EMI Valuation Guide

What this guide covers

A complete reference on how an EMI valuation is built in the UK - from scheme eligibility through to the VAL231 submission and the 90-day HMRC agreement window.

It is written for founders, CFOs and advisers preparing an EMI grant. It explains what HMRC expects to see, how the share value is derived, and how to avoid the common mistakes that cause SAV to come back with questions.

What is an EMI valuation?

EMI (Enterprise Management Incentives) is the UK's most tax-efficient share option scheme. To grant EMI options the company has to establish two values for the share class being optioned:

• UMV - the Unrestricted Market Value
• AMV - the Actual Market Value

The EMI exercise price must be set at no less than AMV at grant for the options to keep their tax-advantaged status. UMV is also reported because it drives the £250,000 individual limit and the £3m company limit on EMI grants.

The valuation is submitted to HMRC's Shares and Assets Valuation team on form VAL231, together with a supporting report. Once SAV agrees the value, the agreement is valid for 90 days and protects both the company and the option-holder from later challenge.

EMI scheme eligibility (quick check)

Before commissioning a valuation, confirm the company and the option-holder are eligible:

If any of these fail, the options are not EMI - they default to unapproved options with very different tax treatment. The valuation work is the same, but the VAL231 route is not available.

The EMI valuation workflow

A defensible EMI valuation follows the same six steps, in order, every time.

Step 1 - Confirm the share class being granted

EMI options are almost always granted over Ordinary shares. The valuer needs to confirm:

• The exact share class (Ordinary, A Ordinary, Growth, etc.)
• The rights attached to that class (dividends, votes, capital on exit)
• Any restrictions in the articles or shareholders' agreement that bite on that class

If the class being optioned does not yet exist (for example a new class of Growth share), the articles need to be amended and the new rights settled before valuation work begins.

Step 2 - Build the equity value

For a profitable trading company, the dominant method is earnings multiples benchmarked against listed comparables and recent M&A transactions. For pre-revenue or early-stage companies, the dominant method is a backsolve from the most recent funding round.

The valuer typically considers:

• Recent funding round - if the company has raised in the last 12-18 months, the implied equity value is the starting point
• Earnings multiples - EBITDA multiples for profitable businesses, revenue multiples in narrow circumstances
• DCF - where forecasts are reliable and supported by contracts
• Net asset value - as a floor for asset-heavy or distressed businesses

SAV expects to see at least two methods for any company that is not at a pure pre-seed stage. A single-method valuation will usually trigger questions.

Step 3 - Allocate value to the share class (the waterfall)

Most UK SMEs that have raised institutional money have a capital structure with preferences - Preference shares with a liquidation preference, conversion rights, or anti-dilution protection.

The Ordinary share value is therefore not simply equity value divided by share count. It is derived by:

• Modelling the capital structure as a waterfall
• Allocating value to each class on exit
• Using either a current value method (CVM) or an option pricing method (OPM, Black-Scholes based) depending on the company's maturity and exit horizon

This is the step that separates a defensible EMI valuation from a back-of-envelope estimate. It is also the step HMRC scrutinises hardest when Preference shares exist.

Step 4 - Apply a discount for lack of marketability (DLOM)

A minority holding in an unquoted UK company cannot be freely sold. The valuer applies a DLOM to reflect the lack of an active market.

Typical DLOM ranges for UK SME Ordinary shares:

• Early-stage with no exit horizon: 25-40%
• Growth-stage with a 3-5 year exit horizon: 15-25%
• Mature, profitable, with active interest from buyers: 5-15%

DLOM is applied to UMV, not within the AMV discount - mixing the two is a common error.

Step 5 - Compute UMV and AMV

UMV is the share value after the waterfall allocation and DLOM, ignoring any contractual restrictions on the shares themselves.

AMV is then derived from UMV by applying a further discount for the restrictions in the articles and shareholders' agreement - leaver provisions, forced transfer triggers, board consent on transfer, and so on.

Typical AMV discount: 5-20% of UMV for standard UK SME articles.

The full mechanics of UMV vs AMV are covered in our dedicated guide: UMV vs AMV explained.

