Following the recent Autumn Budget, many employers are reassessing how they reward and retain their teams. For businesses facing rising wage costs, tight margins and ongoing skills shortages, finding cost-effective and compliant ways to support employees remains a priority.
While recent changes have narrowed some tax-efficient options, there are still valuable opportunities available. With the right advice, employers can continue to motivate staff while managing tax and National Insurance exposure.
Below, we highlight the key reward strategies still available and the areas that require careful handling.
Share Schemes: Renewed Opportunities under EMI
Changes to the Enterprise Management Incentive (EMI) scheme may mean more businesses are now eligible to benefit from this tax-advantaged arrangement.
Under the updated thresholds, a company or group may qualify where it has:
- Fewer than 500 full-time equivalent employees, and
- Gross assets of no more than £120 million.
In addition:
- The maximum value of shares under unexercised options at grant has increased to £6 million
- The individual limit remains at £250,000
- The exercise period has been extended to up to 15 years
These changes make EMI an attractive option for incentivising and retaining key talent.
Points to consider:
- Does your UK company or group carry on a qualifying trade?
- Does it meet the EMI “independence” requirement (i.e. it is not under the control of another company)?
- If part of a group, do all subsidiaries meet the conditions, including limits on non-qualifying activities?
Salary Sacrifice for Pensions
There is still a window of opportunity to achieve National Insurance savings through pension salary sacrifice. Although a £2,000 cap has been announced, this will not be introduced until April 2029. While the National Insurance benefit is restricted once the cap is exceeded, income tax advantages remain. For many employees, salary sacrifice continues to be worthwhile even where contributions go beyond the threshold.
Other Salary Sacrifice Benefits
Despite speculation ahead of the Budget, no changes were made to other salary sacrifice arrangements. Employers may therefore still consider options such as:
- Buying or selling annual leave
- Electric vehicles
- Cycle to Work schemes
Points to watch:
- Only specific benefits are permitted under salary sacrifice. Providing ineligible benefits can lead to unexpected PAYE and NIC liabilities if not reported correctly.
- Salary sacrifice must not reduce pay below the National Living Wage. This is particularly important given recent rate increases.
- A formal agreement must be in place before any reduction in salary.
- Salary sacrifice cannot be used for benefits that would otherwise be tax-exempt, such as workplace parking.
Other Employee Benefits
Mobile phones: Where the employer contracts directly for a mobile phone, one device per employee can be provided tax-free for business and private use. However, if the employee contracts personally, any employer contribution is typically treated as taxable pay.
Private nursery schemes: These schemes rely on an extension of the workplace nursery exemption and come with a degree of risk. If the arrangement is later found to be non-compliant, the employer could face a significant tax liability. Careful structuring and ongoing review are essential.
Gym membership: If the employer contracts for gym membership, the full cost is treated as a taxable benefit. This can be reduced by any contribution the employee makes from net pay. Contributions made via salary sacrifice do not reduce the benefit in kind.
Staff meals: Meals provided on the employer’s premises are generally tax-exempt, provided they are available to all employees at that location and are not considered extravagant. Additional conditions apply for hospitality businesses.
Staff entertaining and annual events: An exemption is available for annual events where:
- The event is open to all staff at the location
- It is an annual occurrence
- The cost does not exceed £150 per head (including VAT)
Where multiple events take place in a tax year, all can remain exempt provided the combined cost stays within the £150 limit. This is an exemption rather than an allowance, meaning events are either fully exempt or fully taxable.
Pension and mortgage advice: Employer-funded pension advice can be provided tax-free within the exemption. Mortgage advice does not qualify, and any cost incurred by the employer will generally be treated as a taxable benefit.
Taking a strategic approach to employee rewards
While the Autumn Budget has changed the landscape, it has not removed the opportunity for businesses to reward employees in a tax-efficient way. With careful planning and the right advice, employers can continue to support engagement, retention and wellbeing, while remaining compliant.
