For many years, there has been guidance from HMRC under the ESM4030 that associate dentists can be treated as self-employed. This was based on the practice and associate signing a British Dental Association (BDA) or Dental Practitioners Association (DPA) standard associate contract and both parties adhering to the terms in the contract.
Whilst these agreements were in place and terms were followed, the associate dentist would be subject to tax under the rules for trading income, and not as employment income. This means that it falls to the associate dentist to pay their tax as self-employed.
To help explain the potential challenges ahead for associate dentists, we’ve asked Client Manager, Matt Norton to outline what HMRC could implement from April onwards, and what it might mean for your dental practice.
Over to Matt…
In just over a months’ time, we could see HMRC challenge the employment status of associate dentists on a case-by-case basis, which could potentially be a huge inconvenience for dental practices. From 6th April 2023, HMRC is withdrawing their guidance in ESM4030 that associate dentists will be treated as being self-employed if they are engaged under a BDA or DPA associate agreement. This means that the employment status of each associate dentist will be based on the usual case law which decides if someone is self-employed or employed.
It is important to stress that this is a change to their guidance due to the implementation of the much maligned Check Employment Status for Tax (CEST) tool and not a change to the self-employed status of the vast majority of associate dentists.
What does it mean if HMRC decides to challenge?
If HMRC decides to challenge the classification of an associate dentist on the basis that they believe they are employed as opposed to self-employed, they will approach the dental practice who is considered to be the employer. The dental practice in question could then become liable for the income tax and National Insurance Contribution (NIC) payments for all associate dentists at their practice if HMRC do decide the associates are actually an employee of the dental practice.
From 6th April 2023 onwards, any employment status cases will be judged on a case-by-case basis.
Costs involved if found liable
There is the potential of a hefty cost if a dental practice is found liable for the tax of associate dentists, as they will have to pay employer NIC on the associates pay. HMRC have stated that they will not backdate judgements to before 5th April 2023 if the dental practice and associate dentists were correctly following ESM4030.
There’s the possibility of an offset for the taxes that have already been paid by the associate dentists, however the dental practice could be liable for the employer’s NICs as a minimum, which are 13.8%.
This would be a huge increase in costs for the dental practice if the associate dentists are found to be employed and practice owners are encouraged to seek professional advice.
What do dental practices need to do before 6th April 2023
Dental practices should now be utilising the CEST tool available on gov.uk and answering the questions on the CEST tool in reference to the agreement and the actual working practices of the associate dentists. Once the questions are answered, the CEST tool will arrive at an answer on whether or not the associate dentist is self-employed or an employee. If the questions have been answered accurately, then HMRC will stand by the determination given by the tool.
Those dental practices that have an older BDA associate agreement should now be using the up to date BDA agreement and getting this signed by all parties before 5th April 2023. If dental practices have a bespoke associate agreement drafted by their solicitors, then this may need to be potentially re-drafted by their solicitors.
We’re here to help
At DJH Mitten Clarke (previously Morris & Co), we are much more than just your run-of-the-mill accountancy firm. If you are looking for advice about the change of agreements HMRC are planning to implement to associate dentists and how it may affect your practice, you can speak to one of our specialist team members by calling 0151 348 8400.