Share Schemes
EMI Valuations and ERS Returns: A Founder's Guide
What founders need to know about EMI valuations, option grants, ERS registration and annual HMRC returns.
A startup that grants employee options may need two connected pieces of finance work: a share valuation before the grant and Employment Related Securities reporting after share or option activity.
The valuation supports the grant terms and tax position. The ERS process records the scheme and reportable events with HMRC. Treating one and forgetting the other is a common source of avoidable problems.
What is an EMI valuation?
An EMI valuation estimates the market value of the shares used for Enterprise Management Incentive options. For an HMRC submission, companies normally consider actual market value and unrestricted market value, along with the rights attached to the shares.
The last funding-round price is relevant but is not automatically the option value. Investor shares may have preferences or protections that ordinary shares do not. The valuation also considers the company facts and marketability at the valuation date.
When should a startup obtain the valuation?
Do it before the option grants. The company needs time to collect the cap table, articles, funding documents, forecasts and details of the proposed scheme.
HMRC’s current guidance says an agreed EMI valuation is normally valid for 90 days, unless a significant event changes the company earlier. See HMRC’s share-scheme valuation guidance.
What documents are normally needed?
the current cap table and fully diluted position;
articles of association and share-rights information;
recent funding and share transaction documents;
the latest accounts and current management information;
the forecast and material company developments;
the proposed option terms and grant timetable.
What is an ERS return?
Employment Related Securities reporting covers shares and securities acquired because of employment, including many option grants and exercises. The company may need to register a scheme or arrangement and submit an annual return through HMRC’s online service.
For a live registered scheme, a return or nil return is generally due by 6 July after the end of the tax year. See the official HMRC ERS reporting guidance.
Do we file if no options were granted?
A registered scheme may still need a nil return. If a scheme is no longer needed, closing it correctly can prevent future filing obligations. Check the position for each registered arrangement rather than assuming there is nothing to do.
What records should the company keep?
Keep the valuation, HMRC correspondence, option agreements, board approvals, grant dates, exercise events, leavers and any cancellations or adjustments. The cap table, legal documents and ERS return should agree.
Frequently asked questions
Can we grant options using the price from our last round?
Do not assume so. The rights and marketability of the employee shares can differ from the investor shares.
What happens if we miss the 6 July deadline?
Late filing can create penalties and uncertainty. Review the schemes and events early enough to correct records before submission.
Does Startup CFO handle both parts?
Yes. Our share-scheme service covers valuations, HMRC submission support, ERS registration guidance and annual returns. The company registers its scheme through its own HMRC account; we guide that step and can file returns once authorised.
Important: This article is general information, not tax or legal advice. Share schemes should be coordinated with the company’s legal advisers.
