Who it's for: anyone in a UK SaaS or tech finance team who posts, reviews or explains the share option charge, from finance assistant to financial controller.
What you'll get: what EMI is, the current UK rules as at October 2026, how the monthly share-based payment charge works under FRS 102 and IFRS 2, worked journals for grant, leavers and exercise, and AI prompts to try.
Reading time: about 11 minutes. Read it before the auditor asks about the option schedule.
Why share options turn up at month-end
Share options feel like a cap table problem, owned by the founders and the lawyers. But the accounts carry a monthly charge for them, even though no cash moves. If nobody in finance owns the option schedule, the charge is wrong, leavers aren't reflected and the year-end audit turns into an archaeology project.
The good news: once the schedule is set up, the month-end work is a short, repeatable journal and a few checks.
Key terms
- Share option: a right for an employee to buy shares at a fixed price (the exercise price) in the future.
- EMI (Enterprise Management Incentives): a UK tax-advantaged share option scheme for qualifying smaller, independent trading companies.
- Grant date: the date the company and employee agree the option's terms.
- Vesting: the period or conditions the employee has to meet (usually staying employed) before they can exercise.
- Exercise: the employee pays the exercise price and receives shares.
- Fair value: the value of the option itself at grant date, typically worked out with an option pricing model such as Black-Scholes. Not the same as the share price.
- Actual market value (AMV): the tax value of a share at grant, often agreed in advance with HMRC for EMI.
- Share-based payment charge: the P&L expense that spreads the options' fair value over the vesting period.
- Forfeiture: when an employee leaves before vesting and loses the options.
EMI rules that matter to finance (as at October 2026)
EMI rules changed from 6 April 2026, and more change is announced for April 2027. These points are from HMRC guidance and published summaries of the Finance Act changes. Check gov.uk for the latest before relying on them.
| Rule | As at October 2026 |
|---|---|
| Company gross assets limit | £120 million (raised from £30 million from 6 April 2026) |
| Employee limit | Fewer than 500 full-time equivalent employees (raised from 250) |
| Company-wide limit on unexercised EMI options | £6 million (raised from £3 million) |
| Individual limit | £250,000 per employee in any 3-year period (unchanged) |
| Maximum exercise period | 15 years from grant for options granted on or after 6 April 2026 (previously 10); existing options can be extended by amending the documents |
| Employee eligibility | Typically at least 25 hours a week (or 75% of working time), and no more than a 30% stake in the company |
| Notifying HMRC of grants | For grants from 6 April 2024, by 6 July after the end of the tax year of grant. The requirement is due to be removed for grants from 6 April 2027 |
| Annual share scheme return | Still required each year, by 6 July after the tax year end |
| Tax at exercise | Usually no income tax or NI if the exercise price was at least the market value at grant; any discount is taxed at exercise |
Qualifying trade, independence and other conditions apply too. These are for the company's advisers to confirm; finance's job is to keep the records that prove it.
The accounting in plain English
Under FRS 102 (Section 26) and IFRS 2, options given to employees for their services are an expense, even though the company doesn't pay cash. The approach for most EMI options (which are settled in shares, called "equity-settled") is:
- Measure the fair value of each option at grant date. This doesn't change later for movements in the share price.
- Estimate how many options will vest, taking into account expected leavers.
- Spread the total (options expected to vest × fair value per option) over the vesting period.
- Each month, true up for changes in the number expected to vest, so the cumulative charge is right.
- Credit the charge to a reserve in equity, not to a liability.
Where options vest in instalments (for example 25% a year), FRS 102 and IFRS 2 typically treat each instalment as its own grant with its own vesting period. That front-loads the charge. Micro-entities reporting under FRS 105 don't recognise the charge in the same way, so check which framework applies.
