Incentives and Remuneration: Winter Update 2026

The standout announcement in the Autumn Budget (from a share plan perspective) was the increase in many of the limits that apply to Enterprise Management Incentives. EMI is a particularly attractive form of share option plan for growth companies as it can offer tax relief and be tailored to deliver the desired incentive and reward. Unlike other forms of tax-advantaged share incentive, an EMI option does not have to be held for a set period to receive favourable tax treatment on exercise.

Although suitable for companies in the early stages of growth, one of the limitations of EMI has been that as a company begins to scale-up, it can soon cease to qualify for the grant of further EMI options.  In recognition of this, the government has announced that from 6 April 2026, the aggregate value of EMI options a qualifying company can grant under an EMI plan will double from £3m to £6m and the gross asset limit for a qualifying company (or group of companies), will increase fourfold from its current level of £30m to £120m. Growing companies often have an expanding workforce so companies will welcome the news that the number of full-time equivalent employees that can be employed by a qualifying company (or group of companies) will rise from fewer than 250 to fewer than 500. Note that the individual limit for qualifying EMI options remains at £250,000 and the often overlooked 3-year limit continues to apply.

Under the current rules, to benefit from income tax relief, an EMI option must be exercised within 10 years of the date of grant.  This 10-year window can prove too short for exit-based EMI options (that are exercisable on a sale or IPO of the company) or where participants wish to exercise only when they are able to sell their shares to pay the purchase price due.  In another welcome move, the government has announced that the window for exercising an EMI option in tax-advantaged circumstances will increase to 15 years from April.  As well as applying to options granted on or after 6 April, legislation is being introduced that will make it possible to amend existing options (that haven't been exercised or lapsed) to extend this exercise window without prejudicing their tax-advantaged status. Companies wishing to take up this opportunity will need to ensure that they follow the precise terms of the legislation once it is enacted. 

To ease the administration of EMI plans (and bring them in line with other employee share incentives) the requirement to separately notify the grant of EMI options will be removed but not until April 2027. Until then, it is important to report the grant of EMI options as usual and even when the change takes effect, it will still be necessary to register the plan with HMRC and submit annual returns.

All these changes will give more businesses (including more AIM companies) the chance to offer EMI options to their employees which is very good news. However, 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 Travers Smith Incentives team will raise this issue in its response to the government's call for evidence on how the tax system can better support entrepreneurial activity in the UK. 

For our analysis of the Autumn Budget 2025, please read our briefing here:  

Autumn Budget 2025 | Travers Smith

Tax-advantaged share plans - time for a health-check?

As well as EMI, there are three other tax-advantaged share plans available.  Two of these, Save As You Earn (SAYE) and Share Incentive Plans (SIP), must be operated on an all-employee basis whereas awards under Company Share Option Plans (CSOP) can, like EMI, be made on a selective basis. 

The government has published the long-awaited response to a call for evidence on SAYE and SIP seeking views and evidence on the use of the schemes and whether they are achieving their policy objectives. Of the changes suggested by those responding (including the Travers Smith team), one of the most common was a call for the SIP holding period (currently 5 years) to be reduced to 3 or even 2 years to better reflect modern working practices.  Although the government has not yet committed to make any changes as a result of the call for evidence, it has acknowledged the points made by those responding - an encouraging sign for the future of these important plans.

In the meantime, if you already have a tax-advantaged plan or are considering adopting a new share plan, it is worth looking to see whether you are making full use of the tax and NICs savings they can offer.  For example, under a SIP, free shares with a value of up to £3,600 per annum can be gifted to employees without a charge to income tax and employee and employer's NICs. If employees remain in the business and their shares are held in the SIP for a minimum of 5 years, they can then be sold completely tax, NICs and capital gains tax free.  From this April, the ordinary and upper rates of tax on dividend income will increase by 2% from 8.75% to 10.75% and from 33.75% to 35.75% respectively (there will be no change to the dividend additional rate of 39.35%).  Under a SIP, dividends paid on plan shares can be used to purchase additional dividend shares that will enjoy relief from income tax and NICs if they are held within the SIP for at least three years.

If you haven’t used your CSOP for a while, remember that the limit on the value of shares that an individual can hold as tax-advantaged options under the plan is £60,000 (increased from £30,000 back in 2023) and there is no overall limit on how many CSOP options companies can grant (other than dilution limits imposed by companies themselves – discussed below).

