Tax year: 2026/27 | Last reviewed: 2 October 2026
With employer National Insurance at 15% on earnings above £5,000, every £1,000 pay rise now costs a business £1,150, and the employee may keep as little as £580 of it. Tax-efficient benefits can deliver far more value per pound. Here are the main options for 2026/27.
Completely tax-free benefits
- Employer pension contributions: no tax or NI for the employee or employer, and deductible for the business.
- Work-related training: courses and qualifications that develop skills used in the job.
- Annual staff events: up to £150 per head per year. See staff entertaining rules.
- Trivial benefits: gifts of up to £50 for personal occasions, not cash or rewards for work. See trivial benefits.
- Eye tests and glasses for screen users, and annual health screening.
- Mobile phone: one phone per employee with the contract in the employer’s name.
- Workplace parking and EV charging at or near work.
- Homeworking allowance: £6 a week. See use of home as office.
- Long service awards: non-cash gifts after 20 years’ service, up to £50 per year of service.
- Employee assistance programmes and welfare counselling.
Salary sacrifice
An employee gives up part of their salary in exchange for a benefit. Both sides save NI where the benefit is exempt. The main schemes still protected are:
- Pensions: the biggest saving. From April 2029, NI relief is due to be capped at £2,000 of sacrificed salary per year, but income tax relief continues.
- Cycle to work: bikes and safety equipment.
- Electric cars: low BIK at 4% in 2026/27. See electric company cars.
- Childcare in a workplace nursery.
For most other benefits, salary sacrifice no longer saves tax because the higher of the salary given up and the benefit value is taxed.
Taxable but still worthwhile
- Private medical insurance: taxable for the employee and Class 1A NI for the employer, but bought at group rates and valued highly by staff.
- Gym memberships: taxable unless the gym is on site and available to all staff.
- Bonuses: taxable as pay, but deductible.
All employee benefit costs are generally deductible for the business, so even taxable benefits reduce corporation tax.
Employee ownership and share schemes
For key people, EMI share options let employees buy shares at today’s value, with gains usually taxed at 18% under Business Asset Disposal Relief. They are powerful for retention in growing companies.
Reporting
Taxable benefits are reported on P11Ds by 6 July after the tax year, or payrolled during the year if registered. From April 2027, payrolling most benefits becomes mandatory, so it is worth setting up now. Exempt benefits do not need reporting.
FAQs
What is the most tax-efficient staff benefit?
Employer pension contributions, especially through salary sacrifice.
Can directors get the same benefits?
Yes, directors are employees for these purposes, although trivial benefits are capped at £300 a year for directors of close companies.
Talk it through with Digivolve
We help employers design benefit packages that cost less and land better, then handle the payroll and P11D side.
This article is general information based on the rules for the 2026/27 tax year as at October 2026. It is not personal tax advice. Rates and thresholds can change, so please speak to us before acting.