Step by step: share options at month-end
| Task | What "done" looks like | |
|---|---|---|
| ☐ | Get the month's grants, leavers and exercises from the cap table or HR | Option register agrees to board approvals and signed option agreements |
| ☐ | Add new grants to the schedule with grant date, number, exercise price, vesting terms and fair value | Each grant traces to an approved valuation |
| ☐ | Mark leavers and lapsed options | Unvested options of leavers removed from the expected-to-vest count |
| ☐ | Calculate the cumulative charge to date and the month's charge | Month's charge = cumulative now − cumulative last month |
| ☐ | Post the journal | Charge split by department, credited to the share-based payment reserve |
| ☐ | Post any exercises | Cash, share capital and share premium agree to the share allotment |
| ☐ | Track the EMI deadlines | Grant notifications (until April 2027) and the annual return in the compliance calendar |
| ☐ | Reconcile the reserve | Reserve balance agrees to the schedule's cumulative charge less transfers |
AI shortcut: export the cap table platform's option register and your share-based payment schedule, and ask an approved AI tool to list every grant whose numbers, dates or holders don't match, plus anyone on the HR leavers list who still shows unvested options. You check each one against the source documents.
Worked example: MonthEndClub Co Ltd's first EMI grant
MonthEndClub Co Ltd is a fictional UK SaaS company. On 1 April 2026 it grants 12,000 EMI options to a group of employees. The facts:
- Exercise price £2.00 per share, equal to the market value agreed with HMRC, so no income tax is expected at exercise.
- Fair value per option at grant, from an external valuation: £1.20.
- Vesting: all options vest after 3 years (36 months) if the employee is still employed.
- Finance expects 10% of options to be forfeited by leavers.
- Nominal value of each share: £0.01.
Setting the monthly charge: options expected to vest = 12,000 × 90% = 10,800. Total charge = 10,800 × £1.20 = £12,960. Monthly charge = £12,960 ÷ 36 = £360.
Journal for each month, April 2026 to March 2027:
| Account | Dr | Cr |
|---|---|---|
| Share-based payment expense (P&L, by department) | £360 | |
| Share-based payment reserve (equity) | £360 |
After 12 months, the cumulative charge is 12 × £360 = £4,320.
Month 13 (April 2027): a leaver. An employee holding 2,000 options leaves. Finance now expects 9,600 options to vest (12,000 less the 2,000 forfeited, and no further leavers expected from this group). Revised total = 9,600 × £1.20 = £11,520. Cumulative charge needed after 13 of 36 months = £11,520 × 13/36 = £4,160. Already charged: £4,320. So April 2027's charge is £4,160 − £4,320 = a credit of £160.
| Account | Dr | Cr |
|---|---|---|
| Share-based payment reserve (equity) | £160 | |
| Share-based payment expense (P&L) | £160 |
From May 2027, the monthly charge becomes £11,520 ÷ 36 = £320. Check: £4,160 + 23 months × £320 = £4,160 + £7,360 = £11,520 by March 2029.
Exercise (after vesting). In 2029, the remaining employees exercise all 9,600 options and pay 9,600 × £2.00 = £19,200.
| Account | Dr | Cr |
|---|---|---|
| Bank | £19,200 | |
| Share capital (9,600 × £0.01) | £96 | |
| Share premium | £19,104 |
A common approach is then to move the £11,520 built up in the reserve to retained earnings, as the options no longer exist:
| Account | Dr | Cr |
|---|---|---|
| Share-based payment reserve | £11,520 | |
| Retained earnings | £11,520 |
The company may also get a corporation tax deduction at exercise, broadly based on the employees' gain. The tax team or advisers work out the amount and any deferred tax, which is treated differently under FRS 102 and IFRS.
AI shortcut: give an approved AI tool your schedule's inputs (grant dates, numbers, fair values, vesting terms, leavers) and ask it to rebuild the cumulative and monthly charge independently in a spreadsheet layout. If its answer differs from your schedule, find out why. A person signs off the final number.
If you report under US GAAP (ASC 606)
Share options aren't covered by ASC 606, which is about revenue; the US GAAP standard is ASC 718. Two common differences: companies can choose to account for forfeitures as they occur rather than estimating them, and for options with service-only graded vesting, they can choose a straight-line charge over the whole period instead of treating each tranche separately.
Common mistakes and audit watch-outs
- Using the share price instead of the option's fair value. The charge is based on the fair value of the option at grant, not the share price or the AMV agreed with HMRC.
- Revaluing every month. For equity-settled options, the grant date fair value is fixed. Only the number expected to vest changes.
- Leavers not reflected. HR knows someone has left; the schedule doesn't. Agree leavers every month.
