Key Entity Setup Changes You Need to Know
Recent UK tax legislation has introduced several changes impacting companies and entities, especially those setting up or restructuring. Let’s explore:
- Enterprise Management Incentive (EMI) changes from 6 April 2026: The scheme limits are rising. Maximum value per company goes from £3 million to £6 million, gross assets from £30 million to £120 million, and employee limit from 250 to 500. The exercise period increases from 10 to 15 years, including retrospective effect for existing contracts. (gov.uk)
- Economic Crime Levy (ECL) revisions from 1 April 2026: Bands are changing. Affected revenue bands (e.g., £36 million–£500 million, £500 million–£1 billion) will have new levy charges; Band A and Band D updated as well. (gov.uk)
- Umbrella company market reform: From 6 April 2026, agencies and end clients in labour supply chains may become jointly and severally liable for PAYE obligations where umbrella companies are used. (gov.uk)
Choosing the Right Legal Form
| Structure | Pros under New Policies | Considerations |
|---|---|---|
| EMI-eligible Ltd company | Larger tax-efficient equity rewards; improved thresholds widen eligibility | Ensure company meets new asset and employee number limits; align exercise periods with longer 15-year window. |
| Holding or investor entities | Might benefit under scaled EMI regime and enterprise tax incentives | Be mindful of the Economic Crime Levy; larger revenues may attract higher bands. |
| Umbrella/supply chain entities | Need clarity on who holds PAYE responsibilities; may avoid liability by structuring via direct employment or contracting relationships | Legal/jurisdictional risk; beware of unintended tax exposure. |
Action Steps for Founders and Enterprises
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Review existing EMI contracts: Agreements entered before 6 April 2026 may now qualify for retrospective application of the exercise period change. (gov.uk)
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Estimate revenue to assess ECL exposure: Entities expecting turnover greater than £36 million should model increased levy liabilities under the new bands.
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Audit labour supply chains: Companies utilising umbrella structures need to identify whether they could be held liable under the revised PAYE in supply chains; alter contracts if necessary.
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Upgrade payroll and accounting software: Required for BiKs real-time reporting; ensures compliance with EMI and expense recording.
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Engage in consultations if relevant: Several proposed changes (e.g., uncertain tax treatment reporting, enterprise incentives) have ongoing consultations—participation can shape final rules. (gov.uk)
Entity Setup Example
Acme Tech Ltd wishes to grant share options to its employees via EMI. Under old rules, only companies with assets under £30 million and employee count <250 could participate. With the new regime from 6 April 2026, assets can be up to £120 million and employees to 500. If Acme Tech has 400 employees and gross assets of £80 million, they now qualify. Founders should revise EMI grant documentation and ensure proper vesting aligned with the extended exercise period. Also ensure software is ready for upcoming BiKs real-time reporting.
Summary Table
| Change | Effective Date | Who’s Most Affected |
|---|---|---|
| Expanded limits for EMI | 6 April 2026 | Founders, fast-growing SMEs offering equity incentives |
| Revised ECL bands & charges | 1 April 2026 | Large businesses with revenues £30-£500M+ |
| Joint liability in umbrella PAYE chains | 6 April 2026 | Agencies, end clients, companies using umbrella contractors |
By aligning your entity structure and operations with these new rules, you can harness tax incentives, mitigate risk, and prepare for smoother compliance in the coming tax years.