EMI Share Valuation Process: HMRC AMV and UMV Submission

Bottom line up front. An EMI valuation submitted to HMRC on form VAL231 establishes Actual and Unrestricted Market Value; the agreed figures remain valid for 90 days, the window in which the board must execute the grant. Done properly, it is brief, defensible and boring: three to six pages of methodology, two numbers per share class, and a 90-day HMRC certainty window inside which you can grant options safely. Done badly, it is the single most common reason an EMI grant fails to deliver the tax treatment everyone assumed it would, and the consequences fall on your employees years later, when an exit triggers a routine HMRC compliance review and a previously invisible problem turns into a six-figure income-tax charge per option holder. Getting the valuation right is not an administrative nicety, it is the gate that decides whether your scheme delivers the incentive you designed.

An HMRC-agreed EMI valuation is valid for 90 days from sign-off, the window in which the board must execute the grant. Across 2,500+ UK SME business value appraisals at BusinessValuation.co.uk, grants made outside that window are the most common reason a scheme fails to deliver the tax treatment everyone assumed it would.

This article is the working masterclass we use with UK SME founders, CFOs and people leaders setting up or refreshing an EMI scheme. It covers what an EMI valuation actually is, why HMRC requires two numbers per share class rather than one, how a competent valuer builds the report, when you need a fresh one, the failure modes that cost real money, the procedural sequence that keeps you inside HMRC's safe harbour, and what a clean, well-run process looks like in calendar form. By the end you should know exactly what your valuer is doing on your behalf, what to look for in the report, and how to keep every grant inside the protective ninety-day window.

Two analogies: the planning permission and the MOT

Two analogies make EMI valuations intuitive. The first is planning permission. Before you build an extension you do not ask the council whether the finished building is acceptable; you submit drawings, get permission, and then build inside the permission. EMI works the same way. You get HMRC's agreement to a per-share value before you grant; the grant happens inside the agreed parameters, with documented certainty. Granting first and then 'getting it valued' is the equivalent of building first and then asking the council to bless what you've already done. It sometimes works. It often does not. When it does not, the cost of remediation dwarfs the cost of doing it properly the first time.

The second analogy is the MOT. A valid MOT is a point-in-time certificate that expires after twelve months. It does not certify the car is roadworthy forever; it certifies it was on a specific date. An EMI valuation is a 90-day MOT for your share price. Reusing an expired valuation to grant options is driving on a lapsed MOT. The grant might still be legally valid, but the protection HMRC gave you has gone, and any later challenge sits on you and your option holders rather than on a documented HMRC agreement.

Why HMRC cares about the number

EMI is one of the most generous tax-advantaged share schemes in the UK. Provided the option is granted at an exercise price at least equal to market value, the employee pays no income tax or NIC on grant or on exercise (on the discount to current value), and on the eventual sale of the shares the gain is treated as a capital gain. Where the holding period and personal-company tests are met, that capital gain typically qualifies for Business Asset Disposal Relief at the prevailing BADR rate (14% in 2025/26, 18% from April 2026, up to the £1m lifetime limit per individual).

Those reliefs exist to incentivise long-term ownership in genuinely growing private companies. To stop the regime being used to convert salary into capital gains at scale, HMRC requires the exercise price to be set fairly. The valuation report, combined with HMRC's form VAL231, is the mechanism by which that fairness is confirmed. Once the Shares and Assets Valuation team (SAV) agrees a number, the company has ninety days of price certainty to grant options at that level, with the grants made inside the window protected from later challenge on the valuation itself.

If a grant is made at below market value without HMRC agreement, the discount becomes a taxable benefit on exercise, taxed at marginal income tax rates plus employee's NIC, with employer's NIC also payable by the company. The CGT-treatment benefits on the original discount are lost. Employees who thought they had EMI options effectively end up with a hybrid that is worse than either a clean EMI grant or a straightforward cash bonus, because the cash equivalent of the discount has accrued tax at marginal rates years after it was granted and is now sitting against a sale price that no longer cushions the bill.

AMV and UMV: the two numbers in every report

Every EMI valuation has to give HMRC two numbers per share class: the Actual Market Value (AMV) and the Unrestricted Market Value (UMV). AMV reflects the value of the shares with their real-world restrictions in place: drag-along, pre-emption, leaver provisions, transfer restrictions, board consent on transfers, and the absence of any liquid market for the holding. UMV is the same shares stripped of those restrictions, valued as if freely tradeable on the open market.

