On 6 April 2021, changes to tax law were introduced that dental practice owners and staff should be aware of. The new ‘IR35’ off-payroll working rules are intended to prevent the avoidance of employment tax and national insurance contributions (NICs) by workers treating themselves as self-employed when their actual working practice is consistent with being an employee.
Ahead of the change, there was confusion about what it would mean for the employment status of associate dentists, hygienists and other dental therapists. Many were concerned about inadvertently falling foul of the rules and being subject to additional tax payments, especially as HMRC was seen to increase activity in the dental sector.
Now that the new IR35 rules are in place, be sure you know how and when they apply, and what actions you need to take to ensure compliance.
IR35: how do the rules apply?
Changes to the IR35 off-payroll working rules mean that all public authorities and medium or large-sized private-sector companies are responsible for deciding the employment status of workers. Public sector employers (including NHS dental practices) have long held this responsibility. Now, the rules also apply to private companies meeting two or more of the following conditions:
- annual turnover >£10.2 million
- balance sheet total >£5.1 million
- >50 employees.
In a medium or large private dental practice (or practice group), the responsibility for determining employment status lies with the person engaging the worker, usually the Principal Dentist or practice owner.
If you are an associate dentist or hygienist providing services to a small private dental practice, your own intermediary (usually a limited company) will remain responsible.
Status Determination Statement (SDS) for every contract
If you hold responsibility for determining employment status in a private dental practice, you must prepare an SDS for every worker operating through their own intermediary (even those provided by an agency).
The SDS states the conclusion, with reasons, and is required for each new contract or change in working practice. You must share the SDS with the worker and the person or organisation the contract is with. You are expected to take reasonable care to make an accurate determination and to introduce a process to consider the worker’s views if they disagree.
Keep detailed records. Failure to provide an SDS or take reasonable care could result in the worker’s income tax and NICs becoming your responsibility.
Most associate dentists are self-employed
If you are a dentist employed by a practice, your earnings will be taxed as employment income and subject to Class 1 NICs.
However, if you are an associate dentist, engaged through a standard form of agreement, you are likely to be considered self-employed, even if you operate through an intermediary. Your income is assessable as trading income and you will pay Class 2/4 NICs.
According to James Goldman, writing for the British Dental Association (BDA), it is likely that most associate dentists will continue to be considered self-employed under the new IR35 rules. However, each case should be determined individually.
Goldman says that “for an associate to be self-employed they must:
- Have clinical freedom. They should have the ability to choose their own hours at least to some extent.
- Be involved in complaints against them.
- Be able to affect their income by, for example, providing private treatment.
- Be able to arrange a locum to do work for them.
- Decide what they charge.”
What is the risk for dentists and hygienists?
The risk comes if HMRC decides that your working practice is consistent with that of an employee. This applies even if you are an associate dentist engaged through a standard agreement. Also consider this if you are a hygienist or dental therapist – you may not have the same freedoms and independence as associate dentists so the risk may be increased.
HMRC may challenge your employment status if it finds a discrepancy between your contract and the nature of your working relationship. If you are deemed to be an employee, PAYE and Class 1 NIC would be due.
The risk for the Principal Dentist or practice owner is that they would become liable for the tax and NICs, so contracts are likely to include an indemnity clause to recover those costs.
What actions are required?
Principal Dentists and practice owners are advised to review contracts for all self-employed workers, and to use a standard agreement, such as the BDA model associate agreement. Ensure each contract reflects the true nature of the engagement and prepare an SDS when relevant.
Associate dentists, hygienists and other dental therapists should also review their contracts.
The Check Employment Status for Tax service can help determine if the off-payroll working rules apply. You may want to consult a specialist accountant with knowledge of the dental industry.
If HMRC contact you with questions about employment status, seek advice before you respond.
For any questions about contracts and employment status, please get in touch with our specialist team at Dental Defence Society.
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