HMRC have announced that their guidance regarding the tax status of dental associates will be withdrawn, effective from 6 April 2023.

Until that date, the guidance means that dental associates engaged on an approved British Dental Association (BDA) or Dental Practitioners Association (DPA) contract are considered to be self-employed for tax purposes, as long as the terms of the contract are followed. Their income is assessable under trading income rules and not as employment income, and the dentist is liable for Class 2/4 National Insurance contributions (NIC).

Once the guidance is withdrawn, HMRC advises that the “status of new and ongoing Associate Dentist engagements should be considered in line with ESM0500 and CEST”. So what does this mean in practice?

How will dental associates’ tax status be determined after 6 April 2023?

Following a review, HMRC announced in September 2022 that the guidance for dental associates will be withdrawn from 6 April 2023. From this date, dental practices and associates will be required to consider the tax status of all new and ongoing dental associate agreements on a case-by-case basis, in line with ESM0500 and using the online test tool, CEST. HMRC will no longer rely solely on the use of BDA or DPA contracts to demonstrate that associates are self-employed.

The CEST tool will help to determine tax status (employed or self-employed for tax purposes) and whether the off-payroll working (IR35) rules apply to a contract. These rules are intended to avoid tax avoidance and ensure that workers who operate as employees pay similar tax and NIC to employees. HMRC says it will stand by all CEST determinations if the information provided remains accurate.

What determines self-employed tax status?

The details of the working relationship between the practice owner and the dental associate govern whether a dental associate is viewed by HMRC as self-employed, a worker or an employee. Key factors are control, the right to substitute, financial risk, and mutuality of obligation.

A self-employed dental associate may be a sole trader or act through a limited company. They will have clinical independence, choice regarding their working hours and income, and the right to provide a locum substitute and offer additional private work. They will bear financial risk in operating their business, usually paying a licence fee for use of the practice’s equipment and surgery. They will also process their own accounts and tax, have their own professional indemnity insurance cover, and will not receive benefits of employment like paid holiday.

Does withdrawal of the HMRC guidance mean that dental associates’ tax status will change?

For most dental associates, with contracts that reflect their independent work within a practice, the guidance withdrawal will not change their self-employed status. According to the BDA, HMRC has stated that they see the development as a change to their guidance, rather than a change to the self-employment status of dental associates. The National Association of Specialist Dental Accountants and Lawyers (NASDAL) has also concluded that the majority of dental associates will see no change to their self-employed status.

However, there may be some situations, particularly in private practice, where a dental associate who was previously classified as self-employed may be viewed as a worker after 6 April 2023. The BDA advises that a primary consideration is likely to be whether the dental associate is viewed as working for the patients or for the practice. NASDAL advised that there could be concern for dental associates whose working arrangements are subject to greater control than normal.

The BDA has updated its model associate agreements, with two versions available: for associates engaged on a self-employed basis, and for associates engaged as a worker.

What do practices and dental associates need to do?

Dental practices and associates should prepare for the change by checking associate agreements and using the anonymous CEST tool to determine tax status in each individual case. It is important to retain a hard copy of the CEST conclusions. The agreement should reflect the reality of the working practice. In some cases, it may be preferable for an associate to be engaged as a worker. Specialist advice can be sought if the situation is unclear or if there is disagreement.

If HMRC successfully challenged a dental associate’s self-employed status, additional tax would be due. The practice would need to put the associate on the payroll, deducting tax and NIC under the PAYE system, and pay Class 1 employers NIC on their salary. To minimise the risk of incurring additional tax liabilities, every dental associate should be engaged on an appropriate contract from 6 April 2023.

For help with reviewing dental associate agreements, employment status, or responding to queries raised by HMRC, please contact us at Dental Defence Society.