EMI Valuation Timing: Pre-Grant Sequence and 90-Day Window

Bottom line up front. An HMRC-agreed EMI valuation remains valid for 90 days from sign-off; grants made outside that window lose the tax-advantaged treatment, exposing the option holder to income tax and NIC on the spread. Reverse that sequence, or break it in the middle, and you put both the company and the option holders into a position where the tax outcomes you promised are no longer guaranteed. Get the sequence right and the process is short, predictable and protective. Get it wrong and the consequences land years later, on the very people you wanted to incentivise, when an exit triggers a compliance review and an unexpected income-tax charge arrives in the inbox of an employee who thought they had EMI options.

An HMRC-agreed EMI valuation is valid for 90 days from sign-off; grants made outside that window lose the tax-advantaged treatment and expose option holders to income tax and NIC on the spread. In our EMI valuation work at BusinessValuation.co.uk, the failures almost never come from the valuation itself, they come from sequencing: boards that grant first and value later, or agree a value and then let the 90-day window lapse before executing.

This article is the working sequence-and-timing masterclass we use with founders, CFOs and heads of people running EMI schemes in UK SMEs. It covers the right sequence, why timing matters even within the 90-day window, the grant-first trap, the material-change triggers that reset the clock, how to align valuations with corporate events such as funding rounds, the EMI calendar that turns ad-hoc grants into a repeatable rhythm, the 92-day notification deadline that is the most unforgiving in the regime, and what a clean, well-run cycle looks like in calendar form. If you grant more than three or four EMI options a year, the discipline in this article will save you significantly more in tax and remediation than it costs to implement.

Two analogies: building permits and flight slots

Two analogies make EMI timing intuitive. The first is building permits. You do not start building, then ask the council for permission, then expect them to validate what you have already built. You apply for the permit, receive it, build inside the parameters, and document the result. EMI works the same way. The valuation is the application, the SAV agreement is the permit, the 90-day window is the construction period, and the EMI notification is the building-control sign-off. Doing those in any other order is choosing to operate without protection.

The second analogy is the flight slot. An aircraft is given a specific take-off slot at a congested airport. Miss the slot by ten minutes and you go back into the queue. The 90-day window is your take-off slot for EMI grants; the 92-day notification deadline is the post-flight customs declaration that must be filed regardless of how the flight went. Both are administrative, both are unforgiving, and both are entirely avoidable as failure modes once you understand they exist.

The right sequence, every time

An EMI valuation should be commissioned, agreed with HMRC and formally confirmed in writing before any options are granted. The HMRC agreement provides ninety days of price certainty. Long enough to issue board minutes, finalise option agreements, brief and sign up the option holders, and file the EMI notification within the statutory window. That is the only sequence that gives every party the protection the scheme is designed to deliver.

In practical terms the flow is: commission the valuation as soon as the option pool is conceptually agreed by the board; provide the adviser with the accounts, cap table, articles, shareholders' agreement and current-year forecast; receive the draft report; submit VAL231 to HMRC with the report attached; receive SAV agreement (typically two to four weeks for a well-prepared submission); grant the options inside the 90-day window on a single documented date; and notify HMRC of the grant within the statutory 92-day deadline. The whole process is six to eight weeks end to end if the company provides information promptly and the cap table is clean before the engagement starts.

Why the 90-day window exists

The ninety-day window exists because share values move. A valuation agreed in January should not be relied upon for a grant in June. The company has traded, possibly raised, possibly won or lost a material contract, and the per-share market value at the date of grant in June is genuinely different from the January figure. HMRC's certainty is bounded by the window precisely because the certainty itself depreciates with time. Reusing an expired valuation to grant options removes the protection it was designed to provide, even if the underlying analysis still looks plausible to the company.

If options are granted outside the 90-day window relying on an expired valuation, the position is recoverable but no longer protected. The EMI grant is still legally valid; the price-certainty safe harbour is gone. If HMRC later challenges the exercise price as below market value at the date of grant, the discount becomes a taxable benefit on exercise, taxed at marginal income tax rates plus employee's NIC, with employer's NIC payable by the company. The option holder loses the clean CGT treatment on the entire spread between the corrected market value and the eventual sale price; the company picks up the employer NIC and often steps in to gross up the affected employees, none of which is recoverable from HMRC.

The grant-first trap

The single most damaging mistake we see in EMI schemes is the board agreeing to grant options 'subject to valuation' and then treating the valuation as a tidy-up exercise. The option agreement records an exercise price (often a placeholder figure), the option holder is told they have EMI options, the offer letter mentions a strike price, and weeks or months later the valuation comes in at a different number. Now the company has two unpleasant choices: re-paper the grants at the new price, with all the disclosure, employment-relations and accounting consequences that follow; or accept the original price and lose the price-certainty protection that an in-window agreement would have provided.