Is your share plan getting close to its expiry date? Listed company plans will usually have a 10-year life in accordance with best practice, but the anniversary can come around surprisingly quickly.  Check to see whether you need to seek shareholder approval to extend your plan at this year's AGM.  Under the current Investment Association guidelines, all-employee plans no longer need a 10-year life. If you have a SAYE or SIP, you might want to consider amending it to remove the expiry date (subject to any feedback from your investors).  For CSOP and other discretionary plans, it is worth remembering that the Investment Association guidelines no longer recommend a 5% dilution limit on the number of shares that can be issued in any ten-year period. Although the 10% in ten-year dilution limit for employee plans remains in place, the guidance recognises that in high-growth, newly listed companies, there may be a case to seek shareholder approval for higher dilution limits that go above this.

Preparing for a PISCES trading event

If you are a private company, consider amending your plans to provide an exercise window for a PISCES trading event.  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.  Note that it will be possible to amend EMI and CSOP options granted before 5 April 2028 to allow exercise on a PISCES trading event without a loss of their tax advantages.  The amendment must require the option shares to be sold on the PISCES "as soon as reasonably practicable" following exercise and has to either be agreed by the parties in writing or notified to the participant in writing.

Share plans and leavers – the importance of process

When an individual's employment ends, the impact this will have on their share incentive awards will generally be governed by the relevant plan rules. These might cover a variety of situations depending on the circumstances of the employee's departure.

For example, someone considered to be a "good leaver" might be able to keep their awards for a period of time after employment, whereas a bad leaver might lose them. Quite often, to give companies the maximum amount of flexibility, the grantor will have the discretion to decide whether (and to what extent) a leaver can keep their awards.

In a group situation, practical difficulties can arise where the employer of the leaver negotiating the terms of any exit is different to the entity that granted the option and, accordingly, has the power to exercise any discretion.  A recent case has shown that, in certain circumstances, the UK courts are willing to uphold an individual's claim to share awards where they were assured that they could keep them even though the process set out in the plan rules was not followed. It is easy to see how this can happen, and the case stresses the importance of employers and grantors communicating over leavers and ensuring that the procedure in the plan rules has been followed, clearly documented and notified to administrators.

On the subject of leavers, listed companies should note that proxy voting firm, Institutional Shareholder Services (ISS) has amended its guidelines by adding an explicit expectation that companies provide clear reasons and justification for treating departing executive directors as a good leaver under the terms of a share plan. 

Share plans and leavers – the new Employment Rights Act

Companies could face other employment costs following the recent enactment of the Employment Rights Act 2025. The new Act introduces changes (due to take effect from January 2027) to employees' unfair dismissal rights, including (i) a reduction of the two-year qualifying service requirement for unfair dismissal claims to six months and (ii) a measure to remove the cap on such claims.  Currently compensation for unfair dismissal is capped at the lower of one year's pay and £118,223, and removal of the cap will mean that there is no limit on the amount that can be awarded for unfair dismissal (this is already the case for discrimination and whistleblowing claims). For more information about the Employment Rights Act, please see the article published by our colleagues in the Travers Smith Employment team:

Employment Rights Act What does it mean for employers? | Travers Smith

When an employee leaves a business, they are often restricted in terms on their ability to work for other entities under what are known as "non-compete" clauses.  In the Autumn Budget, over concerns that such provisions restrict employee movement and can discourage innovation, the government published a consultation working paper on ways of reforming non-competes in employment contracts.  The options considered include the possibility of a complete ban on them or limiting the length of time that they can apply. Variations of this include the possibility of different limits for employers according to their size or only banning non-competes below a salary threshold. This is the resurrection of a proposal made by the Conservative government in 2023 but never introduced and it will be interesting to see whether the current administration takes it forward.

Share plan annual returns – it’s never too early to start!

No update would be complete without a reminder about annual share plan returns.  Although the deadline for registering and sending returns in respect of share plans operated in the current tax year is still some way off (July 6), it is always a good idea to prepare early and make sure you have all the information you need when the time comes.  If, sadly, an option holder has died, HMRC has recently confirmed that no reporting obligations arise on (i) the transfer of the option to the individual's personal representatives, (ii) the exercise of the option and acquisition of shares by them or (iii) the transfer of shares by the personal representatives to beneficiaries.  