Step 6 - Prepare the VAL231 submission

The VAL231 form is short (one page). The work sits in the supporting report, which HMRC expects to cover:

• Company background, sector, stage and capital structure
• Methodology and choice of comparables
• Valuation working showing how each method was applied
• Waterfall allocation if applicable
• DLOM analysis with reference to academic and HMRC-accepted ranges
• Restriction analysis driving the AMV discount
• Final UMV and AMV per share, with the reasoning chain visible end-to-end

The valuer signs the report, the company directors sign VAL231, and the package goes to SAV by email or the online portal.

How HMRC reviews an EMI submission

SAV's review follows a structured methodology. Each step is implicit in the way they respond - and if any step is unanswered, the file comes back with questions.

• Methodology - is the valuation method appropriate for the company's stage, sector and evidence base?
• Articles reviewed? - has the valuer read the articles and shareholders' agreement, and listed every restriction that bites on the share class?
• Restrictions identified? - are the leaver, transfer and forfeiture provisions identified individually, with the AMV impact of each made explicit?
• Reasonable? - is the AMV discount within the range a third-party buyer would apply?
• Comparable? - is the result consistent with comparable EMI valuations agreed by SAV in similar situations?
• Accepted - if all of the above are satisfied, SAV agrees the value and the EMI grant proceeds.

A clean submission is usually agreed in 4-6 weeks. A submission that triggers questions can take 8-12 weeks, or longer.

The 90-day window

Once SAV agrees the value, the 90 days count from the date of the agreement letter. Within that window the company can grant EMI options at the agreed AMV. Three things to keep in mind:

• The grant date, not the offer date or the board approval date, is what matters for the 90-day test
• A material event during the window (funding round, major contract, restructuring) invalidates the agreement, and a fresh VAL231 is required
• If the 90 days lapse, the valuation is stale and a new submission is needed - SAV will not extend a stale agreement

A pragmatic schedule: get the agreement in place, then grant within 60 days to leave a buffer for board logistics.

Common mistakes

Worked example

A UK B2B SaaS company:

• Raised a £4m Series A 9 months ago at a £16m post-money on Preference shares
• 5 million Ordinary shares, 1 million Preference shares
• Articles include a standard leaver regime (good leaver at fair value, bad leaver at the lower of fair value and cost) and pre-emption on transfer
• Plans to grant 250,000 EMI options to four new hires

Step 1 - confirm the class: Ordinary shares, no separate growth share class.

Step 2 - equity value: Recent Series A implies a post-money of £16m. No material change since the round. Cross-checked against revenue multiples for comparable SaaS at the company's ARR (£1.4m): supports a £14-17m enterprise value range. Round price holds.

Step 3 - waterfall: Preference holders are entitled to £4m back first, then convert pro-rata. OPM allocation places the Ordinary class at £11.2m out of the £16m equity value (the Preference liquidation preference absorbs the rest).

Step 4 - DLOM: Growth-stage SaaS with a credible 3-4 year exit horizon. Selected DLOM: 22%.

• Pre-DLOM Ordinary per share: £11.2m / 5m = £2.24
• Post-DLOM: £2.24 x (1 - 0.22) = UMV £1.75 per share

Step 5 - AMV: Standard leaver and transfer regime. Bad-leaver risk over a 4-year vesting horizon assessed at a 12% discount.

• AMV: £1.75 x (1 - 0.12) = AMV £1.54 per share

Step 6 - VAL231: Submitted with UMV £1.75 and AMV £1.54. SAV agrees the values after one round of clarification on the OPM assumptions. Options granted at an exercise price of £1.54.

EMI valuation at Optival

Optival prepares HMRC-facing EMI valuations as a fixed-fee deliverable. Each engagement includes:

• The full valuation report (20-30 pages) with methodology, comparables, waterfall and restriction analysis
• VAL231 prepared and filed with HMRC SAV
• Defence of the submission through to agreement, including responses to any SAV questions
• Final agreement letter and a record of the 90-day window

See the EMI valuations service page for current pricing and turnaround.

FAQ

Related guides

• What is VAL231? Complete guide - the HMRC form, timeline and what gets filed
• What is HMRC SAV? - the team that reviews EMI valuations
• UMV vs AMV explained - the two values that drive every EMI exercise price
• What is my business worth? - the underlying valuation framework EMI builds on