AMV sets the option's exercise price for the purpose of preserving the central EMI tax reliefs. Grant at AMV (or above) and the employee pays no income tax on exercise. UMV matters for the £250,000 per-individual limit on unexercised options and the £3m company-wide limit on the total value of EMI shares under option, both tested at unrestricted market value at the date of grant. The gap between AMV and UMV depends entirely on how restrictive the articles and shareholders' agreement are; a typical SME with normal pre-emption and drag provisions will see a combined minority and marketability discount in the range of 25 to 60%, with the depth driven by the holding size, the share class rights and the distance from a probable exit.

It is the company's responsibility, with help from the adviser, to identify and describe every relevant restriction in the report. SAV will not infer them from a passing reference. They want a specific list with a reasoned discount applied to each. Vague reports get challenged and slow the process; specific reports usually clear in two to four weeks. The single biggest determinant of whether your VAL231 sails through or goes into back-and-forth is the quality of the restrictions narrative.

How the valuation is built: the five-step methodology

A competent UK EMI valuation walks top-down from the company's overall equity value to the per-share AMV and UMV, with every step evidenced and the methodology explicit on the face of the report.

Step three is where most under-resourced valuations fail. A company that has raised a single preference round needs an option-pricing model or probability-weighted allocation to give the ordinary shares (which is what EMI option holders end up with) their true per-share value, which is typically meaningfully below the headline post-money price per preference share. Valuations that skip this step and divide enterprise value by share count produce ordinary-share UMVs that overstate value, consume the £250k and £3m limits faster than necessary, and leave headroom for future grants on the table.

When you need one (and when you do not)

You need an HMRC-agreed EMI valuation before granting options whenever the company has any features that put the exercise price in doubt, which, in practice, is almost always. The exceptions are narrow: a brand-new company with no trading history and a freshly subscribed nominal share capital can sometimes grant at nominal value without a formal report, but anything beyond that benefits from the price certainty SAV agreement provides.

You will also need a fresh valuation whenever something material changes: a funding round (priced or convertible), a major customer win or loss that re-rates maintainable earnings, an acquisition or disposal, a significant change in margin, a restructuring of the cap table, or simply the passage of time beyond the 90-day window. Reusing an expired valuation is one of the most common process failures we see in diligence, and it removes the price-certainty protection that HMRC's agreement provides.

If you are issuing actual shares (not options) to employees outside an approved scheme, a valuation is equally important. The relevant test is Employment Related Securities legislation rather than the EMI rules, but the same valuation disciplines apply. If you are granting CSOP options, the methodology and limits differ but the SAV agreement principle is the same. The cost of getting independent valuation evidence at the time of any share or option grant is small; the cost of reconstructing it three years later under buyer-diligence pressure is not.

The eight-step process blueprint

A clean EMI engagement runs to a predictable rhythm. Drawing from our aggregate transaction data at BusinessValuation.co.uk, the eight-step blueprint below is the version we see consistently completed inside six to eight weeks end to end, with no HMRC pushback and no remediation later.

The bottleneck in almost every engagement is step three, not the valuer or HMRC. Companies that prepare the information pack in advance routinely complete in six weeks; companies that drip-feed information over a month stretch the calendar to twelve weeks and risk missing the window for the planned grant date. A simple pre-engagement information checklist, signed off by the company secretary or head of finance before the valuer starts work, removes most of the friction.

Common failure modes (and what they cost)

The four failure modes we see most often in EMI valuations are predictable, expensive and entirely avoidable. The first is granting before the valuation is agreed. The board minutes the grant 'subject to valuation', the option-holder is told they have EMI options, and weeks later the valuation comes in at a number different from the placeholder. The fix is procedural: agree in the board minute that the grant takes effect on the date the option agreement is signed by both parties, after the valuation has been agreed and at the agreed exercise price. Anything earlier is a promise of options, not a grant.

The second is repurposing a valuation done for another purpose. A recent investment round, an internal share transfer, a probate valuation, and assuming it works for EMI. It usually does not. The methodology, the valuation date and the AMV / UMV distinction are all specific to the EMI regime. Repurposed valuations frequently get pushed back by SAV and almost always lose the certainty window.

The third is misjudging the restriction discount. Aggressive discounts that minimise AMV (and therefore the exercise price) without a clear list of substantive restrictions invite HMRC challenge, particularly where the discount applied is materially out of line with the share class rights and articles. Equally, applying a token discount to articles that are heavily restrictive over-prices the option and reduces its motivational value. The discount should follow the articles, not the desired outcome.

The fourth is missing the 92-day EMI notification deadline after grant. Notification is administrative (an online filing) but unforgiving. Miss the deadline and the grant is treated as an unapproved option, with the entire spread on exercise taxed as employment income at marginal rates plus NIC. We have seen otherwise clean schemes lose their EMI status entirely because the notification slipped by a week. Diary the notification on the day the option agreement is signed; do not wait until the end of the quarter.