The HMRC guidance stresses that before submitting a share plan notification or return, you should save a copy of it for your own records, for example, by taking screen shots of each page, including the confirmation page. This is because the online service will not save the details and you will not be able to access them again once the return has been submitted. We will be sending out a reminder of the registration and annual return process following the end of the tax year but in the meantime, guidance can be found on the government website: Employment related securities: detailed information - GOV.UK.

One of the most widely talked about Budget changes was the Chancellor's announcement of a £2,000 per tax year cap on the amount of salary or bonus an employee can sacrifice on a NICs free basis in return for employer pension contributions.  Use of salary sacrifice in this way is popular because employer contributions to registered pension schemes benefit from both income tax (within prescribed limits) and NICs relief. This contrasts with employee contributions which are subject to NICs even though they are relieved from income tax.

Although the changes will not come into effect until April 2029, employers offering salary sacrifice for pension contributions will need to think about the increased cost to their business and salary and bonus sacrifice documentation and practices will have to be reviewed.  Flexible benefit and cash allowance packages are also likely to be impacted by the change. In due course, payroll systems will need updating to allow for reporting the total amount sacrificed to HMRC.

Is this the end for salary sacrifice? Not necessarily as, depending on the nature of the company's workforce, it might be able to operate salary sacrifice within the £2,000 cap.  Also, it is important to remember that employer contributions unconnected with salary sacrifice are still exempt from NICs and, for now, the tax reliefs for pensions contributions are unchanged.  Also, some employees might want to use salary sacrifice arrangements to reduce their annual income to stay eligible for tax-free childcare and avoid the personal allowance reduction. 

For some employers, however, the increased employment cost of the £2,000 cap will need to be managed, and they might consider looking at ways of providing benefits that do not attract NICs.  Share plans under which returns are taxed as capital rather than income could play a role in this (see the next section).  

Notwithstanding the cap on salary sacrifice for pension contributions, there are other ways employers can seek to reduce their exposure to the 15% employer's NICs rate introduced last April. 

• Employer’s NICs on option gains can be transferred to participants – Although there is a general prohibition on the recovery of employer’s NICs costs from employees’ remuneration, one exception to this rule is on the exercise of non tax-advantaged share options. Employers who operate non tax-advantaged share option plans (for example, Long Term Incentive Plans (LTIPs)) may want to share the burden of the increased employer's  NICs by passing all or a proportion of it to employees. The downside for participants is that it increases their overall tax and NICs cost, but the employee is able to claim tax relief for any employer’s NICs they pay. It is important to note that the employee has to agree to bear the employer’s NICs under the terms and conditions of the option.
  
  
• Employer’s NICs can be taken into account when designing and implementing cash bonus plans – Although employer’s NICs cannot be deducted from an employee’s cash bonus, the calculations and decisions taken when determining the amount of bonus to be paid to an employee can be revisited.  If commercially desirable, account can be taken of the increased employer's NICs cost, for example, by reducing the maximum bonus pool available for payment. Depending on the nature of the arrangement, it may not be possible to apply these changes retrospectively, so it is important to act now for the upcoming bonus year.
  
  
• Consider bonus deferral into share options – If done correctly, and subject to the terms and conditions of the bonus, a cash bonus deferred into share options can be a tax-neutral event. When the share options are subsequently exercised, as described earlier in this update, all or some of the employer’s NICs cost can be passed to the employee. While executive directors in listed companies are familiar with this type of bonus deferral (for corporate governance reasons), historically, it has not been a particularly popular incentivisation strategy and it remains to be seen if this will change.
  
  
• Consider non tax-advantaged share ownership plans – Share incentives where the growth in value is taxed as capital gain rather than income tax have the added advantage of not giving rise to employer’s NICs liabilities on that increase. Even if you are not able to offer one of the four tax-advantaged share plans, you might be able to operate a share ownership plan where participants buy shares at their current market value (or pay income tax and NICs on any discount) on the basis that when they sell their shares, they will not trigger further income tax and NICs charges. Growth share plans and/or joint share ownership plans (JSOPs) can be a means of making share ownership affordable as they entitle participants to benefit from some of the growth in value of the share (or interest in a share) above a pre-determined threshold.

