Setting an EMI option price is not a paper exercise. Get it wrong, and a scheme designed to reward employees can create avoidable tax exposure, confusion and difficult conversations later.
For an EMI share valuation, AMV and UMV are two separate market values, not competing valuation methods. AMV reflects restrictions and forfeiture risk. UMV ignores them. The correct figure depends on the tax test, EMI limits and the rights attached to the relevant shares. A properly prepared HMRC EMI valuation report gives you a documented basis before options are granted.
Key Takeaways
- AMV takes account of share restrictions and the risk that shares may be forfeited.
- UMV assumes the shares are unrestricted and freely transferable.
- The exercise price is usually set at or above AMV at the grant date.
- UMV is relevant when testing the individual and company-wide EMI limits.
- A defensible valuation needs financial evidence, the correct share class and a review of the legal documents.
What AMV and UMV Mean in an EMI Share Valuation
HMRC distinguishes between Actual Market Value (AMV) and Unrestricted Market Value (UMV) where shares are restricted or carry a risk of forfeiture.
AMV is the value of the shares after allowing for relevant restrictions and forfeiture risk. It asks what a buyer would pay for the shares as they exist, with their actual legal and commercial limitations.
UMV is the value of the same shares if those restrictions and forfeiture risks did not exist. It assumes the shares can be transferred without those constraints.
AMV is often lower than UMV. That is not an automatic result. The gap depends on the terms of the shares, the company documents and the practical effect of each restriction.
Both values are measured at the EMI grant date. Both must relate to the rights attached to the share class under option. Ordinary shares, growth shares and preference shares can have materially different rights. A headline company value is not enough.
How share restrictions can reduce AMV
Restrictions can affect what a willing buyer would pay. Common examples include transfer restrictions in the Articles of Association, board consent requirements, pre-emption rights, compulsory transfer provisions and provisions affecting good and bad leavers.
Vesting conditions can matter too. So can a requirement to sell shares back to the company or other shareholders at a prescribed price. Where an employee can lose shares on leaving, the risk of forfeiture needs proper analysis.
The valuer should review the Articles, shareholder agreement and option plan rules. A standard percentage discount without evidence is weak work. The question is not whether a restriction exists on paper. The question is whether it affects the value of that particular shareholding.
A restriction that has no meaningful commercial effect may have little impact on AMV. A restrictive leaver clause can have a substantial effect.
Why UMV still matters when setting EMI limits
UMV is generally used to test the statutory EMI limits. At the grant date, the total UMV of shares under unexercised EMI options must stay within the relevant limits.
As at July 2026, the individual limit is £250,000 of UMV. The company-wide limit is £3 million of UMV. These figures and the detailed conditions should always be checked against current HMRC guidance before options are granted.
UMV is not the figure used to decide whether an option was granted at a discount for employment tax purposes. That distinction is where many founders go wrong.
Choosing AMV or UMV for an EMI Share Valuation: Which Value Sets the Exercise Price?
The direct answer is simple. If the company wants to avoid a discounted EMI option based on market value at grant, the exercise price should usually be set at or above the agreed AMV.
Where the option price is below AMV, the discount can give rise to an income tax charge on exercise. Setting a higher exercise price does not make the option invalid, but it changes the employee’s economics. It may also reduce the motivational value of the award.
UMV cannot be ignored. It remains relevant to the EMI limits and should form part of the wider valuation record. But UMV is not the standard exercise-price benchmark where restricted shares are being valued.
Keep three figures separate:
- The total equity value of the company.
- The UMV of one unrestricted share.
- The AMV of one restricted share under option.
Confusing these figures can lead to an option price that looks sensible but does not meet the required tax position.
A simple example of AMV and UMV
Assume a valuation supports an AMV of £2.00 per share and a UMV of £2.40 per share at the grant date.
An exercise price of £2.00 per share may avoid a discount based on AMV, provided the wider EMI conditions are met. The £2.40 UMV figure may be used when assessing how much of the employee’s £250,000 individual EMI allowance is being used.
These figures are illustrative only. The £0.40 difference must be supported by the actual share rights, restrictions and company evidence. It is not a figure that can be copied from another business or assumed from a previous valuation.