Case study: Manchester SaaS scale-up

Drawing from our aggregate transaction data at BusinessValuation.co.uk, a representative Manchester SaaS scale-up with £4.2m ARR, recurring gross margin of 78%, a recent Series A at a £24m post-money valuation, and a 30-person team across product, engineering, sales and customer success. The board wanted to grant EMI options to fifteen senior hires across two cohorts in the first year.

The cap-table walk-through identified a participating preference share with a 1x non-participating preference, two SAFE notes pending conversion, and an existing legacy option pool granted under the previous accountant's scheme without HMRC agreement. The previous accountant had been dividing post-money by fully diluted share count to estimate per-share value, with no waterfall allocation and no AMV / UMV split. The estimated per-share number was £5.20.

A proper option-pricing-model allocation produced a per-share UMV for the ordinary shares of £2.80, materially below the headline preference price because of the liquidation preference and the pre-IPO probability weighting. AMV after a 35% combined minority and marketability discount was £1.82. The £250k individual limit therefore supported grants of roughly 137,000 ordinary shares per individual at AMV, against the 48,000 the previous methodology had allowed.

The remediation work for the legacy grants involved a fresh valuation backdated to the original grant date with full restrictions evidence, a voluntary disclosure to HMRC, and revised EMI notifications. The cost: £14k of advisory fees over six weeks. The benefit: the legacy option holders preserved their EMI status, three of whom were already approaching exercise. The new grants went out on the corrected per-share basis, inside a fresh 90-day window, with 65% more option entitlement per grant than the original methodology would have permitted. The CFO described the exercise afterwards as 'the highest-leverage £14k we have ever spent'.

What good looks like

A good EMI process is short, predictable and documented. The board agrees the option pool, the adviser produces a valuation typically within two weeks depending on complexity, SAV agrees the number, the grant is made within the 90-day window, the option agreements are signed and dated, and the EMI notifications are filed within ninety-two days of grant. Everybody knows what the shares are worth, on what basis, why, and the chain of evidence is contemporaneous.

Years later, when the company is sold and an option holder exercises and sells in one go, the chain of evidence is intact: a defensible AMV, an HMRC agreement at the time of grant, a clean cap table reconciled to the option register, and a CGT calculation that holds up to the buyer's diligence and any subsequent HMRC compliance review. That is what the modest cost of a proper EMI valuation buys you: not just a number, but a defensible audit trail that survives the only review that ever really matters, the one that happens during the sale process when there is no time to rebuild it.

Early-stage versus established companies

The valuation methodology shifts depending on the stage of the company. For a profitable, established SME with three or four years of consistent EBITDA, the work centres on a multiple of maintainable earnings cross-referenced to sector comparables, much the same as a trade-sale valuation but framed for SAV's specific lens. The restriction discount is the main variable; the earnings number is well-evidenced and rarely controversial.

For an early-stage, pre-profit business, the methodology shifts towards revenue multiples, benchmark data from comparable funding rounds, and an allocation across the cap table that respects preference rights. The most recent priced funding round is usually the strongest single anchor, but with a careful explanation of why the ordinary shares (the class the EMI pool sits in) command a meaningfully lower per-share value than the headline preference price. The allocation methodology, OPM or PWERM, must be explicit in the report and the assumptions defensible.

Mid-life companies that have raised once or twice and are growing into profitability sit between the two methodologies. A blended approach: earnings cross-checked against the round price, with explicit ordinary-share allocation, typically clears HMRC cleanly. The narrative around the choice of method matters more than the choice itself.

Cap-table complications that need flagging early

A handful of cap-table features routinely complicate EMI valuations and need to be flagged early. Preference shares with accruing dividends or a multiple liquidation preference change the waterfall and depress ordinary per-share value. Convertible loan notes that have not yet converted need a methodology choice (convert on as-if basis, or treat as debt). SAFE notes pending conversion need the same treatment. Anti-dilution provisions can affect the post-grant economics of the option pool. SEIS- and EIS-eligible shares with their own restrictions need to be modelled separately.

Founder vesting still in flight, unpapered option promises from earlier years, side-letters with strategic investors and warrants issued to advisers all surface during the cap-table review. The valuation report has to reflect the company as it actually is, not as the cap-table spreadsheet says it is. A pre-engagement cap-table tidy-up is one of the most valuable hours of work before commissioning the valuation itself, and it routinely saves two or three weeks of back-and-forth between the valuer and the company secretary later.