For more information on Taxed Share-Based Incentives, please see our article here:

A Guide to the Taxation of Share Plans in the UK | Travers Smith

Continued focus on labour supply chains - new obligations for those hiring workers through umbrella companies

Umbrella companies are a form of intermediary through which temporary workers can provide services to clients without becoming their employees. The typical supply chain involves an umbrella company which employs the temporary worker who is then supplied to the client, often via a recruitment agency.  In these circumstances, it is the umbrella company's responsibility to account for the tax and NICs due on the worker's employment income through PAYE as well as providing them with benefits such as holiday pay, statutory sick pay and pension auto-enrolment. The government notes the important role that umbrella companies play in the labour market but also acknowledges that some of them are being used to facilitate tax avoidance and even fraud.

New legislation is being introduced that will make businesses using these hiring structures jointly responsible for the PAYE and NICs due on the worker's wages.  If there is a UK recruitment agency in the supply chain, this will usually be the entity with joint and several liability rather than the client the worker supplies their services to.  However, where there is no recruitment agency in the supply chain or the agency is based offshore or is connected with the umbrella, joint and several liability for the umbrella's unpaid PAYE will fall on the client.  The measures take effect from 6 April 2026 and will apply to payments under existing as well as new arrangements.

As a practical matter, companies need to identify which of their worker supply chains include umbrella companies and could be caught by the new rules. They also need to put in place robust due diligence processes to monitor their supply chains and ensure that any umbrella companies within them are paying HMRC the tax and NICs that is due.  Companies must review the legal documentation behind these arrangements to ensure they contain indemnities from the umbrella in case they are called upon to meet its PAYE liabilities.  It is important to note that an agency or client can't escape liability for the umbrella's PAYE under these new rules simply by putting the right checks in place or taking reasonable care. As a result, some businesses might choose to go a step further and account for the umbrella's PAYE direct to HMRC so they can be sure it has been paid. Companies can face criminal liability if they don't have procedures in place to prevent the facilitation of tax evasion. Therefore, even if a company doesn't have liability for PAYE under the new rules because joint and several liability rests only with an agency, it needs to ensure that the agency itself has taken reasonable steps to ensure that the umbrella is complying with its obligations. 

The new rules are drafted very broadly and as well as applying to what could be considered "traditional" umbrella arrangements (including "employers of record"), they can create liabilities under dealings with personal service companies (PSCs).  If a client engages a worker through a PSC and it is "reasonable for the client to suppose" that the PSC is the employer of the worker, a PAYE liability arises as if the worker was an employee of the PSC.  If the PSC doesn't pay HMRC the PAYE that is owed, liability will fall on the client, assuming that there is no UK-based, unconnected recruitment agency in the supply chain.  In practice, many businesses that engage workers through PSCs will already be thinking about their PAYE risks under the off payroll working rules and so adding this check as a further stage alongside any status determination statement process may not be particularly onerous.  However, clients that don't currently have to worry about PAYE under the off-payroll rules because they are "small" and therefore outside the regime, will now need to think about whether they will have PAYE risks under the umbrella company rules. 

Impact of off-payroll working risks on new reporting rules for listed companies

UK companies with shares listed in the Equity Shares (Commercial Companies) category of the Main Market of the London Stock Exchange must apply the UK's Corporate Governance Code (UKCGC) on a "comply or explain" basis.  A new Code has, in large part, applied for accounting years commencing on or after 1 January 2025, however, one aspect that has only taken effect from the start of this year relates to a company's risk management.  Under the previous Code, boards were expected to monitor the company's risk management and internal control framework and review it at least annually.  The new Code goes further and requires boards to disclose in their annual report how it has monitored and reviewed the effectiveness of that framework, make a declaration of effectiveness of the material controls as at the balance sheet date and describe any which have not operated effectively and the action to be taken to improve them. It is up to the board to decide what risks are material to the company's business, but for a company that relies on consultants and agency workers, they could include tax risks such as exposure to charges under off-payroll working arrangements, given how very difficult it can be to determine employment status.  All companies need to be aware of potential charges under off-payroll working arrangements and ensure that they have processes in place to identify and manage their exposure to tax risks, however, companies subject to the UK Corporate Governance Code might also be expected to disclose them. 