- Straight-lining graded vesting under FRS 102 or IFRS. Each tranche typically gets its own period.
- Crediting a liability instead of equity. Equity-settled options go to a reserve.
- Missing EMI deadlines. A late or missed grant notification can cost the options their tax advantages. Track the dates.
- Trusting an AI-built schedule without checking. AI can mix up dates or count months wrongly. Rebuild one grant by hand as a check.
Tools that can help
Cap table and equity management platforms hold the option register, track vesting and can often produce share-based payment reports and EMI filings. Many small companies run the schedule in Excel or Google Sheets. Either way, the ledger in Xero, QuickBooks, Sage or NetSuite only gets the summary journal. Tools keep the register tidy; they don't replace the monthly agreement to HR and board approvals.
AI prompts to try
Use these only in AI tools your company has approved for this data. AI drafts and flags; a person checks and signs off.
1. Reconcile the register. "Here are two exports: our cap table option register and our share-based payment schedule. List every option grant where the holder, number of options, grant date or exercise price differ between them." Give it: both exports. Check: each difference against the signed option agreement.
2. Find missing leavers. "Here is our HR leavers list for the last three months and our option schedule. List anyone who has left but still shows unvested options." Give it: leavers list with leaving dates and the schedule. Check: leaving dates and scheme rules on good and bad leavers.
3. Rebuild the charge. "Using these grant details, calculate the cumulative share-based payment charge at [date] for each grant, treating each vesting tranche as a separate grant. Show your workings month by month." Give it: grant data and forfeiture assumptions. Check: one grant by hand; the total against your schedule.
4. Draft the deadline list. "From this list of EMI grants and their dates, draft a compliance calendar of HMRC notification and annual return deadlines, based on the rules I've pasted below." Give it: grant dates plus the current rules copied from gov.uk. Check: every date against gov.uk.
Rates, thresholds and rules in this guide
Figures were checked against the pages below in October 2026. They change regularly (often each April or at Budget time), and we can't guarantee they're still current or right for your situation. Always check the official page before relying on them.
- Tax and Employee Share Schemes: Enterprise Management Incentives (GOV.UK): gross assets and employee limits, £250,000 individual limit, working time requirement, tax at exercise
- Expanding the eligibility limits of the Enterprise Management Incentive scheme (HMRC policy paper): April 2026 increases to the gross assets, employee and £6 million company limits, and the 15-year exercise period
- ETASSUM53040: EMI eligible employees, material interest (HMRC internal manual): the 30% material interest limit
- Submit an Enterprise Management Incentives (EMI) notification (GOV.UK): the 6 July grant notification deadline
- Employment related securities bulletin 64, February 2026 (HMRC): removal of grant notifications from 6 April 2027 and the annual return deadline
Key takeaways
- Share options create a P&L charge even though no cash moves.
- Fix the fair value at grant; true up only for the number expected to vest.
- Month's charge = cumulative charge now − cumulative charge last month.
- Agree the schedule to the cap table and HR leavers every month.
- EMI limits rose from 6 April 2026 and grant notifications are due to go from April 2027. These are as at October 2026; check gov.uk.
- AI is useful for reconciling registers and rebuilding the charge; a person reviews and signs off.
FAQs
Why is there a charge if the company pays nothing?
Because employees are giving services partly in return for the options. The accounting standards treat that as an employee cost, measured using the options' fair value.
Who works out the fair value?
Often an external valuer or the cap table platform, using an option pricing model. Finance typically reviews the inputs (share price, volatility, expected term, risk-free rate) and keeps the report on file.
Does the share-based payment charge count in EBITDA?
It's a real expense in the statutory accounts. Many SaaS companies also show an "adjusted" EBITDA that excludes it, clearly labelled, applied consistently and reconciled to the statutory figure.
Can AI value our options?
It can explain the model and help check the arithmetic, but the valuation inputs need judgement and the result needs to stand up to audit. Treat AI as a checking tool, not the valuer.
Related guides
- Payroll Journals and Bonus Accruals at Month-End
- Year-End Close Checklist for SaaS Companies
- Surviving Your First Audit: What to Prepare and When
- Keeping Audit-Ready Working Papers Every Month
More in Costs and Accruals guides.
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This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.
Last reviewed: October 2026.