Associates beware – the changing HMRC guidance and what this means

Associates beware – what the withdrawal of HMRC guidance means for dentistsFaisal Dhalla, partner at Hampsons Solicitors, details the withdrawal of HMRC guidance for associate dentists and what this means for them.

Most of you will be working as self-employed associates, rather than being employees of the dental practices that you work for. This means that your income as a dentist can be assessed as trading rather than employment income for tax purposes.

This is a position that many clinicians still favour. Following cases in other sectors where the status of individuals has been considered (eg the well known Uber decision), there has been much speculation as to what this might mean for the tax status of dentists going forward. Further, we know that HMRC have been scrutinising associate dentist contracts for some time.

Withdrawal of HMRC Guidance

You may all have noticed an increased level of hype around this topic following the announcement by HMRC that an element of their previous guidance on the status of associate dentists will be withdrawn from 6 April 2023.

It has, up until now, been the case that dentists engaged under the terms of the BDA’s standard form associate agreement and agreements that have been approved by the Dental Practitioners Association (DPA), were automatically deemed to be self-employed.

HMRC’s guidance was clear that: ‘Where these agreements are used and the terms are followed, the income of the associate dentist is assessable under trading income rules and not as employment income. In these circumstances the dentist is liable for Class 2/4 NICs and not Class 1 NICs’.

However, as from 6 April 2023, an individual associate’s tax status will be determined on a case by case basis instead. There will no longer be the blanket approach applied to associates engaged on particular forms of agreement. The question many of you dentists may therefore be asking yourselves is, will my self-employed status change? Will I become an employee of my dental practice as a result of this change?

The short answer to that is, not necessarily. However, the devil is very much in the detail. It will depend on your own individual circumstances, as well as the particular contract that you have in place.

What should you do?

Our strong suggestion is that you take the time now, ahead of the changes in April 2023, to really scrutinise your own arrangements with your practices. Test whether or not they will stand up to external scrutiny. You’ll need to consider what it really means to be self-employed versus employed.

The element of control that you versus your practice owner has will be a key factor in determining that. The terms of your associate agreements will help make this determination, as will what actually happens on the ground.

A good starting point will be to take the HMCR CEST test. This is an online status checker that asks certain questions about the terms of your contract. It seeks to determine whether or not you are genuinely self-employed for tax purposes. Some of the questions asked within that test are key indicators to your status. We explore some of the key ones to look out for below.

What does it mean to be self-employed?

As alluded to above, control is a key element with self-employed status. An associate should have the autonomy to decide their own working arrangements. For example, when they work, how they work, how they dress etc.

We would also expect a self-employed dentist to be able to appoint their own locums or ‘substitutes’. This means an associate can decide to engage a locum to perform the duties instead of them – whenever they wish. This is because, unlike an employment relationship, the engagement of a self-employed individual is not personal.

In particular, this will be required when you wish to take time off or when you will away from your practice for other reasons (eg maternity, paternity leave). It is also important that the right to appoint a locum is not subject to further restrictions by the practice owner.

Given the nature of this, it might be prudent for you, as a self-employed individual, to obtain locum insurance cover. This is to avoid you taking a personal hit out of your own income. Further, the right of substitution must be very clear in your contract.

Clear contract

As a self-employed associate, rather than an employee, you will also take on financial risk connected to your role. This is because you will need to pay for your own equipment and materials, as well as your own laboratory fees. You will need to rectify, at your own cost, any poor dental treatment you carry out.

You will also only be paid based on the work that you carry out. In addition, you will be required to bear the burden of your bad debts as well. Your contract must spell all of this out very clearly.

Unlike employment contracts, associate agreements should not have mutuality of obligations. Ie the practice owner does not agree to provide work in return for the individual carrying out such work.

A self-employed associate should have complete clinical freedom and should not be under the supervision of the practice owner. Furthermore, the use of the facilities by a self-employed associate need to be subject to a licence fee.

Subject to your own scrutiny of your associate contract, it may mean that you will need to seek variations to your contract. This is to provide you with greater protection to your self-employed status. Many practice owners are already working with their associates on this. They are either amending existing contracts or replacing them with more robust ones.

Vicarious liability

A recent Court of Appeal case, ‘Hughes v Rattan’, determined that, in the specific circumstances of that case, the practice itself was not liable for the treatment provided by the self-employed dentists who worked there. This is because the dentists had a huge amount of freedom in the practice. However, the same case also determined that the practice had a non-delegable duty to its patients – a positive duty to protect patients from injury.

This case has recently led to a flurry of activity. Practice owners are amending their associate contracts to add specific ‘indemnity’ provisions. These require the associate to reimburse the practice owner for any losses that the practice owner suffers as a result of the associate’s actions or negligence in connection with treatment provided to patients at the practice.

Practice owners see this as an important part of protecting their businesses. For example, against the possible risks of vicarious liability or resulting from them having a non-delegable duty to their patients. Further, the BDA have recently updated their template agreement in light of this – in response to the changing shape of corporate liability.

Everyone’s arrangements are different. Seeking advice from specialist dental advisers is strongly recommended to ensure that you have the best chance of retaining that self-employed status that you are looking for. Having a robust associate agreement is of paramount importance.

Get the most out of your membership by subscribing to Dentistry CPD
  • Access 600+ hours of verified CPD courses
  • Includes all GDC recommended topics
  • Powerful CPD tracking tools included
Register for webinar
Add to calendar