Paying non-executive directors in shares

Compared with last year when the Investment Association published a comprehensive revision of its remuneration guidelines, institutional investors and proxy voting services have announced very little change to their approach.

However, one issue that made the headlines was the matter of non-executive directors (NEDs) receiving their remuneration in the form of shares. Paying NEDs in shares in lieu of a cash fee is viewed by many UK companies as an effective way of aligning the NED's interests with those of other shareholders.  As a matter of best practice, NEDs do not participate in share option arrangements as this could impact on their independence. However, in the race to recruit the best talent within a reportedly shrinking pool of suitable candidates, some companies have looked for more flexibility in how they can remunerate their NEDs. The UK Corporate Governance Code states that NEDs should not receive share options or other performance-related elements. The Financial Reporting Council (FRC) is the body responsible for the Code and towards the end of last year, it issued updated guidance acknowledging that some companies might want to offer independent non-executive directors options or similar rights to acquire shares. However, the FRC stressed that these should not be performance related or have other features that could impair the NED's independence.  If a company wants to issue shares to NEDs or grant share options, it needs to consider a number of legal hurdles that apply and if it has a remuneration policy, this might need to be changed.  Participation in most company share plans is limited to employees (NEDs are office holders but not employees) and so a new plan (or a sub plan to an existing arrangement) may be required. Other considerations are hedging any arrangement, given that NEDs are not usually beneficiaries of an employee benefit trust, and any holding or restricted period that should attach to options or awards after they are exercised.

Rise in levels of executive pay and hybrid plans

A key theme of 2025 was the rise in levels of executive pay in the UK when compared with the rest of the workforce. UK companies (notably those that are publicly listed) often justified higher remuneration packages through the need to compete with other jurisdictions, particularly the US.  As a result, some companies made greater use of hybrid plans, under which both performance-related awards and awards that are time-based but are not subject to performance conditions can be granted.  However, shareholders are not always in favour of such arrangements and will need reassurance that they will create value for the company in the long term.  As a result, they often expect awards without performance conditions to be smaller in size, subject to at least some level of financial underpin and for remuneration committees to have the discretion to reduce the amount paid out in the event that it doesn't reflect the experience of other stakeholders. Notwithstanding the more flexible approach taken under its current guidelines, the Investment Association has recently cautioned against the overuse of hybrid plans, stating that they should be limited to businesses with a significant US footprint or which compete for global talent.

New UK prospectus regime and changes to block listing rules

Historically, a company could only offer shares to the public (including its employees) in the UK if it published an approved prospectus or an exemption applied. Fortunately, there were a number of exemptions that could be used for offers to employees.  In a move geared towards making London a more attractive place to list and raise capital, the prospectus regime has been significantly overhauled and from 19 January 2026, new rules took effect which greatly reduce the need for a prospectus.  There is now a general prohibition on offers of shares to the public unless an exemption applies and happily many of those exemptions available under the previous regime have been retained.  Companies operating employee share plans can take advantage of the exemption for offers in the UK of less than £5million (a useful exemption where no consideration is being paid such as free shares awarded under a SIP), offers made to fewer than 150 people in the UK and an exemption for employee offers. Any company wishing to rely on the employee offer exemption must publish a statement containing prescribed information about the number and nature of the securities and the reason for and details of the offer or allotment.

Under the previous prospectus rules, if a listed company wanted to issue further shares, it had to prepare a prospectus unless the number of shares to be issued fell below 20% of the company's issued share capital in a 12-month period.  The new prospectus regime has a higher limit of 75% which will give much greater flexibility to listed companies looking to issue shares, including under employee plans.  

Listed companies will also be aware of a change to the block listing rules.  Each time a company listed on the main market of the London Stock Exchange (LSE) wanted to issue new shares (for example, following the exercise of share options), it had to go through two separate processes. First it had to apply to the Financial Conduct Authority (FCA) for the shares to be listed on its Official List. Then the company had to apply to the LSE for the shares to be admitted to trading. To deal with this, many companies chose to have a "block" listing of their shares, the effect of which was that the requirement to repeatedly apply for listing was (up to a certain limit) replaced with the need to notify the market every six months with details of shares issued under the block listing.   The LSE has a separate process for block admission of shares to trading for the same reason.