The fix is procedural rather than expensive. 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 in the sequence is a promise of options, not a grant. Promises are fine, and indeed normal in offer letters and hiring conversations; documented grants at an unvalidated price are not. The single sentence that solves the problem in every board minute is: 'The grant takes effect on the date the option agreement is signed by both parties at the AMV agreed by HMRC.' That sentence is the difference between a clean scheme and a remediation exercise.

Material change as a trigger to reset the clock

Even within the 90-day window, a material change in the company can reset the clock and require a fresh valuation. A new priced funding round (or a SAFE / convertible converting at a price), a major customer win that re-rates maintainable earnings, an acquisition or disposal, the loss of a customer representing more than 10 to 15% of revenue, a substantial change in margin profile, or a change to the articles or shareholders' agreement that alters the rights of the share class being granted all change the per-share market value. If something materially changes between agreement and grant, a refreshed valuation is the right answer, not a debate about whether the original numbers still 'feel right'.

Material change is a question of substance, not a checklist. Routine trading volatility within the range used to prepare the original valuation does not require a refresh. A signed term sheet for a priced funding round at a higher per-share value does. So does the loss of a customer that was 30% of revenue, or the signing of a multi-year contract that adds 25% to maintainable earnings. The board, with input from the valuer, should make that judgement on the day the event occurs and document it in the minutes, even if the conclusion is that no refresh is required. The documentation is the protection later.

Aligning EMI grants with corporate events

EMI grants do not happen in isolation. They are usually triggered by a hire, a promotion, a funding round, a refresh of the option pool, or a strategic milestone such as a product launch. Each of those events affects the valuation work and, often, the optimal timing of the grant. A new senior hire just before a planned priced funding round is best granted options at the pre-money valuation rather than after the round completes and the per-share value re-rates upwards. A promotion-driven grant is best timed to align with the next valuation refresh rather than triggered as a standalone event.

Aligning the valuation, the grant and the corporate event takes a little planning but pays off in both tax efficiency and motivational power. Options granted at a fair, defensible pre-event price are genuinely valuable to the recipient; options granted at a post-event price often feel meaningless because the obvious next step (the round, the deal, the customer launch) has already crystallised the value. The valuation calendar should therefore look forward at least twelve months and identify the moments when grants are most valuable for option holders and least disruptive for the company.

Multi-grant programmes and the EMI calendar

Companies that grant options regularly, quarterly to new hires, annually as part of a refresh, should adopt a rolling valuation cadence. The simplest pattern is to commission a fresh valuation every six to nine months and to grant within the 90-day window of each agreed valuation. Outside those windows, grants either wait for the next cycle or trigger a refresh if the business case is strong enough to justify the cost.

Drawing from our aggregate transaction data at BusinessValuation.co.uk, the EMI calendar blueprint below is the version we see consistently delivering clean grants, clean diligence years later, and predictable administration overhead.

This rhythm turns EMI from an ad-hoc administrative burden into a predictable people-operations process. It also creates a clean audit trail for any future exit, where the buyer's diligence team will ask to see the valuation evidence behind every grant in the register. The calendar is, in our experience, the single highest-leverage administrative change a CFO or head of people can make to an existing EMI scheme; it pays for itself within two cycles in reduced advisory back-and-forth alone.

The 92-day notification deadline: the most unforgiving in the regime

The valuation and the grant are only half the story. Each EMI grant must be notified to HMRC within the statutory deadline after the date of grant (currently 92 days). A missed notification means the grant is not an EMI grant at all. It is an unapproved option, taxed as employment income on exercise at marginal rates plus NIC, with no CGT treatment of the spread between exercise price and sale price. There is no statutory extension mechanism, no 'reasonable excuse' exception in the same form available for self-assessment, and no informal cure. The grant simply loses its EMI status retroactively from day 92.

Diary the notification on the day the option agreement is signed. The administration is straightforward: an online filing through HMRC's Employment Related Securities service, with the company's unique reference, the grant date, the option holder details and the exercise price. The filing itself takes under an hour. But missed deadlines are unforgiving. We have seen otherwise clean schemes that were entirely lost because the notification slipped by a week, usually because the person responsible left the company between grant and deadline and the handover did not cover EMI obligations. Two practical mitigations: (a) make the 92-day notification a calendar event automatically created when any option agreement is signed, and (b) name a deputy on the EMI file who knows the deadline and the filing process.

