Autumn Budget 2025: Incentives & Remuneration

In a very welcome move, the Chancellor has announced an increase in many of the limits that apply to Enterprise Management Incentives ("EMI"). 

EMI options granted on or after 6 April 2026 will be able to benefit from the following changes:

• Doubling of the aggregate value of EMI options a qualifying company can grant under an EMI plan from £3m to £6m;
  
  
• Quadrupling the gross asset limit for a qualifying company (or group of companies), from its current level of £30m to £120m;
  
  
• Doubling the maximum number of full-time equivalent employees that can be employed by a qualifying company or (or group of companies) from 250 to 500; and
  
  
• Increasing the maximum holding period for a qualifying EMI option from 10 years to 15 years. The Government has announced that existing options can be amended to extend the holding period without affecting their tax advantaged status. However, companies considering doing this should wait to see the precise terms of the legislation. 

To ease the administration of EMI plans (and bring them in line with other employee share incentives) the requirement to separately notify EMI options will be removed but not until April 2027. From that point it will still be necessary to register the plan with HMRC and submit annual returns, however.

EMI plans provide for the grant of flexible, tax-advantaged share options and are designed for growing companies. These changes to the EMI code will allow more businesses to offer EMI options to their employees (including more AIM companies). 

Companies that have received investment from financial sponsors such as venture capital, private equity backed funds and family offices often find that they are unable to meet the EMI requirements due to the way such funding is typically structured. The Government has issued a call for evidence inviting feedback on how the tax system can better support entrepreneurial activity in the UK and has asked for comments on the impact of various tax incentives, including EMI. It is hoped that as part of this, the Government will reconsider the ability of these companies to offer this important incentive. 

As predicted, the Chancellor has announced that there will be a £2,000 cap on the amount on which contributions to pension schemes can benefit from NICs relief where they are provided under salary sacrifice arrangements. Although the changes do not come into effect until April 2029, employers will need to investigate any increased cost to their business and understand how this will be met, particularly if they currently share the employer NICs saving with employees (by contributing all or some of the saving into the employees' pension as an additional contribution). Beyond this, salary sacrifice documentation will need to be reviewed and communications sent to employees explaining the change and how it will impact their take-home pay. The associated income tax relief remains unchanged, and the Government has also explicitly confirmed that employees who choose to sacrifice salary to receive tax free childcare or child benefit can keep doing so. 

For more details on the proposals, please see the our analysis of the Pensions announcements in Autumn Budget 2025.

The Government has announced that the capital gains tax ("CGT") relief for shareholders making qualifying disposals of companies to Employee Ownership Trusts ("EOTs") will be reduced from 100% to 50%.

This means that 50% of any qualifying gains made by transferring shareholders will now be categorised as a capital gain and may be subject to capital gains tax.

This change takes effect from Budget Day, 26 November 2025.

An EOT is a particular type of employee benefit trust which enables a company to become 'owned' by its employees. To encourage shareholders to transfer companies into indirect employee ownership, a qualifying transfer of a controlling interest in a business to an EOT can provide various tax advantages for selling shareholders. These include reliefs for income tax, inheritance tax, and capital gains tax (as described above).

The increase in the ordinary rate of tax on dividends from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75% with effect from April 2026 will have a corresponding impact on loans to participators and share buybacks.

Loans by close companies to participators (persons who own or may acquire a share or interest in the capital or income of the company) can trigger a corporation tax charge for the company of an amount equal to the upper rate of dividend tax. The increase to the dividend upper rate announced by the Chancellor means that the corporation tax charge for a loan to a participator will also increase from 33.75% to 35.75% from April 2026. Broadly, the loans to participators rules apply when a UK-tax resident "close company" (including those under the control of five or fewer participators or any number of shareholders who are also directors) makes a loan or advance in excess of £15,000 to one of its participators. 

When a company carries out a share buy-back, part of the amount the shareholder receives can be taxed in the same way as a dividend. Accordingly, the increase in dividend rates announced in the Budget will have a knock-on effect on the tax charge for shareholders.

It's worth noting that the dividend additional rate will remain unchanged at 39.35%.

For more details on the dividend tax proposals, please see the our analysis of the Personal tax announcements in Autumn Budget 2025.

Earlier this year, the Government announced that it would allow existing EMI and Company Share Option Plan (CSOP) options to be granted to allow exercise on a PISCES trading event without losing their tax advantages. The draft legislation to implement these changes was published earlier in the year and, initially, the relaxation was only going to be available to options granted before the Finance Bill 2025-26 came into law. 

The Government has listened to concerns that this was too short a period (particularly for companies that might not regularly review their EMI or CSOP arrangements) and have announced that it will be possible to amend EMI and CSOP options granted before 5 April 2028.  

The draft legislation also stated that shares acquired pursuant to the option would have to be sold immediately. Again, there were concerns about how this would work in practice, and it seems that it will now be necessary to sell them "as soon as reasonably practicable". It is important to note that the amendments to EMI options under this legislation must be either agreed by the parties in writing or notified to the employee in writing.

PISCES is a new type of secondary trading platform that allows for the intermittent trading of private company shares and may offer participants in private company share plans an opportunity to realise their investment in the company even where there is no traditional exit (such as a sale or flotation) in prospect.

