Date22 Mar 2021
As dental specialist advisors, we continually monitor HMRC activity and engage with industry bodies across the dental sector. We have been aware that within the last year to 18 months, there has been an increased level of HMRC activity around the employment status of Associate Dentists. Following something of a lull, HMRC are now reactivating their interest and in some cases, HMRC’s activity is also extending to hygienists and dental therapists. Practices which engage workers to carry out non-invasive aesthetics treatments may also come within HMRC’s review.
Vanessa Pople, Partner and Joint Head of Dental, discusses what to be aware of and action you can take to ensure compliance.
Employment Status Risk
Each year, HMRC considers the employment status of workers engaged on a self-employed basis. The risk in question here is where workers are seen to be ‘employed’ for tax purposes, PAYE and Class 1 Primary National Insurance Contributions would be deductible from payments made to those workers. Therefore, any lack of withholding would be seen to be a PAYE failure.
For workers engaged on a self-employed basis the responsibility to determine employment status and withhold PAYE lies with the person engaging the worker’s services. In the case of Associate Dentists, the engager for these purposes will be the Principal Dentist or their Practice.
Where an individual is providing their services via their own personal service company, rule changes from this April will mean the responsibility to determine status and deductions will lie with the practice.
To date, many Associate Dentists have relied on the fact that their income is seen to be trading income as opposed to employment income. Where this is genuinely the case, no PAYE would be due and Class 2/4 NIC would be due rather than Class 1. Fundamental to this treatment however is that the Associate Dentists are engaged by the Principal Dentist/Practice under one of the standard British Dental Association (BDA) or Dental Practitioners Association (DPA) agreements for ‘associates’ and are carrying out their work in accordance with the terms outlined within these agreements.
To be clear, merely having the relevant standard agreement does not provide blanket exemption from the employment status rules.
HMRC’s position historically is that where Associates have been operating in line with the contract, there is unlikely to be an employment risk. HMRC’s more recent challenge however is that where Associates hold relevant standard agreements but are not working in line with this, their employment status should be considered. HMRC’s first line of questioning is likely to focus on the way the Associate works and compare this against the contract held.
If a discrepancy is identified, HMRC will look to apply the various ‘status indicators’ established under case law to challenge employment status. They may also seek to use their own Check Employment Status for Tax (CEST) tool to demonstrate their findings.
Any analysis of employment status is of course a subjective one and should be completed viewing the position in the round. We have seen a vast number of employment status cases make their way to the tax courts with HMRC having what could best be described as ‘mixed’ success.
Therefore, even if a mismatch exists between working practices and the contract, such that HMRC would not apply their usual concession, where the Associate is still seen on balance to be carrying out a business on their own accord they will still be able to be treated as self-employed for tax purposes with no PAYE responsibilities arising.
New HMRC campaigns are typically carried out at a regional level in the first instance and we are aware of two targeted reviews in the North East, with the second in late 2020 being a repeat of an earlier one carried out in 2019. Generally, with HMRC review programmes a regional start will often be followed by a national programme.
Dental practices are businesses which are likely to engage with a number of different staff types (e.g. hygienists, therapists) who may inadvertently have been treated as self-employed, increasing the potential ‘take’ from an extended employment status review of the practice.
Where dental practices are approached by HMRC in relation to status matters, we recommend early engagement with specialist advisors who will be able to review the correspondence and advise the correct first steps to respond. Where HMRC’s initial contact is by phone, this should be treated with the same care any written response would be. We have seen several instances where businesses are approached ‘informally’ by phone only for comments made within those discussions to be used as HMRC evidence during their enquiries.
In early 2019 HMRC undertook a review of a large DBC (dental body corporate) group’s practices, which led to ‘invitations’ to Associates engaged by the DBC to have a discussion around the basis on which they were engaged. This approach was identified early by the British Dental Association (BDA) and National Association of Specialist Dental Accountants and Lawyers (NASDAL) who were able to manage this process so that only a sample of clients met with HMRC. It was recognised that this interview process needed to be managed carefully to ensure that the information provided to HMRC was correct and complete.
In 2020, we understand another DBC was targeted and that HMRC have replicated their approach. However, the scope of the HMRC review appears to have broadened, with other categories of self-employed individuals being included. This further indicates a coordinated review basis by HMRC and that reviews are targeted and not speculative.
What you need to know and do
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At Azets we have specialist dental and employment tax teams who are adept at advising the sector, reviewing employment status and experts in managing HMRC reviews.