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This article is provided by BRC Associate Member, Menzies.

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Following the recent Autumn Budget announcements, many retailers are asking what options remain for rewarding and retaining staff, particularly in a sector facing rising wage costs, tight margins and ongoing skills shortages. While some changes have narrowed the scope of tax-efficient rewards, there are still effective ways to support and motivate employees.

Below we highlight the key opportunities still available, along with the areas that require careful handling.

Share Schemes 

With the increase in thresholds, could your business now benefit from the tax advantaged EMI scheme? A company/group will now be eligible providing it has less than 500 FTE employees and gross assets do not exceed £120 million.  The maximum value of shares under unexercised options at grant will now be £6 million (with the limit still unchanged at £250,000 per individual) and a longer 15-year exercise period. 

Points to watch out for:

  • does your UK company/Group have a qualifying trade?
  • does your UK company/Group meet the “independence” tests (not being under the control of another company)?
  • if in a Group, do all subsidiaries meet the EMI conditions requiring that there should not be substantial non-qualifying activities?

Salary sacrifice for pensions

There is still a window to achieve NIC savings because the £2,000 cap will not be introduced until April 2029. While the national insurance advantages are lost on excess sacrifices, tax advantages will remain and for many sacrificing remains worthwhile, even if the limit is exceeded.

Other salary sacrifice benefits

Despite the rumours, no changes were made to other salary sacrifice arrangements and so these should be considered: buying/selling holiday; electric cars, cycle to work scheme.

Points to watch out for:

  • there are only limited benefits that can be provided under these arrangements.  Ensure you are not providing ineligible benefits under salary sacrifice as there could be a costly tax bill down the line if benefits have not been reported appropriately for PAYE/NIC.
  • any salary sacrifice must not reduce salary below National Living Wage.  Important to monitor this especially given the recent increases in NMW rates.
  • an agreement signed by the individual is required before an employer may reduce their pay.
  • do not allow sacrifice for non-qualifying benefits that would otherwise be tax exempt e.g. workplace parking.

Other benefits and points to watch out for:

Mobile phones - As long as the employer contracts for the phone, a business can provide one phone to an employee for business and private use as a tax-free benefit. In contrast, if the employee contracts for the phone personally, any contribution by the employer will generally be treated as taxable pay.

Private Nursery schemes - For salary sacrifice to be effective, these rely on an extension to the exemption for a workplace nursery and so these schemes come with a health warning because the employer will be exposed to a significant tax bill if the scheme turns out to be non-compliant.

Gym membership - Where the membership is contracted for by the employer, the cost to the business is the amount of the benefit. This taxable benefit is then reduced by any amount paid to the employer by the employee from net pay. But watch out: a contribution from gross pay (i.e. salary sacrifice), does not reduce the benefit in kind.

Staff meals - Meals provided to employees for consumption on the employer’s premises are exempt from tax providing made available to all employees at the location and they are not considered extravagant. Additional conditions apply to hospitality businesses.

Staff entertaining - There is an exemption for annual events where the conditions are met:

a. Available to all staff at the location.

b. It is an annual event.

c. The cost per head does not exceed £150 (including VAT).

d. If there are multiple events in the same tax year, all will be exempt providing the combined cost remains below £150 per head. Where it does not, you can choose which potentially qualifying events to use the exemption against.

e. This is an exemption, not an allowance, and therefore events are either wholly exempt, or wholly taxable.

Pension and Mortgage advisory services - While there is an exemption available for pension advice, this does not extend to mortgage advice and so if there is a cost for the business in providing this service it will be treated as a benefit for employees.


Need advice?
If you would like to discuss employee remuneration, reward structures or any related tax issues, please contact Emma McCartney emccartney@menzies.co.uk or Andrew Brookes abrookes@menzies.co.uk at Menzies.

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