Although none of us could have predicted quite how 2020 turned out, here are five things we think UK companies should watch out for in 2021.
Government intervention in transactions on national security grounds
The government is proposing to introduce sweeping new powers for it to intervene in transactions where it perceives there is a risk to national security. Whilst the provisions are aimed at controlling foreign investment in the UK, they will affect all buyers or investors in the UK regardless of where they are based.
A controversial aspect of the new regime is that it will have retrospective effect: any transaction completed between 12 November 2020 (the date the National Security and Investment Bill was introduced to parliament) and the date that legislation comes into force could be called in for review if the government believes it represents a risk to national security.
You can find out more about the new regime in this separate insight.
Companies House identity verification requirements
Companies House will be introducing new requirements for company directors to verify their identity before their company is incorporated or before they are appointed as a director.
The verification process is likely to involve documents being submitted via an online digital portal. Once a director is verified and appointed for the first time, they will have a verified individual account at Companies House meaning subsequent appointments can be registered and confirmed straight away.
Where a director's identity cannot be verified, the appointment will not proceed. If the failure is suspicious, Companies House will share the information with appropriate bodies.
The new rules will mark a fundamental change in the process of appointing a director with that appointment only taking place once the director's identity has been verified, rather than on the passing of the relevant board or shareholder resolution as is the case at present.
The government published its response to the consultation on these reforms last year. Although no timetable has yet been set, it seems likely that the measures will be finalised and come into force during 2021
Ban on corporate directors
More than six years after it was first proposed, it looks like the ban on corporate directors will finally come into force later this year. The ban is part of the government's drive to increase corporate transparency and crackdown on corporate crime.
Although the ban was included in the Small Business, Enterprise and Employment Act 2015, the relevant provisions have not yet been implemented. A recent government consultation focused on a principles based exception to the general prohibition.
This would allow a company to appoint a corporate director provided that:
- the corporate director has directors who are all natural persons; and
- all those natural person directors have had their identity verified at Companies House as described above.
The consultation closed on 3 February 2021 and, whilst there is no date for implementation yet, it seems likely this will be later this year.
You can find out more about the proposed ban in this separate update – Proposals to ban corporate directors.
New rules for off-payroll workers
From 6 April 2021 new rules will apply to off-payroll workers in the private sector, mirroring those which have been in force in the public sector since April 2017. The new rules will place a greater administrative burden on those businesses which engage workers through intermediary personal service companies or 'PSCs'. The rules, known as 'IR35', are designed to ensure that workers, who would have been employees if they were providing their services directly to the client, pay broadly the same tax and NICs as employees.
Under the new rules, large and medium sized businesses will be responsible for determining the tax status of workers engaged through PSCs. Crucially, where those workers are deemed to be employed for tax purposes, HMRC will look to recover PAYE and NICs from the hiring company in the first instance.
Companies need to evaluate all arrangements under which workers' services are provided to them to see if they will be caught by the new rules.
You can find out more about the new rules here.
Reforms to non-compete clauses in service agreements
Recognising that the COVID-19 pandemic has had a profound impact on the labour market, creating a need to boost innovation, increase competition and create new jobs, the government is also consulting on possible reforms to non-compete clauses in employment contracts.
An outright ban would represent a radical change in this area since non-compete clauses are routinely used to prevent employers suffering from competitive activities by former workers. Some form of compensation payment seems a more likely outcome although it would be some time before any such change was introduced.
The current consultation is limited to non-compete clauses but asks whether it should be extended to other forms of post-termination restrictions such as non-poaching, non-solicitation and non-dealing provisions. It is also limited to restrictions in employment contracts so similar provisions in commercial contracts, such as investment or acquisition agreements, should not be affected.