Tax-efficient ways to reward employees in 2026Written on April 10, 2026 by Kirk Rice LLP
Key Points
- From April 2026, employee benefits are taxed and reported in real time through payroll, making tax efficient reward structures more valuable than ever.
- This means it may be beneficial to consider options beyond the traditional pay rise to reward and retain employees.
- Smart reward structures could help retain and motivate staff, reduce overall business costs, and deliver meaningful value to employees.
What has changed for employee benefit tax reliefs from April 2026?
From April 2026, employee benefits are taxed and reported in real time through payroll. Additionally, employees can no longer claim tax relief for working from home expenses.
HMRC are also tightening how work expenses are included in tax codes, and some may see changes to their take-home pay. For employers and employees alike, tax efficient reward structures are now more valuable than ever.
Salary increases might not be the only tool savvy business owners use to reward and retain employees. Smarter reward structures aim to help retain and motivate staff, reduce overall business costs, and deliver meaningful value to employees.
Pension Contributions
While pensions form part of a long-term retirement strategy, they’re also one of the most tax efficient employee benefits available during working life.
Employer pension contributions are deductible for corporation tax, attract no employer NIC, and no employee income tax applies. They may also provide long-term growth incentives.
Relevant Life cover for key employees and directors
Relevant Life cover allows businesses to provide protection for key employees and directors in a tax-efficient way. It can also be an attractive benefit to those with families. Plus, it doesn’t usually attract income tax or NIC if structured correctly and provides meaningful protection.
Financial Wellbeing as part of employee reward
Financial wellbeing support can form part of an employee reward package too. Financial planning guidance aims to give employees more clarity and set viable financial goals.
Employees that feel more confident and secure about their finances are usually happier employees.
EMI share schemes
EMI options allow selected employees to buy shares in the company they work for at a fixed price, the “exercise price”, at a future date. A business must meet certain qualifying conditions, such as being an independent trading company and, from April 2026, have gross assets and employee numbers below set limits.
If the scheme’s conditions are met, employees might not have to pay income tax or National Insurance when the option is granted or exercised. This is provided the exercise price is at least the market value at grant and the option is exercised within the qualifying period.
When the employee eventually sells the shares, any gain is subject to capital gains tax. It may be taxed at a reduced rate if Business Asset Disposal Relief applies.
Why Kirk Rice?
Kirk Rice combines accountancy, tax and independent financial planning expertise under one roof. We help business owners design compliant, tax efficient employee reward strategies that support retention, control costs and adapt as legislation changes.
If you would like to discuss employee reward structures, contact us at info@kirkrice.co.uk
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. The FCA does not regulate tax and trust advice.
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