When the two values may be close or the same
AMV and UMV may be similar where the shares have few meaningful restrictions. They may also be the same where a restriction does not reduce what a buyer would pay in practice.
The outcome depends on the Articles, shareholder agreement, option plan, share class rights and capital structure. It also depends on the company’s risk profile and available market evidence.
A profitable business with a recent third-party funding round may have stronger evidence than an early-stage company with limited trading history. Neither situation removes the need to assess the restrictions properly.
How a Defensible EMI Valuation Establishes AMV and UMV
Start with the grant date. Then identify the correct share class. A valuation of the wrong shares is not a technicality. It can undermine the whole exercise.
The underlying equity value should be supported by an appropriate method. That may include maintainable earnings and EBITDA multiples, a discounted cash flow valuation, comparable transactions, recent fundraising terms or net asset value. The right method depends on the business and the quality of available evidence.
Next, review the cap table, rights and restrictions. This establishes whether the underlying value needs adjustment for AMV. UMV should be calculated or explained on an unrestricted basis.
HMRC’s Shares and Assets Valuation team expects reasoned workings and evidence. A single number on a spreadsheet is not a valuation. The record should show how the conclusion was reached and why the selected method fits the company.
Documents needed for an HMRC valuation submission
Good preparation reduces delays and avoids inconsistent information. The core file will usually include:
- Latest statutory accounts, current management accounts, budgets and financial forecasts.
- A current cap table, share class rights, Articles of Association and shareholder agreements.
- Option plan rules, funding documents and details of recent share transactions.
- Key customer contracts, material risks, growth plans and information on any proposed investment or disposal.
Missing documents can slow the review. Contradictory forecasts, outdated cap tables or undisclosed funding discussions can create more serious issues. The figures in the valuation, the option paperwork and the board approvals should all use the same effective date.
How VAL231 and HMRC agreement fit into the process
Companies commonly use Form VAL231 to submit a proposed EMI valuation to HMRC’s Shares and Assets Valuation team. The form records the proposed AMV and UMV, together with information about the company and the shares.
Seeking agreement before grant gives the board a clearer basis for setting the exercise price. It is not a substitute for checking every EMI qualification condition. The company must still meet the trading, independence, gross assets and employee eligibility requirements.
Check the current HMRC form instructions and timing rules before submission. A material event may require a fresh assessment. Examples include a new funding round, a new share class, a significant contract win or loss, or a sharp change to forecasts.
Common Mistakes When Selecting AMV or UMV for EMI Options
The most common mistake is treating AMV as an assumed discount to UMV. Restrictions should be analysed, not guessed. The second is using the wrong share class, particularly where investor shares carry preferences that ordinary employee shares do not.
Founders also rely too heavily on an old funding round. A funding price may be useful evidence, but it must be adjusted for the shares issued, the date, investor rights and subsequent changes in the business.
Other recurring problems include overlooking leaver provisions, ignoring dilution, and using a cap table that no longer reflects the company’s capital structure. Granting options before the valuation is agreed can also create unnecessary risk where the exercise price has already been fixed.
Clear records matter. Keep the valuation date, board approval date, grant date and signed option documents aligned. A compliant EMI scheme is built on evidence and process, not assumptions.
How Consult EFC can help your SME get the valuation right
Consult EFC prepares independent, evidence-led EMI valuations for UK SMEs and start-ups. The work covers the financial analysis, cap table, share rights, legal restrictions and the AMV and UMV conclusions required for the scheme.
A credible report needs more than a multiple applied to last year’s accounts. Consult EFC reviews the facts that affect value, presents clear workings and prepares information in a form HMRC can assess. For founders seeking a practical route to grant, the UK SME EMI valuation process starts with the company as it stands on the intended grant date.
Conclusion
AMV reflects the restrictions and forfeiture risk attached to employee shares. It is usually the figure that matters most when setting the EMI exercise price. UMV ignores those restrictions and remains important for EMI limit testing.
The right answer depends on the grant date, the share rights, current financial evidence and HMRC’s rules. Speak with Consult EFC before granting options, so the valuation and supporting documents are prepared properly.
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Over 12 years across Big Four audit, Investment Banking and corporate advisory. Kishen works with UK SMEs on valuations, exit planning, fundraising and financial strategy. ICAEW regulated. Big Four trained. Based in London.