Tax Efficient Employee Rewards for Architectural Firms

Although technology is becoming increasingly important within architecture, the most vital component of an architectural business is the architects themselves. It is crucial to retain the best talent within the business to ensure quality day to day output, increasing profitability, whilst providing the opportunity for business succession.

Remuneration is key, but it is important to consider other aspects such as work-life balance, the business environment, and culture, if you want to attract and retain the best people for the business.

Tax efficient rewards for architects and other employees

As well as the above considerations, there are still many other ways in which it is possible to reward staff, at least in part, in a tax efficient way. Some examples are as follows:

Computer equipment

The employee must need it to perform the job properly with insignificant private use

Mobile phones

One per employee with the contract in the employer’s name.

Death in service

Exempt from tax and NIC if conditions are met


Annual event, open to all employees at the location.  Cost must not exceed £150 per head per tax year otherwise all the costs are taxable.

Overnight expenses

Overnight stays for business can pay incidental expenses of £5 per night in the UK and £10 overseas in addition to the accommodation and subsistence costs.

Bike and equipment

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Tax free providing all qualifying conditions are met.


£4 per week can be contributed towards household expenses.  A separate scale rate can be agreed with HMRC to reimburse actual expenses.

Trivial gifts

Gifts must be no more than £50 including VAT, per gift, per recipient and given for a non-work reason.  There is an annual cap of £300 for directors and their households.

Cover and insurances

Critical illness cover, medial insurance, dental cover and income protection generate a taxable benefit but can be a lot cheaper than employees arranging themselves.

Incentives to assist with talent management

Performance related remuneration in architecture firms

Driving profitability and the behaviours architectural firms want, as well as retaining the best architects can require other schemes to incentive too.  Menzies can assist with the following:

Bonus scheme

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The most obvious and well-known method for rewarding employees is through a performance-based bonus scheme.

It is important to ensure the scheme is based on the metrics which are right for the business. Many consider new work and clients rather than project profitability which can encourage the wrong behaviours and decisions to be made which are detrimental to the business in the long term.

Business and longevity metrics other than new work and profitability should also be considered within the scheme. For instance, mentoring or junior architects, team working across departments, project management skills, client feedback and retention, can all be considered.

Being challenging but realistic is the aim, to encourage and reward the behaviours that drive the business forward.

Share options and growth shares

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Offering share incentives is a fantastic way to attract and retain high quality staff. Having the potential to own part of the company you work for encourages hard work and long-term decision making which drives the value of the business up.

Enterprise Management Incentive (EMI) options give employees the single most tax advantaged form of remuneration, with a potential 10% tax charge on any gain being possible if structured correctly.

There are qualifying criteria for EMI schemes, and they are generally harder to meet for larger companies.  There are however alternatives such as the Company Share Option Plan (CSOP), Share Incentive Plan (SIP) and Employee Shareholder Status (ESS).

Another option is awarding growth shares to employees.  The shares have no interest in the value of the company when they are granted, but do as the value rises.  They can also have a hurdle rate which requires a potential future sales price to be in excess of the hurdle rate for the shares to receive any value. This has the benefit of not diluting existing shareholders at the time the shares are issued, with current shareholders only having their ownership diluted when the company has grown sufficiently.

Growth shares can also work in conjunction with EMI options, usually being priced lower than ordinary share options as they are conditional.  For the employer, no tax liabilities are triggered and there is tax relief on the difference between the market value of the share at exercise and the option price paid.  For the employee, there is no income tax or NIC on grant of the option, with capital gains on the growth in value of the shares taxed at 10% as long as the qualifying conditions are met.

For more information on tax efficient rewards and retaining the staff you want to drive your architecture business forward, please contact our people solutions specialists below:

Ed Hussey – FCIPD

Director, People Solutions

Andrew Brookes – CTA

Head of Employment Tax Solutions

Posted in Blog, Property & construction