What does the Autumn Budget mean for incentivising talent?

In this blog, Ellie Avni, Senior Director at FTI Consulting, discusses the 2025 Autumn Budget, which, despite speculation of major tax hikes, largely maintained headline rates, with Labour honoring its pledge not to raise income tax or employee NICs. However, structural changes were introduced that will significantly impact how employers attract and reward talent.

With a number of unprecedented leaks, speculation and media briefings indicating potential wide ranging and significant tax rises, in the end the 2025 Autumn Budget seemed to be one of restraint and headline rates remained untouched. Labour’s commitment not to increase income tax or employee National Insurance Contributions (“NICs”) largely held strong – a relief for employees and employers already absorbing the increase in employer’s NICs since April 2025.

However, beneath the headlines were a number of structural changes that will undoubtedly shape how organisations attract, retain and reward employees.

What Were the Changes Announced?

There were a number of changes announced in the Autumn Budget of particular relevance to employees and employers, including:

• Increasing limits for qualifying companies in respect of Enterprise Management Incentives (“EMIs”).
• Income tax rates and NICs thresholds frozen until 2031.
• NICs to be charged on salary sacrificed pensions over £2,000 per year.
• Tax rates to certain income outside of employment tax rates to be increased.
• Class 2 NICs for non-resident individuals to be removed.

Taken together, these represent a tightening of previously tax efficient ways used by both employees and employers to maximise their pay and reward strategies.

Enterprise Management Incentives

In a Budget arguably light on good news, the significant expansion of the EMI regime stands out. EMIs are one of the most tax advantaged schemes available, albeit with stringent statutory requirements attached. They enable companies to align employees with long-term business growth and are particularly common for early-stage companies looking to incentivise employees.

Where companies satisfy the stringent statutory requirements and are eligible for implementing an EMI, there is no income tax or NICs due on the grant or exercise of an option, with employees subject to capital gains tax arising on the disposal of the share option and potentially favourable Business Asset Disposal Relief (“BADR”) available to reduce the capital gains tax rate even further to 18%. For both employees and employers, an EMI scheme can be a win-win scenario.

The changes announced in the Budget, effective from 6 April 2026, will therefore be particularly welcome for those companies that were previously unable to qualify for EMI. The changes announced include:

• The employee limit increasing from 250 to 500 full time equivalent employees.
• The gross assets test increasing from £30 million to £120 million.
• The value of shares over which employees can be granted options increasing from £3 million to £6 million.

Additionally, the Chancellor announced that it will be possible to amend existing contracts to extend the maximum life of an option from 10 years to 15 years, providing that any such amendments are made in line with the requirements of the legislation. On first reading of the draft legislation, this change seems much more limited than had initially been implied. Currently, only “fixed date qualifying options” granted before 6 April 2026 are eligible to be extended. It remains unclear at this stage whether this is the intention of the draft legislation, particularly given that it is rare for options to be exercisable by reference to a single date and instead, most EMI options refer to a specific vesting event or to a particular period of time (e.g., vesting on the tenth anniversary). Over the coming months, it is likely that the government will continue to receive a number of responses from practitioners to clarify this drafting.

From an administrative perspective, the requirement to notify HMRC of the grant of EMI options on an individual basis will also be removed from April 2027, although we expect that HMRC will still need to be notified of any EMI options granted in the relevant tax year as part of the Annual Return for Employment Related Securities. This will undoubtedly ease the administrative burden that many companies face when implementing such a scheme.

Although the individual limit remains unchanged at £250,000 worth of shares under option, companies previously excluded from implementing EMI options will now begin re-evaluating their eligibility to participate in EMI schemes. Nevertheless, there are many who are calling for the individual limit to be increased to allow employees – particularly those at more senior levels where EMI grants may be of a higher value – to potentially receive more meaningful sums and to reward employees for building successfully companies.

Changes to Salary Sacrificed Pensions

In a measure expected to raise £4.7 billion in 2029-30, salary sacrifice for pension contributions exceeding £2,000 per year will no longer be effective for NICs purposes. From 6 April 2029, employers and employees will pay NICs on any amounts sacrificed into employer pension schemes above £2,000.

