The Story of NREs

Introduction

Possibly as part of Brexit planning, but certainly as a benefit for it, NREs were created in the Finance Bill, 2017. This created the employment type that HMRC calls "employed for tax purposes". It has colloquially been known as "inside IR35". Whatever the names, it created the No Rights Employee (NRE).

NREs are a boon for big business because they are a lean, flexible, low-cost, motivated and productive workforce. NREs sweep away a hundred years of interference and regulations from the unions, the "politically correct", "social justice warriors" and other distractions. With the EU having an ever diminishing influence, this leaves British businesses to be run by bosses - and only bosses. No longer does business have to worry about welfare, gender diversity or lengthy and largely pointless negotiations with workers when they want to make a necessary change to their business. Businesses can now make changes as quickly as they can announce them - the workers will reflect the change by the end of the day.

The government's master stroke here was of course to do all this before the official moment of Brexit, such that they can avoid any suggestion of eroding workers rights. They also managed to do it largely without any significant opposition campaigning, and even succeeded in placating the unions.

Public Sector

Initially, the government trialled NREs in the public sector. Shortly after the legislation was passed, many NHS trusts started to hire NREs. National Rail followed suit, almost exclusively hiring NREs. However, not all went along with the plan. NHS Digital decided to simply carry on as before. In response, HMRC fined them £4.3 million. This provided a strong deterrent for any other bodies considering the same, and as such the MoD, Post Office, IPO and others have similarly moved to exclusive use of NREs.

Curiously, we note that HMRC themselves have not moved to exclusive use of NREs. We have not been able to ascertain why this is.

Private Sector

NREs have found their way into the private sector too. First many banks and financial services companies started to announce that they would be replacing all of their flexible workers (contractors) with NREs. We've since seen numerous other big businesses doing the same, examples are IBM, Microsoft, Tesco and others. All are now exclusively hiring NREs for all "flexible" roles.

In April 2020 the government is bringing further legislation into the private sector. This secures NREs further, but most importantly gives HMRC the power to fine any private-sector companies who are not hiring NREs (the same powers they already have in the public sector).

Once legislation is passed, we can expect much the same to occur as did in the private sector. Most businesses will take advantage of NREs right away, especially when they see their competitors doing so and gaining ground as a result. What few "hold outs" there are will be fined by HMRC and will eventually fall into line as well.

Contractors

Contractors have been the only real opposition to NREs. This opposition is often confused for a tax complaint, but this is a misunderstanding or misdirection because contractors already pay a larger percentage of tax than PAYE employees or indeed NREs.

Instead, contractors fear that their specialised position and consequent high price is at risk. After all, if your whole workforce is ultra-flexible, then why would you need premium contractors? Indeed, NREs are easier to hire than contractors as the employment contract and working conditions for NREs are considerably simpler. This further weakens the case for contractors.

HMRC Fines

The NRE legislation affords HMRC some broad powers to fine non-compliant businesses. The fines are justified as "back taxes" that have not been paid by the hirer. However, taxes have been paid elsewhere, which can presumably be reclaimed. As such, it's unlikely the Exchequer will actually make any money from fines. Thus we conclude that they are there purely as a deterrent for any businesses that attempt to operate without NREs.

Future Opportunities

The widespread use of NREs leads the world, at least in developed nations. No other European country has such rules, and even the USA, which has historically been seen as pretty flexible, has vastly more regulations around employment.

NREs offer numerous opportunities for business and the UK as a whole in the future. Once NRE penetration improves, businesses can expect to hire workers far more quickly and cheaply than they do now. Most senior workers today are bound by three month notice periods from their current employers, and so hiring them takes many months. We can expect at least some employers to actively remove workers from their businesses if they suspect they are looking for new work - improving the talent pool and reducing the time-to-hire.

Additionally, foreign businesses looking to invest or set up in the UK can do so knowing that whatever changes they wish to make can be achieved in a world-beating time. For example, a reshuffling of departments that results in some workers becoming surplus to requirements would take around six months to fully implement in the UK prior to NREs. In France or Germany, such action can take even longer. With NREs, the entire change can be completed on the same day as it is announced.

Where workers may be able to be redeployed, they can simply be re-hired after consideration against the broader employment market. This again means businesses can get the right people for the job, rather than having to keep people on to placate overbearing regulations and laws.