Will IR35 Tax Rule Impact UK Dental Associate Status?

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Helen Wong: Will new IR35 tax rule send shock waves through dental sector?

Government plans to reclassify or scrutinise the employment status of associate dentists could have a significant financial impact on dental practices. Following on from the introduction of new tax rules for freelancers in the public sector in 2017, HMRC is now looking at the private sector. 

Under tax IR35 legislation due to come into force in 2020, ‘dental associates’ may no longer be classified as self-employed. From 6th April businesses will be obliged to consider whether IR35 applies to their engagements with personal service companies.

This means an associate or hygienist can no longer determine their own IR35 status, and the person/department who hired them, will be the deciding authority instead, says specialist dental sector solicitor, Helen Wong, partner at Clarke Willmott LLP.

Helen continues: “The corporate dental groups rely on the status of associates to be self-employed. If HMRC goes ahead with reclassification or scrutinising employment status, associates will be ‘employees’ and will no longer qualify for tax relief on expenses.

“They will also be paying Class 1 National Insurance contributions and provide benefits to their ‘employees’ which will be costlier for the practice owner than the lower rate Class 2/4 national contributions for self-employed associates.

“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 says if HMRC decides that an associate is an employee, it is the owner of the practice – the ‘principal’ – who will be charged with the unpaid PAYE and employer’s National Insurance contributions.

She adds: “I will be advising my clients to look carefully at associate and hygienist agreements. Where I act for the principal, I’d ensure there was a contractual indemnity clause in relation to tax in favour of the principal, so the principal can recover this tax liability from the associate or hygienist.”

A dental associate is a dentist who makes regular payments to a practice owner in return for the use of the practice premises, equipment, materials and staff.
Last year it was reported that HMRC had written to 50 dentists to check on the employment status of associates sending shock waves through the profession.

Helen Wong is a partner in Clarke Willmott’s healthcare team, specialising in corporate transactions – practice sales and purchases, and commercial documents. She issues updates on healthcare law and news on LinkedIn.

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