Although pension contributions will continue to be tax efficient for individuals, they will no longer provide any cost benefit for employers nor any employee NICs savings. What has historically been mutually beneficial for both employees and employers will now be increasingly prohibitive for employees looking to save into their pension pots and for employers looking at cost effective ways to manage their wage bills.

This change places further pressure on employee’s take-home pay and employer wage bills, combined with extending the freeze on tax thresholds and income tax bands until 2031; higher employer NICs since April 2025 and increasing tax rates on property and savings income for other forms of income beyond employment income.

For employees starting their careers, this change runs counter to long-standing efforts to encourage earlier pension saving contributions and planning ahead for retirement. For employers, it removes a lever that has long helped manage costs while enhancing employee reward.

We expect that with increasing employer NIC bills, employers will pass much of this cost on to employees – whether through decreasing their overall pension contributions or mitigating any increased costs with less generous salary increases over the coming years, reducing recruitment, and further exacerbating the feeling amongst employees that their pay will not extend as far as it once did.

Although there remains some time until this change takes effect, employers will likely need to begin investigating how these future costs will impact them and the costs that will need to be passed on to employees. Documentation and processes for salary sacrifice will need to be reviewed, and thoughts will need to be given to updating payroll processes and reporting, and communicating such changes to employees.

Alternative Incentivisation Strategies

The coming years will require employers to rethink their incentive structures as they move beyond familiar frameworks and explore more holistic and innovative approaches towards incentivising employees.

As part of their talent strategy to retain key talent, companies may wish to:

• Review and assess their eligibility to implement EMI or Company Share Option Plans (“CSOPs”). Tax advantaged share-based remuneration remains a potentially remunerative and tax efficient tool for retaining and incentivising talent, and can be a tool to attract new talent particularly where employers are competing for talent.
• Consult with advisors where companies remain unclear on their ability to participate in tax advantaged share schemes and what alternative options may be available.
• Consider whether alternative share plans can be incorporated into their reward strategy, e.g., implementation of growth shares or other incentive arrangements where returns can be taxed as capital gains (and without employee or employer NICs) to maximise potential tax savings for both employees and employers.
• Consider implementing certain technology tools to ensure that employees understand the potential value at work in any share participation scheme.
• Educate employees about the prospective changes to salary sacrificed pension contributions, enabling them to maximise contributions before April 2029.
• Understand the key drivers across the employee population – what do employees at different stages of their career value more? How can these be tailored to incentivise all employees?
• Strengthen their financial wellbeing offering, through the provision of workshops on budgeting, savings strategies and pensions to reinforce the message that employee wellbeing matters.
• Utilise the £500 tax free wellbeing allowance available to invest in employee financial wellbeing, carefully planning any benefits provided to avoid triggering a benefit in kind charge.
• Offer support ahead of retirement or managing the financial impact of other major life events for employees, such as mortgage advice, savings advice and parental leave.
• Review long-term recruitment strategy and plan what incentives and benefits may be attractive to employees across all points of an employees’ career.

Final Thoughts

Over the next few years, it is evident that both employees and employers will feel an increasing financial pressure as more of their income becomes taxable and employers face rising wage related costs. However, it remains imperative that employers continue to invest in their talent pool to engage employees and foster alignment to drive financial growth. 

There is, arguably, a three-step plan that employers need to consider ahead of any changes, focusing on building short and long term levers to help incentivise and retain existing and attract new talent. These are:

• Reviewing existing schemes and ensuring that employees (both current and incoming) appreciate and understand the potential value of any incentive scheme participation;
• Understanding key drivers for employees across all career levels; and
• Implementing more innovative benefits ahead of any prospective changes to ensure that talent strategies are aligned with company talent budgets, without being at the detriment of employee engagement.

Whilst some of the proposed changes are a number of years away, planning ahead of any prospective changes and implementing more innovative benefits should be at the top of any talent strategy. This will help ensure that employees and employers remain aligned on offering and receiving compelling and meaningful rewards, even within a world of tighter purse strings.