Case study: London consultancy, the cost of bad timing

Drawing from our aggregate transaction data at BusinessValuation.co.uk, a representative London-based professional consultancy with £3.6m revenue, £720k EBITDA, twenty-eight staff and a thirty-person second-tier of senior consultants the founders wanted to incentivise with EMI. The board minuted a grant of options to four senior hires in March, recording an exercise price of '£0.50 per share, subject to valuation'. The actual valuation engagement did not begin until late May after the head of finance returned from parental leave. SAV agreement landed in mid-July at an AMV of £1.20 per share, materially above the placeholder.

The board now faced three problems simultaneously. First, the four option holders had been told their strike was £0.50; re-papering to £1.20 was a significant employee-relations issue and one of the four threatened to leave. Second, the original March grants could not be salvaged inside any 90-day window because the agreement was not in place at that date. Third, two of the four hires had already exercised early, expecting EMI treatment, and were now exposed to income tax on the discount between the placeholder strike and the genuine market value.

The remediation took four months and approximately £35k in tax-advisory, employment-law and replacement-valuation fees. The company chose to honour the £0.50 strike commercially by cancelling and re-issuing as unapproved options with a contractual gross-up of the tax cost, costing the company a further £48k in employer NIC and gross-up payments over the next two years. Total cost of the timing error: approximately £83k, against a saving of £2k on the original valuation that the board had deferred. The same engagement run in the right sequence, value first, grant second, notify third, would have cost £3,500.

What good timing looks like in practice

The well-run EMI process looks like this. At the start of a quarter the board confirms the option pool and the recipient list. The adviser is engaged immediately and a fresh valuation is in hand within four weeks. VAL231 is submitted to HMRC; agreement arrives two to four weeks later. Board minutes, option agreements and EMI notification calendar entries are prepared in parallel. Grants happen on a single date inside the 90-day window, with the option agreements signed and dated by both parties on that same day, and the EMI notifications are filed inside the 92-day deadline (typically within thirty days of grant, well clear of the statutory limit).

The whole cycle takes a couple of months and is repeatable for the next round of hires. Owners who run it this way rarely have problems at company level, at option-holder level, or in diligence at the eventual exit. Owners who improvise often inherit problems that surface only when the company is sold and the buyer's lawyers ask for evidence that does not exist. The cost of doing it properly at the time of each grant is trivial compared to the cost of fixing it under diligence pressure three years later when the founders are trying to focus on negotiating a sale.

What buyers' diligence teams look for years later

Every EMI grant a company makes today will eventually be reviewed by a buyer's tax and legal diligence team if the company is sold. They are looking for a clean, contemporaneous chain of evidence on each grant: the board minute approving it; the option agreement signed by both parties on a specific date; the valuation report and HMRC agreement that supported the exercise price on that date; the EMI notification filed inside the statutory window; and the option register reconciling to the cap table.

Gaps in that chain are quantified as risk in the share-purchase agreement, usually as a specific tax indemnity from the sellers covering any income-tax and NIC liability that arises if HMRC later challenges the grants. Indemnities are uncapped in time, capped in amount, and reduce the cash the sellers actually receive at completion either through escrow or through reduced headline price. Companies that have run a tidy EMI process throughout their history close cleanly with no specific indemnity; companies that improvised typically face a holdback of 5 to 10% of consideration for two to seven years, which on a £10m deal is £500k to £1m of cash locked up for the period.

The cost of doing this properly at the time of each grant is trivial compared to the cost of fixing it under diligence pressure years later. Treat every grant as if a buyer's lawyer will read the file in five years, because one of them will, and the version of you sitting in the deal room then will be very grateful to the version of you reading this article now.

Coordinating with founder, investor and customer milestones

EMI grants are rarely the only thing happening on the corporate calendar. Founder secondaries, investor follow-ons, customer contract renewals that re-rate the business, and statutory year-end all interact with the valuation. A grant scheduled the week before a priced funding round closes is almost always a missed opportunity if the documentation does not complete on time: the lower pre-round valuation locks in cheaper options for the team, but only if the grant actually takes effect before the round.

The discipline is to map the next twelve months of corporate events onto the EMI calendar, identify the windows in which grants are most valuable for option holders and least disruptive for the company, and book the valuation work into those windows. Investors generally welcome the conversation: a properly run EMI process is a sign of corporate maturity, and the dilution it represents has already been modelled in their cap-table forecasts. Where founders are themselves taking secondary liquidity in the same period, careful sequencing matters: the valuation evidence for the secondary should reconcile to the valuation evidence for the EMI grant, with any differences (typically driven by preference rights or restriction discounts on the ordinary shares) clearly explained. Inconsistent valuations across simultaneous transactions are a red flag in any later diligence and the kind of inconsistency that quietly costs sellers seven-figure sums in escrow holdbacks at exit.