Policy paper

Tax treatment of payments received for cancelled, moved or curtailed shifts

Published 26 November 2025

Who is likely to be affected

This measure will impact a small cohort of zero-hour or similar limited hour contract workers who receive payments for shifts cancelled, moved, or curtailed at short notice, and their employers who will be required to make these payments under legislation introduced by Department for Business and Trade. As a result of the Employment Rights Bill these workers will, for the first time, have a statutory right to receive payments when certain changes are made to shifts last minute. These payments would ordinarily be subject to Income Tax and National Insurance. The government is legislating to put this beyond doubt.

General description of the measure

As a result of the landmark Employment Rights Bill, workers will receive the right to receive payment from their employers if shifts are cancelled, moved, or curtailed at short notice. In line with existing legislation relating to payments received by workers from their employer, these are earnings and subject to Income Tax. This measure will put this beyond doubt 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 changes for this measure will 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.

We will also introduce secondary legislation to put the National Insurance contributions (NICs) treatment beyond doubt for these payments.

Policy objective

Payments received for short notice shift cancellation or changes are earnings. They are paid in lieu of the payment workers would have received if they had completed the shift. The policy objective is to confirm that these payments are taxable in all relevant scenarios where a payment for a short notice shift change is made, irrespective of the arrangement or employment structure.

As part of putting beyond doubt that these payments are taxable, the measure will establish a general principle to determine the tax treatment of earnings that relate to duties that have not been performed. For example, when payment is made as a result of termination of employment and where the location of duties such as UK or overseas is relevant. This includes ensuring the principle applies to those eligible for Overseas Workday Relief and to non-UK residents in receipt of Post-Employment Notice Pay (PENP).

Background to the measure

The Department for Business and Trade (DBT) are 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 will require 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.

For most employees, payments will already fall within existing tax legislation and be taxed as earnings from the employment. However, there are different categories of workers, such as agency workers and workers employed under umbrella companies. This measure intends to put the treatment beyond doubt for all scenarios where a worker would be entitled to this payment.

The right to the new payment under 27BP of the Employment Rights Act 1996 currently only applies in Great Britain. However, the tax changes in this measure extends throughout the United Kingdom. This measure will also allow for subsequent regulations to be made to ensure these payments are also subject to primary and secondary Class 1 National Insurance contributions.

Detailed proposal

Operative date

The measure will have effect from the first day on which the DBT Employment Rights Bill brings the statutory duty to make the payments into effect.

These amendments will have effect in relation to general earnings that are for tax years starting from the tax year 2026 to 2027 and are paid on or after 6 April 2026. 

Current law

The general charging provisions for Income Tax on employment income are in Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). Section 6 sets out the charge to tax on ‘employment income’ and ‘general earnings’. Section 7 defines ‘employment income’ and ‘general earnings’. Section 9 sets out the amount of employment income charged to tax. Chapters 4 and 5 set out how the amount of taxable earnings varies for UK resident and non-UK resident employees. Chapter 5c sets out Foreign Employment Relief (commonly known as Overseas Workday Relief) and section 414 sets out Foreign Service Reduction.

Chapters 7 to 10 set out how ITEPA applies to agency workers and individuals who supply their services through a personal, or managed service company. Section 45, Chapter 7, Part 2 ITEPA already provides for payments received by the agency worker as a result of the arrangements between the worker and the agency to be deemed as earnings from employment when the agency legislation applies.

For personal and managed service company arrangements, DBT’s ZHC legislation will exclude a zero-hour or similar contract between an employer and a corporate entity. As such, workers providing their services through such entities, subject to the provisions within Chapters 8 to 10 ITEPA, will not be entitled to payments for cancelled, moved or curtailed shifts. Payments received as a result of a contract with a personal, or managed service company is business income and already subject to taxation under the Corporation Tax Act, 2009.

Section 3(1)(a) of the Social Security Contributions and Benefits Act 1992 (SSCBA) defines “earnings” for the purpose of liability to Class 1 National Insurance contributions as including any remuneration or profit derived from an employment.

Payments for cancelled, moved or curtailed shifts are generally treated as income from an employment and will likely be captured under Section 62 of ITEPA. The current law will subsequently be clarified to ensure that these payments are earnings subject to Class 1 National Insurance contributions.

Proposed revisions

A new provision will be introduced in 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.  

Summary of impacts

Exchequer impact (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
Empty	Empty	Empty	Empty	Empty	Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility (OBR) and will be set out at a future fiscal event.

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The measure will impact a small subset of workers that will receive a statutory right to payments for a cancelled, moved or curtailed shifts. The vast majority of these payments are taxable under existing legislation, and this measure simply confirms that to be the case for all workers regardless of the specifics of their employment relationship.

This measure is not expected to impact family formation, stability or breakdown.

This measure is expected overall to have no impact on individuals experience of dealing with HMRC as it does not change any processes or tax admin obligations.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. If a protected group is overrepresented in the zero-hour contract population, then it will be disproportionately impacted. However, only a small proportion of the zero-hour workers population will be affected by this measure, as the majority of payments introduced by DBT’s legislation will be taxable under existing legislation.

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%).

While HMRC cannot identify the specific subset of individuals affected by this measure, estimates for the entire zero-hour worker population have been assessed as a proxy.

Administrative impact on business including civil society organisations

This measure will have a negligible impact on all businesses that employ zero-hour workers or those on similar limited hours contracts as payments are taxable in majority of scenarios, and this measure simply confirms the tax treatment. One-off costs will include familiarisation with this change.

This measure will also have a negligible impact on civil society organisations that employ zero-hour workers or those on similar limited hours contracts. The material impact of this measure is limited as payments for cancelled, moved or curtailed shifts, which are taxable under existing legislation for most scenarios.

This measure is expected overall to have no impact on businesses experience of dealing with HMRC as it confirms the position on the taxation of short notice shift change payments and ensures they are treated the same as other payments received during employment and does not change any processes or tax admin obligations.

Operational impact (£ million) (HMRC or other)

There are no operational costs to HMRC from this specific measure to confirm the tax treatment of cancelled shift payments.

Other impacts

Other impacts have been considered, and none have been identified.

Monitoring and evaluation

Consideration will be given to monitoring this measure through information collected from tax receipts and kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact employmentincomepolicy@hmrc.gov.uk.