As a result of the Employment Rights Bill currently going through parliament and anticipated as something that will be passed, workers will receive the right to receive payment from their employers if shifts are cancelled, moved, or curtailed at short notice.
As part of Budget 2025, the HMRC, In line with existing legislation relating to payments received by workers from their employer, that these are earnings and subject to Income Tax.
This new measure is to put beyond doubt the tax liability for employers and workers, particularly where there may not be a straightforward employer and employee relationship. This includes instances where the arrangement is such that the worker is paid by the third party.
The legislative change is to also put beyond doubt how earnings are taxed when they relate to duties that have not been performed.
It will also make consequential amendments to Overseas Workday Relief and clarify how Post-Employment Notice Pay (PENP) is charged to tax for non-UK resident employees.
HMRC will also introduce secondary legislation to put the National Insurance contributions (NICs) treatment beyond doubt for these payments as well.
Zero hours contract (ZHC) changes
The Department for Business and Trade (DBT) is introducing legislation on zero-hours contracts (ZHC) as part of the Employment Rights Bill, part of which includes mandating payments for cancelled, moved or curtailed shifts, with corresponding rights for agency workers.
The DBT legislation requires employers and work-finding agencies to pay workers in the event they have their shifts changed at short notice and will ensure employers are liable to provide this payment for a short notice change from 2027.
This change will be introduced in a new section (Section 27BP) of the Employment Rights Act 1996, which gives workers in Great Britain the right to payment for cancelled, moved or curtailed shifts.
Proposed revisions
A new provision will be introduced into ITEPA confirming that payments for cancelled, moved or curtailed shifts are earnings and subject to Income Tax. Subsequent regulations will be introduced to confirm that the payments are earnings for the purposes of Class 1 National Insurance contributions.
Provisions will also be introduced in ITEPA to determine the tax treatment of earnings that relate to duties that have not been performed with regard to the notional location of those duties. These provisions will establish the extent to which such earnings should be regarded as relating to UK duties and consequential amendments will be made to Foreign Employment Relief (otherwise known as Overseas Workday Relief) and to provisions that establish how Post-Employment Notice Pay (PENP) is charged to tax for non-UK resident employees. The Class 1 National Insurance contributions treatment will follow the Income Tax changes in ITEPA through secondary legislation at a later date.
Who does this impact
Workers on zero-hour contracts are estimated to be younger in age, with those aged 16 to 24 particularly overrepresented (around 40%) compared to their prevalence in the overall UK adult population (around 13%). Females are also estimated to be slightly overrepresented in the zero-hour contract worker population (around 54%) compared to their prevalence in the UK adult population (50%).
PAYadvice.UK 4/12/2025