The British Dental Association (BDA) has advised associate dentists to make sure that they comply with self employed rules as HMRC will remove a vital piece of guidance from April
HMRC is due to change an important long-standing piece of advice from April 2023 which means that associate dentists will have to meet off payroll working rules.
The BDA said that ‘HMRC has for many years accepted that associate dentists are almost always self-employed. Its guidance has included mention of our associate agreement in its employment status manual, but as of April, this paragraph will be withdrawn’.
From 6 April 2023, HMRC will be updating the Employment Status Manual (ESM) — ESM4030 to remove specific occupational guidance for associate dentists.
The majority of dentists work as associates, and appear to fall outside of IR35 rules as they pay to use the facilities at the practice, can choose what hours and when to work, and practices cannot tell them how to do their jobs or what type of work to undertake. In addition, professional development, specialist training, registration and indemnity insurance is self-funded.
Currently associate dentists, who use facilities in a dentist practice but are not hired staff members, can reporting earnings as trading income and not as employment income. In these circumstances the dentist is liable for Class 2/4 NICs and not Class 1 NICs. They also do not need to establish IR35 status, but this is set to change, despite claims from HMRC that nothing ‘has changed’.
HMRC said: ‘There has been no change in the rules and removing ESM4030 does not mean we have changed our view on the employment status of associate dentists.
‘In future however, we are asking associate dentists, or those who engage associate dentists, to make an assessment of employment status in the same way as other customers in the dental sector and elsewhere. Check Employment Status Tax (CEST) tool offers a quick and easy way to do this.’
So far, the British Dental Association believes that the removal of the paragraph from the guidance will not affect the status of associate dentists, but it appears that HMRC is expanding the focus of the off payroll rules for the private sector, although it will not open retrospective enquiries into previous practice.
In a statement the BDA said: ‘The withdrawal of this guidance will have no impact on the self-employed status of individual associate dentists. HMRC has told us that this is a change to their guidance, not a change to the self-employed status of associates. They have simply stopped referring to third party advice in their own guidance.
‘The National Association of Dental Accountants and Lawyers, the experts on the dental sector, also believe that the change in guidance will have minimal impact. Furthermore, HMRC will not be using the withdrawal of the guidance as a reason to open retrospective enquiries into periods prior to 6 April 2023.’
However, the BDA said that dental practices should review their associate arrangements.
‘It is vital that practice owners and associates are prepared for the different HMRC approach, which means being aware of the issue and understanding what factors make an associate employed, and those that lean towards self-employment.
‘HMRC will no longer simply accept that an associate is self-employed if engaged on a BDA contract and the terms are being followed. The practice owner will need to demonstrate self-employment for both new and existing associates using the normal status tests,’ the BDA said.
There are an estimated 42,200 dentists registered in the UK.
The Association of Independent Professionals and the Self-Employed (IPSE) has stated that the recent changes to the rules relating to off-payroll workers, commonly known as IR35, ‘undermine the self-employed at the worst possible time’.
The changes to IR35 took effect on 6 April 2021 and shifted responsibility for making the decision on employment status on each contract away from contractors and personal service companies (PSCs) and on to the client receiving their services. This has already been done in the public sector.
Research carried out by IPSE found that 50% of contractors planned to stop contracting in the UK once the changes took effect unless they could secure contracts unaffected by them. 24% are planning to seek contracts abroad; 12% plan to stop working altogether; 17% will seek an employed role; and 11% are looking to retire within the next year.
Additionally, 24% of contractors said their clients are planning to blanket-assess all their contractors as ‘inside IR35’.
Andy Chamberlain, Director of Policy at IPSE, said:
‘The changes to IR35 would do serious harm to the self-employed sector at the best of times, but now they are adding drastic, unnecessary damage to the financial carnage of the pandemic – undermining the UK’s contractors at the worst possible time.
‘The crucial problem with IR35 is still its complexity: in fact, it is so complex that HMRC has lost the majority of tribunals on its own legislation. And there remains serious doubts about the CEST tool HMRC designed to supposedly cut through this complexity.’
Internet link: IPSE website
The IR35 rule was introduced in 2000 to equalise the tax position between employees and individuals who provide their services, usually using a company (often called a Personal Services Company — PSC). The IR35 legislation, which aims to ensure that contractors are paying the appropriate amount of tax, is also changing for some businesses in the private sector. Currently, most contractors are required to determine their own status as employee or contractor. From 6 April 2021 the liability to determine a contractor’s tax status will pass to clients/employers.
This change was due to be introduced in April 2020 but was delayed until April 2021 due to the Covid-19 crisis. It is expected that this change will lead to a significant number of “contractors” having to pay extra tax and National Insurance as it is estimated that only 10% correctly determine their tax status. The change is being introduced to move the responsibility from the contractor to medium and large-sector clients. Smaller clients will be exempt from this obligation and the contractor remains liable for determining their own tax status. A medium to large business is one that has two or more of the following:
- turnover of more than £10.2 million
- balance sheet totals, or is more than, £5.1 million
- has 50 or more employees.
Where a determination is made that a contractor is not caught by the IR35 rules it is essential that reasonable care is taken in the decision-making process as the decision itself must be reasonable. If care is not taken, status determination statements may not be valid and the client may be liable to pay any unpaid taxes.
In February 2021, the Government published new guidance which confirmed that companies will not have to pay penalties on any inaccuracies within the first 12 months of the new rules coming into effect, unless there is “clear evidence of deliberate non-compliance”. The aim of this is to help companies implement the new rules while also recognising the difficulties they may be under as a result of the coronavirus pandemic.
However, “deliberate defaulters” will be named and shamed to encourage them to get their “tax affairs in order”. For this reason, the Government has urged businesses not to cut corners when introducing these new rules.