike price, which is the whole commercial point — employees exercise cheaper, and the eventual gain sits inside EMI's capital gains treatment rather than being clawed into income tax.
How the underlying value is arrived at
For an early-stage company that has raised at a recent priced round, the round price is usually the starting point — HMRC expects you to reference it, then adjust for the fact that EMI options are ordinary shares with restrictions rather than preferred equity with liquidation preferences. For an established, profitable trading company with no recent transaction, we build from earnings — normalised EBITDA times a defensible sector multiple, cross-checked against net asset value and, where relevant, discounted cash flow. Minority holdings then attract a further discount, typically 25–50%, on top of the AMV/UMV split, because option holders are acquiring a minority stake with no control.
The VAL231 process, step by step
- Prepare the valuation. Full written report with the UMV, the AMV, the method, comparables, and the specific restrictions relied on.
- Submit VAL231 to HMRC Shares and Assets Valuation with the report and the current articles.
- HMRC responds — usually 4–6 weeks. They may accept, query specific assumptions, or push back on the discount. A well-evidenced report reduces the back-and-forth.
- Grant within 90 days of the agreement letter. Miss the window and you need a fresh agreement.
- Notify EMI grants to HMRC within 92 days of grant via the ERS online service, or the tax relief is lost.
What HMRC pushes back on
The three most common queries: an AMV discount that isn't supported by the actual articles (claiming a large restriction discount when the leaver regime is mild); ignoring a recent funding round without a clear reason; and optimistic normalisation adjustments — stripping out costs that will recur, or adding back "founder time" that any buyer would need to pay for. HMRC is not looking for the lowest number; it is looking for a supportable one.
Common questions
What is an EMI valuation?
The market value of the shares under EMI option, agreed with HMRC in advance so both the company and the option holders know the exercise price is safe.
How long does HMRC take?
Typically 4–6 weeks from VAL231 submission. Once agreed, the valuation is valid for 90 days for granting options.
Why is AMV lower than UMV?
Because the shares carry real restrictions — leaver provisions, transfer restrictions, pre-emption. HMRC accepts a discount that recognises those, often 15–35%.
Do I have to agree the valuation with HMRC?
No — you can self-assess. Almost no one does, because an agreed valuation removes the risk of the whole scheme being unpicked on exit.
What does an EMI valuation cost?
Our fixed fee is typically £495, including the VAL231 submission pack, delivered in 72 hours once we have your accounts and articles.
The Business Valuers prepares EMI valuations and VAL231 submissions for UK companies. Ranges above are indicative; the actual UMV, AMV and discounts depend on your accounts and articles.
For an EMI valuation with the VAL231 submission included, get in touch.