Since 19 January this process has changed so that, once a class of shares is listed on the FCA's Official List, any subsequent issue of the same class of shares is treated as automatically listed.  This means there is no longer the need for a block listing.  However, companies still need to apply for the shares to be admitted to trading on the LSE and this must now be within 60 days of the shares being allotted (the LSE is currently maintaining its block admission process).  When shares are admitted to trading on the LSE (whether by way of a block listing or otherwise), companies need to announce the admission of the new shares to trading within 60 days of that taking place.  Under the amended Listing Rules, companies must announce any new issue of shares as soon as possible and in practice, this can usually be combined with the announcement of the admission of the shares to trading.

Guidance on National Insurance for internationally mobile workers

HMRC recently updated its guidance on the NICs treatment of cash bonuses and share awards (that are not structured as options) made to internationally mobile workers. Where a person spends part of their time working in the UK, a question arises over whether UK NICs are payable on their earnings.  Historically, there has been some uncertainty as to whether UK NICs are due on (i) all the individual's earnings if they are within the UK social security net at that time or (ii) only those earnings relating duties performed when they were within the scope of UK NICs. HMRC has now confirmed that it considers the second approach to be the correct one. This means that if an employee and employer were liable for NICs when the duties were carried out, NICs will be due on any payment relating to those duties (such as a bonus) even if it is made at a time when the employee is outside the UK social security net and vice versa. It is important to note that HMRC has stated it will apply its interpretation retrospectively, inviting taxpayers to correct historic records for the last 6 years. There is currently a debate as to whether HMRC's interpretation is correct (or would need a change in legislation) and employers are recommended to seek professional advice before amending historic payroll submissions.

The new guidance can be found here:

NIM33650 - Earnings for Internationally Mobile Employees Contents - HMRC internal manual - GOV.UK

New procedures for modified payroll schemes

If a non-resident employee of a UK company performs duties both in the UK and overseas, the employer can apply to the UK tax authority to only apply withholding (PAYE) on the proportion of the salary that relates to the employee’s estimated UK workdays (often known as a s690 application).  Since 6 April 2025, a more streamlined process has applied under which the employer can operate a modified PAYE scheme as soon as HMRC acknowledges receipt of an online application.  However, it is important to note that, unlike the previous regime, a new application (under section 690A) has to be made every tax year.

New rules for non-UK domiciled individuals

Since 6 April 2025, the rules for individuals who are UK resident but not domiciled here have changed. A new set of rules applies which is based on an individual’s residence rather than their domicile.  Under these rules, individuals can claim tax relief on their foreign income and gains (FIG) in the first four years of UK tax residence as long as they were non-UK resident for the 10 years before their arrival.  Such individuals can also claim relief on their overseas earnings (overseas workday relief or OWR) for their first four tax years of residence.  However, unlike the previous regime for OWR, the relief must be specifically claimed by way of a special election and is subject to a monetary cap.

Voluntary NICs for periods abroad

Individuals that move from the UK might want to continue paying UK NICs to build their entitlement to a state pension.  Currently, this can be done by paying Class 2 NICs contributions, which are charged at the rate of £3.50 per week, or Class 3 NICs contributions at the higher rate of £17.75 per week.  To ensure that those building a state pension in the UK have a strong enough connection to the UK and are paying an appropriate, fair price, the government has announced that it will only be possible to make (the more expensive) Class 3 NICs as voluntary contributions.   New applicants to pay voluntary Class 3 contributions will need to have either lived in the UK for at least 10 years or paid at least 10 years of NICs before moving abroad.  HMRC will write to those individuals currently paying Class 2 NICs abroad to tell them of the changes.  

OECD publishes updated guidance on when a home office can create a taxable presence

Most countries look to tax non-resident businesses if they have a "permanent establishment" (PE) in their jurisdiction which they often define by reference to the approach taken by the Organisation for Economic Co-operation and Development (OECD). In its Model Treaty, the OECD identifies two kinds of PE; (i) a fixed place of business PE (such as an office) and (ii) a dependent agent PE (which is created when an individual who has sufficient authority over the overseas business is present in the relevant jurisdiction). 

