Dental associates tax question will worry dental corporates

Out-Law News | 31 Jul 2018 | 3:09 pm | 3 min. read

Dental businesses in the UK could be in line for a financial shock if they are forced to start paying national insurance (NI) contributions for dental associates.31 Jul 2018

Earlier this week, The Times reported that HM Revenue & Customs (HMRC) had written to about 50 dentists as part of an inquiry into the employment status of 'dental associates' for tax purposes.

According to the British Dental Association, most dentists in general practice in the UK work as self-employed associates. The arrangement sees the associates pay practice owners for the right to use practice premises, equipment, materials and staff, it said.

Under the self-employed model, dentist businesses do not pay employer NI contributions in respect of dental associates. If those associates were classed as employees for tax purposes, that tax position would change. Employer NI is currently payable at 13.8%.The financial implications for businesses in the dental sector would be significant if it is found that dental associates should not be treated as self-employed but as employees for tax purposes, said corporate law expert Joanne Ellis of Pinsent Masons, the law firm behind Out-Law.com.

It is clear that over the last 12 to 18 months the status of employees, self-employed persons and workers across all sectors has been facing a greater degree of scrutiny than ever before. It is now the dental sector's turn to be under the spotlight, in particular the longstanding arrangements in place between a practice owner and associate."

"Although, at this stage, HMRC is taking tentative steps, any such change to associates' self-employed status would likely result in substantial financial implications to practice owners. The market is already experiencing difficulty finding good associates to fulfil UDA/UOA quotas and HMRC's actions could see that challenge become even greater. This could impact on the delivery of NHS services. We will all be watching HMRC's inquiry closely over the coming months," she said.

Ellis, a specialist in structuring private equity deals in the dental sector in the UK, was commenting after the company behind the 'Mydentist' brand, which is the largest supplier of dental services to the NHS, recorded financial results that highlight the existing challenging environment in which dental businesses are operating.

Mydentist, the largest dental services company in Europe with more than 600 practices, posted pre-tax losses of £144 million for the past year. The figures also revealed a fall in revenues for the third year in a row.

Dental businesses in the UK are the latest companies to be subject to uncertainty over their future liabilities as a result of a query over the employment status of those who work for them.

The government is currently consulting on a proposal to reform the 'IR35' rules which apply where individuals are engaged through a personal service company (PSC) or another intermediary. PSCs are common in the IT and construction sectors. If this change becomes law, a business contracting with a PSC would have to treat the individual as an employee for tax purposes if in reality the individual would have been regarded as an employee for tax purposes, if engaged directly by the business rather than through the PSC.The test of self employment for employment rights purposes is slightly different to the tax test, as for employment purposes there is an intermediate category of 'worker'.  Earlier this summer, the UK Supreme Court ruled that a plumber engaged as an "independent contractor" by London firm Pimlico Plumbers was a 'worker', entitled to bring certain employment law claims against the company. The case was the first time the UK's highest court had been called on to consider employment rights in the context of the so-called 'gig economy'.

In November 2017, the Employment Appeals Tribunal found that two drivers engaged by taxi-hailing platform Uber should be classed as 'workers', and entitled to paid rest breaks, holidays and the National Minimum Wage. Uber has appealed to the Court of Appeal, which will hear the case later this year.

In a separate case earlier this month, the Court of Appeal ruled that care workers are not entitled to National Minimum Wage for the full time spent on 'sleep-in' shifts.

Care worker Claire Tomlinson-Blake had argued that all the time she spent present in the homes of men with learning difficulties that she cared for was time she spent working and that as a result she was entitled to NMW payments covering that period. However, the Court of Appeal determined that workers on sleep-in shifts are properly characterised as 'available for work' rather than 'actually working' and that "the only time that counts for NMW purposes is time when the worker is required to be awake for the purposes of working".