EMI Share Valuations for UK SMEs. HMRC AMV and UMV (VAL231)

The Enterprise Management Incentive scheme is the most generous share option regime available to UK SMEs. Options granted under EMI can be exercised free of income tax and National Insurance, and the resulting share sale can qualify for Business Asset Disposal Relief. None of that works unless the options are granted at the right price. Getting the EMI share valuation right, and getting it agreed with HMRC in advance. Is what protects the entire tax benefit for both the company and the option holders.

AMV, UMV and what they do

Every EMI valuation has two numbers. Actual Market Value (AMV) is the value of the option shares as they actually are. Reflecting the restrictions in the articles of association, the leaver provisions, the absence of voting rights and the illiquidity of a minority position in a private company. AMV sets the exercise price of the options. Unrestricted Market Value (UMV) ignores all those restrictions and prices the shares as if they were freely tradeable. UMV is used solely to test compliance with the £250,000 per-employee EMI limit and the £3m company-wide limit.

AMV is almost always lower than UMV, often 30% to 60% lower for early-stage companies, because the restrictions and the minority position are real economic drags on value. Both numbers have to be calculated, justified and submitted to HMRC for agreement before any options are granted that the company wants to defend.

The VAL231 process

Form VAL231 is the HMRC mechanism for agreeing both AMV and UMV in advance of an EMI option grant. The company submits the valuation, the supporting financial analysis and the methodology, and HMRC's Shares and Assets Valuation team reviews and either agrees or queries the figures. Agreed values are binding for 90 days. Grants made inside the 90-day window can rely on the agreed values; grants outside it require a fresh submission, although the underlying analysis can usually be refreshed quickly.

HMRC currently takes 4 to 6 weeks to process VAL231 submissions, so the full timeline from instruction to a usable agreed valuation is typically 6 to 8 weeks. Companies planning a board-approved option grant should commission the valuation well in advance of the intended grant date.

Methodology that HMRC accepts

For most trading SMEs, our EMI valuations are built on an earnings-based methodology, cross-checked against discounted cash flow and recent comparable transactions. For early-stage or pre-profit companies, we use a combination of recent investment round pricing, scorecard methods, and forward-looking DCF with appropriate risk adjustment. The methodology is set out in full in the report so HMRC can follow the reasoning and the company can defend the same approach at subsequent grants.

Minority discounts and restriction discounts are evidenced rather than asserted. We cite the relevant provisions of the articles, the specific restrictions on the option shares, the dividend history (or lack of it) and the realistic prospect of an exit. The combined discount applied to move from a proportionate share of enterprise value to AMV is justified line by line.

Fees and timing

Fees are fixed and agreed at the scoping call. They depend on the size and stage of the company but are deliberately set so the cost is a small fraction of the lifetime tax saving the scheme delivers. Most engagements complete the valuation work in 1 to 2 weeks from receipt of information. We handle the VAL231 submission, respond to any HMRC queries and provide a clean letter of agreement at the end of the process. The result is an EMI scheme that does what it was designed to do. Reward the team and protect the tax break.