01Why EMI options need a valuation
Enterprise Management Incentive options can give qualifying employees a favourable tax outcome when they acquire shares. That outcome depends partly on the market value of the shares when the options are granted. For private companies there is no market price, so a valuation is needed.
02Actual and Unrestricted Market Value
Actual Market Value (AMV) takes account of restrictions on the shares, such as compulsory transfer if the employee leaves. Unrestricted Market Value (UMV) ignores those restrictions. UMV is used for the scheme's limits on the value of options; AMV is relevant to whether income tax arises when options are exercised. Your adviser applies the rules to your circumstances.
03How the shares are valued
The valuer considers the company's stage, results, forecasts and recent funding rounds, and how value is shared between share classes. Ordinary shares under option usually rank behind investors' preferred shares and form a small, non-controlling holding, so their value per share is often lower than the price investors paid.
04Agreeing the value with HMRC
Companies can ask HMRC's Shares and Assets Valuation team to agree AMV and UMV before granting options. HMRC's agreement is usually valid only for a limited period, set out in its response, and options should be granted within it. The current procedure and timescales should be checked with your adviser at the time.
05When to revalue
A new valuation is usually needed when:
- The period covered by an earlier HMRC agreement has expired
- The company has completed a funding round
- A sale or listing is being explored
- A significant contract, product launch or loss has changed the outlook
This guide is general information, not advice on any particular situation. The correct approach to a valuation depends on its purpose, the basis of value and the facts.