The flexibility that home working arrangements provides can be beneficial to both the individual and the business they work for.  However, where their workers operate from a different jurisdiction, the business needs to consider carefully whether they create a PE for it there.  Both types of PE described above need to be considered but it is usually possible to manage the risk of creating a dependent agent PE.  Whether or not the worker's home office creates a fixed place of business PE can be a more difficult question and the OECD has recently changed its guidance on this point to provide more detail on the principles that should be applied. The new guidance might mean that a business now has a PE in a state where it previously didn't. For an analysis of why this might be the case and the updated OECD guidance more generally, please read our briefing note here:

OECD updates guidance on tax treatment of remote working | Travers Smith

Government announces further development of tax offer for high-talent new arrivals

At the Autum Budget, the government reiterated its aim to make the UK a competitive destination for "growth-driving global talent" and support internationally mobile individuals to come to the UK and establish their business here. Although there is no more information than that (the government will be seeking views on the design and scope of any potential enhanced offer) it is good to hear that the government is keen to make the UK an attractive place to do business. 

For information on global mobility please visit our dedicated Global Mobility web page.

Global Mobility | Travers Smith

For information on rolling out a global share plan, please read our website article here:

Navigating Global Incentive Plans | Travers Smith

Withdrawal of relief for unreimbursed working from home expenses 

The Autumn Budget included a number of changes to various expenses and benefits in kind including an announcement that, 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 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. It is important to note that employers will still be able to reimburse employees for eligible household expenses without deducting income tax and NICs. On a separate but related issue, 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.

Mandatory payrolling of benefits in kind delayed

Currently, rather than reporting benefits in kind on form P11D at the end of the tax year, employers can choose to account for the tax due in real time through the payroll. The government had announced that it would make payrolling of most benefits mandatory from 6 April 2026.  However, this has been postponed by a year to give businesses more time to prepare for the change and the new measures will now take effect from April 2027.  From that point, it will be mandatory to report and pay income tax and Class 1A NICs on most benefits in kind through payroll although it will continue to be voluntary for employment-related loans and accommodation for a period of time.

Further HMRC guidance to help businesses prepare for reporting benefits in kind and expenses in real time can be found here:

Technical note: Mandating the reporting of benefits in kind and expenses through payroll software – an update - GOV.UK

Changes to the Official Rate of interest  

Loans to employees below the “official rate of interest” (ORI) give rise to a benefit in kind income tax and Class 1A NICs charge. On 6 April 2025, the ORI increased from 2.25% to 3.75%.  Employees with interest-free employment-related loans will see an increase in the amount subject to income tax while their employers will also have a higher Class 1A NICs liability (currently charged at 15%). From that date, HMRC's practice also changed so that the rate will not necessarily stay the same for a whole tax year but will be reviewed quarterly.  This means that it could fluctuate during a tax year so employers providing staff with low-interest loans will need to be ready for any changes and prepared for the impact this will have on their Class 1A NICs liability and reporting obligations.

Increase in dividend tax rates: Impact on loans to participators and share buy-backs

From April 2026, the ordinary rate of tax on dividends will increase from 8.75% to 10.75%, and the upper rate will rise from 33.75% to 35.75% (the dividend additional rate will remain unchanged at 39.35%).

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 in the dividend upper rate to 35.75% from April means that the corporation tax charge for a loan to a participator will also rise.

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 tax rates will have a knock-on effect on the tax charge for shareholders.

Change in the tax treatment of image rights

Well-known sports personalities, such as footballers, often receive income for exploiting their image rights.  Current market practice in the UK is for these arrangements to be structured through personal service companies (PSCs) with the individual's PSC licencing a player's image to the club they are employed by.  At the moment, the benefit of this is that image rights fees are treated as commercial income of the PSC rather than salary and can therefore be taxed at lower corporation tax rates (25%) rather than the higher income tax rates (currently 45% for additional rate taxpayers) and do not attract National Insurance contributions as long as the fee paid is genuinely for the exploitation of image rights. 

This is set to change as it was announced in the Autumn Budget that legislation will be introduced (with effect from 6 April 2027) to treat all image rights payments relating to an employment as employment income subject to income tax and employee's and employer's NICs.  Although we need to wait until details of the proposed changes are available, this announcement is likely to change how image rights are structured in future.