In last year's Budget, the Government announced that it would bring forward legislation to combat the use of some umbrella companies to facilitate tax avoidance and fraud. Although it acknowledged that engaging workers through umbrella companies offers businesses a flexible and cost-effective means of managing their labour requirements, the Government became aware of a number of cases where the umbrella company itself wasn't meeting its PAYE and NICs obligations. 

Draft legislation to make businesses using these hiring structures jointly responsible for the PAYE and NICs due on the workers' wages was published in July of this year. Under these rules, in cases of error or a failure to pay the correct amount of tax, HMRC would be able to seek recovery from either the employment agency or (in certain cases) the client that uses their services. 

The Government has now confirmed that the changes will go ahead and will apply to payments made on or after 6 April 2026 (affecting both existing and new arrangements). 

We have been anticipating the response to the Government's call for evidence on the non-discretionary tax-advantaged share schemes (Save As You Earn ("SAYE") and the Share Incentive Plan ("SIP")) for over two years, and a summary has now been published. 

The Government's purpose was to understand how the schemes were being used and whether they were meeting their stated policy aims. 

Respondents were broadly of the view that SAYE and SIP successfully meet their goals of promoting employee share ownership and supporting retention. However, they expressed concerns that the plans have failed to keep pace with changes in working patterns. The current statutory holding periods (five years for SIP and three to five years for SAYE) before tax relief is available is given as a reason why many employees are reluctant to participate in the plans. Separately, several respondents expressed concerns over the complex administrative burden (particularly in respect of SIP) of operating the schemes.

As a result, improvements regarding simplification and a more flexible approach have been put forward. A majority of the respondents suggested that the SIP holding period should be reduced, with a smaller number requesting the same for shorter SAYE contract lengths. By simplifying the administration associated with running the schemes, many respondents took the view that there would be higher levels of participation.

Although the Government does not propose making any changes to SIP and SAYE at present, the response document says that it will continue to monitor the position and consider whether changes in guidance are appropriate. 

The Budget contained a number of changes to various expenses and benefits in kind.

From 6 April 2026, employees who work from home will no longer be able to claim tax relief on expenses incurred for additional household costs (e.g. utilities and phone bills) which are not reimbursed by their employer.

The Government has decided to withdraw this relief due to high levels of non-compliance, with over half of the claims made for relief being deemed to be ineligible. Employers will still be able to reimburse employees for eligible household expenses without deducting income tax and NICs. On a separate but related note, from 6 April 2026 reimbursements for eye tests, home working equipment and flu vaccinations will fall within the income tax and NICs exemption for employer-provided benefits.

The planned changes to employee car ownership schemes (ECOS) will now not come into effect until 2030 with arrangements already in place continuing without a change in tax treatment until the earlier of the arrangement being varied, the arrangement being renewed, or 6 April 2032. 

ECOS differs from a traditional company car scheme in that ownership of the vehicle transfers to the employee which has an impact on its tax treatment. The Government announced changes to the rules following concerns that ECOS are being used to avoid company car benefit charges. Under the new rules, a benefit in kind charge will arise in certain circumstances even where the employee owns the vehicle. 

There is good news for employees using plug-in hybrid electric vehicles (PHEVs), as the Government has announced a modification to the tax charge that will arise when the cars are made available for private use. 

The level of CO2 emissions of a vehicle is used as a key factor in calculating the benefit-in-kind charge and it has been observed that in the updated New EU and UN emission standards, PHEVs have higher CO2 emissions than under previous standards. A relaxation is being introduced to reduce the impact of the updated emission standards on PHEVs. 

Legislation will be introduced to confirm that payments introduced by section 27BP of the Employment Rights Act 1996 for shifts cancelled, moved or curtailed at short notice, will be treated as earnings and subject to tax from 2026.

The Government has also published an interesting consultation working paper on options for reforming non-competes in employment contracts (including the possibility of a complete ban on non competes or limiting the length of time that they can apply). This is the resurrection of a proposal made by the Conservative Government in 2023 but never introduced and looks at options including having different limits for employers of different sizes or banning non-competes below a salary threshold.

The Government has Published its response to the independent review of the "disguised remuneration" loan charge that it commissioned in January 2025.

The loan charge was announced in 2016 and introduced into law in 2017. Its purpose was to tackle the historical use of contrived tax avoidance schemes involving "disguised remuneration" (commonly involving loans).

The Government has accepted all but one of the review's recommendations (in some cases going further) and as part of their response has announced a new settlement opportunity for individuals and employers liable to the loan charge who have not yet resolved their position with HMRC.

The settlement opportunity will substantially reduce the amount that has to be paid to draw this matter to a close: most individuals could see reductions of at least 50% in their outstanding loan charge liabilities and an estimated 30% of individuals could be able to settle without paying anything at all.

Concerns have long been raised by those impacted about the fairness of the loan charge and the lack of support available to those affected and it is estimated that approximately 32,000 individuals have outstanding liabilities with HMRC. This is likely to be received positively by those affected. The measure will apply retrospectively from 5 April 2019.