Contract Dentist, IR 35, & VAT?

Contract Dentist, IR 35, & VAT?

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Scenario:

Sole trader dentist sells business to acquiring dentistry business.

The vendor dentist forms a limited company.  The limited company agrees contract for supply of services with acquiring practice to supply the dentist to the acquiring company for two days per week in new premises serving the acquired and new client base.  The acquiring dentist completely controls and is responsible for : retricted access to the premises; support staff; client bookings; supply of equipment (apart from specialist tools); raising of fees to the clients.

The company invoices the acquiring dentistry business based on a percentage of the fee income generated after deducting lab fees, which are billed to the company.

My own assessments are that :

1) IR35 is applicable,

2) VAT is chargeable due to the supply by the company to the acquiring dentistry business being that of labour.

I have thus far been unable to find any tangible advice on any forum, including here.

There are two points of reference located on HMRC's website : 

1) VATHLT2480 - Dentists: Cosmetic dentistry

Each case will need to be considered on its own facts.

However, the British Dental Association have advised that whilst appearance might be a factor influencing the decision to undertake cosmetic work, it is rare for dental work to be done purely for cosmetic reasons. We are therefore content to accept that where cosmetic services are performed as part of a supply of dental treatment, then there is a single supply of exempt healthcare. Where cosmetic dentistry is performed outside of any healthcare, it is standard rated.

2) (As extracted from HMRC’s VAT guidelines on Health Professionals)

6.Supplies of Health Professional Staff

This section explains the liability position of supplies of health professional staff. Generally speaking, apart from the nursing agencies’ concession mentioned below, all supplies of health professional staff are taxable for VAT purposes.

6.1 Agency or arrangement fees

If you are an agent, your commission, fee or any other charge that you make for arranging and administering the supply is standard-rated.

6.2 How do I decide whether I am an agent or a principal?

This is determined by reference to your contractual and other arrangements. Notice 700 The VAT Guide contains further details that may help you decide whether you are an agent or principal.

6.3 Supplies of registered health professionals (other than nurses) by employment businesses acting as a principal

The Employment Agencies Act 1973 defines an 'employment business' as a 'business (whether or not carried on with a view to profit and whether or not carried on in conjunction with any other business) of supplying persons in the employment of the person carrying on the business, to act for, and under the control of, other persons in any capacity'.

Staff supplied by an employment business may be either employees of that business, or self-employed and engaged by that business. In both cases the workers’ services are provided to the employment business, which in turn makes a supply of that worker to the client. If the worker comes under the direction and control of the client, this is a supply of staff. The employment business in these circumstances is acting as the 'principal'.

When an employment business supplies registered health professionals (other than staff subject to the nursing agencies’ concession below) as a principal to a third party, where the health professional is working under the control and guidance of the third party, it is making a taxable supply of staff to that third party - not an exempt supply of healthcare. It is the third party which is responsible for providing healthcare to the final patient, rather than the business supplying the staff which has no such responsibility.

A taxable supply of staff is made even where the employment business is responsible for ensuring that the workers it provides are properly trained and qualified when they work under the control of the third party.

However, if the employment business maintains the direction and control of its health professional staff to make a supply of medical care directly to a final consumer, then the employment business is providing medical services rather than merely a supply of staff. In these circumstances, the business is making an exempt supply of health services (provided, of course, the services meet the conditions for exemption under section 2.3 above).

6.4 Supplies of self-employed locum GPs

When self-employed locum GPs supply their services to an employment business which makes an onward supply to a third party who is legally responsible for providing health care to the final patient, both the supplies to and from the employment business are taxable. The fact that the locum GPs may be supplied to a prison or other institution where they may not be supervised by any medical staff does not mean that the employment business supplying the locum doctor to the third party is legally responsible for providing healthcare to the final patient.

I would be delighted for someone to point out the error of my own conclusions.

Replies (2)

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chips_at_mattersey
By Les Howard
11th Sep 2014 20:57

Dentist

The obvious problem is that the business supplying staff, is making a taxable supply to a dentist practice which is largely or fully exempt, triggering an irrecoverable VAT cost.

You might consider the structure, e.g: can you use a VAT Group, so that the supply is disregarded? The contractual position might also be considered, to mitigate VAT losses.

There is a recent Tribunal decision, Rapid Sequence Ltd, which might have some bearing on the arrangement.

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Replying to lionofludesch:
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By johncmartin
26th Sep 2017 11:15

Cheers

Les

Thank you for the promptness of your comment, and for the affirmation of the conclusion.

The acquiring company and the new supplying company are not owned by the same individual/entities.  A VAT Group is not an option.

The reference is very useful, thank you.

John

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