Tax alert: Dentists face fears over changing employment status of dental associates
A Manchester lawyer says the UK’s dental practices will need to brace themselves for a significant financial hit if the taxman rules that dental associates are employees rather than self-employed.
News that HMRC has written to 50 dentists to check on the employment status of associates who perform much of the work in practices, is sending shock waves through the profession, says Helen Wong MBE (above) from Clarke Willmott LLP who specialises in advising the dental sector.
“If associates are classified as employees, dental practices run by dental principals will be adversely impacted financially. It will mean they will have to pay additional taxes including employers’ national insurance contributions, employee benefits, a guaranteed minimum wage and they may also have protection against unfair dismissal.
“And for the sale of dental practices, this is an added element to consider when negotiating the warranties and indemnities in the sale agreement.”
Helen, a partner in Clarke Willmott’s Manchester office, says if HMRC goes ahead with reclassification or scrutinising employment status, associates will become employees and will no longer qualify for tax relief on expenses.
In addition, they will be paying Class 1 national contributions as an employee, which will be costlier for the practice owner than the lower rate Class 2/4 national contributions for self-employed associates.
“It is puzzling why the HMRC would suddenly try to re-classify associates from their self-employed status to employees,” added Helen. “All dentists who operate an NHS contact must follow The Standard General Dental Services Contract, which is based on the National Health Service Act 2006 which classifies dental associates as self-employed.
“What’s more, HMRC has stated in their Employment Status Manual that this is also the case provided the associate: ‘Continues to be responsible for paying their share of laboratory fees for work relating to their patients and other terms of the standard agreement are followed, the above guidance will still apply’.”
Corporate dental groups rely on the status of associates as self-employed. If this changes, their profit margin will be hit by additional costs in national insurance payments for these new reclassified employees. There are 443 dental practices in the Greater Manchester Area Team.
Helen and her specialist colleagues at Clarke Willmott are currently advising many dental practices on corporate and commercial matters, and in relation to employment status and responding to HMRC audits.
Emma Hamnett, employment partner at Clarke Willmott, advises dentists to hit this head on. She explained: “Employment status is a hot topic at the moment, it’s not going away. It’s far better to get advice now, implement the correct contractual framework and deal with any back payments of salary, tax or holiday pay that is owed.
“Far better to do this than face backdated claims as well as penalties for underpayment of tax from HMRC. In our experience of working with HMRC for other clients, penalties can be avoided if clients approach HMRC first – having made a genuine error.
“If any underpayment of tax is discovered via a HMRC audit, there is no discretion and tax, interest and penalties are unavoidable. In some cases, penalties alone can be up to 200% of the original payment owed to HMRC.”