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Authors Bella RhodesTalent Policy LeadStartup Coalition Jordan SullivanHead of Economic PolicyStartup Coalition Dom HallasExecutive DirectorStartup Coalition AboutStartup Coalition Startup Coalition, formerly Coadec, is the policy voice of UK tech startups and scaleups. Since 2010, wehave worked to engage on behalf of tech startups in public policy debates in the UK across a range ofcritical priority issues including access to finance, immigration and skills, and technology regulation. We fight for a policy environment that enables early-stage British tech companies to grow, scale andcompete globally. We have over 4,000 startups and investors in our network and have been instrumentalin building proactive coalitions of businesses and investors on issues integral to the health of the UK’sstartup ecosystem. We represent the startup community on the Government’s Digital Economy Council,and the UK on the board of the international organisation Allied for Startups. Acknowledgements We are grateful to all of our survey respondents, as well as the other startup founders, employees, andexperts who have supported this report. We are also grateful to Beauhurst for providing us with data. Glossaryof Terms Capital Gains Tax (CGT):Tax on the increase in value of shares between the exercise price and saleprice. EMI options typically convert Income Tax into CGT liability, which is lower. Cliff:The initial period before any options vest (e.g. 12 months in a 4-year vesting plan). Exercise / Option Exercise:When the holder chooses to buy the shares under their option agreement. Exercise Price / Strike Price:The pre-agreed price at which shares can be bought when the option isexercised. Exercise Window:The time frame in which an employee can exercise their options after vesting orleaving. Exit Event:An event where founders and early investors can sell their interest in a company for cash.An exit can be an initial public offering (IPO) or an acquisition by another company. Grant Date:The date on which the company awards the share option to the employee. HMRC Valuation:For EMI, companies agree a share value with HMRC to set the exercise price fairlyand lock in tax treatment. IncomeTax/NICs:Without EMI,exercising options often creates an Income Tax and NationalInsurance liability. EMI schemes can eliminate/reduce this. Initial Public Offering (IPO):the first time that a private company sells shares of its stock to the publicon a stock exchange. Leaver Provisions:Rules governing what happens to vested/unvested options when an employeeleaves. Typically, someone is classed as a 'good leaver' if they leave the company for reasons beyondtheir control (e.g. illness, redundancy); a 'bad leaver' is someone who leaves for reasons within theircontrol (e.g. resigning, poor performance). Liquidity Event:A transaction where shareholders can sell shares (e.g. acquisition, IPO). Share Option:The right (but not obligation) to buy shares in a company at a fixed price in the future. Share Option Agreement:The legal contract between the company and the employee granting theoptions, setting out the key terms such as exercise price, vesting, and leaver provisions. Tax-Advantaged (Approved) Scheme:EMI is an HMRC-approved scheme offering favourable taxtreatment. Valuation Uplift:The growth in company valuation that makes options valuable. Vesting:The process by which the employee earns the right to exercise their options, usually over timeor after milestones are met. Introduction Imagine you’re building a startup in the UK, trying to attract world-class engineers or commercial talent.You're up against corporate giants – fast-scaling (and often American) competitors offering generouscompensation packages and the promise of Silicon Valley-style riches. Ping-pong tables and unlimited holiday won’t cut it. What you really need to attract talent is stock options. Stock options offer elegant simplicity: if your team collectively builds something extraordinary, everyonereaps the rewards. It's a powerful alignment of interests, where company success becomes personalsuccess. And we know that the wealth generated often finds its way back into the ecosystem creating aflywheel of angel investment, new ventures, or scale-up expertise. That means what’s good for thefounders, staff and their companies is good for the ecosystem too. For startups that can’t compete on salary with global behemoths, equity compensation isn’t a perk. It’sessential. Tax-advantaged share option schemes are a smart way to level the playing field betweenscrappy challengers and cash-rich corporations. It’s no surprise that the very best founders like TomLeathes from Motorway and top VCs like Index Ventures have been so vocal about the role that optionsplay in the ecosystem. Governments around the world have recognised this. And in fact, the UK was one of the frontrunners.Back in 2000, when the UK introduced the Enterprise Management Incentive (EMI) scheme, it wa