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Effect of associate dentists’ status start to bite

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From April, HMRC could challenge the employment status of associate dentists on a case-by-case basis, which could turn out to be a pain for dental practices.

14th Feb 2023
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For many years there has been an informal agreement with HMRC that associate dentists can be treated as self-employed. The agreement was based on there being a standard form of agreement for associate dentists, which had been approved by the British Dental Association (BDA) and the Dental Practitioners Association (DPA). 

These agreements relate to dentists practising as an associate in another dentist’s practice. Where these agreements were in place and the terms followed, the associate dentist could be assessable to tax under the rules for trading income and not as employment income. So, it would be for the associate dentist to pay their tax as self-employed.

Two months to go

From 6 April 2023, however, HMRC is withdrawing this guidance. The effect of this will be that the employment status of each associate dentist will be based on the usual case law for deciding whether someone is employed or self-employed. HMRC also recommend using their digital tool Check Employment Status for Tax (CEST) to establish whether the dentist is employed or self-employed.

If HMRC decides to challenge the classification of the associate dentist on the basis that they believe them to be employed and not self-employed, they will approach the dental practice as the deemed employer. If HMRC is successful, the dental practice will then become liable for the income tax and national insurance contribution (NIC) payments of all their associate dentists.

Case-by-case basis

Come 6 April this year, employment status cases will be judged on a case-by-case basis. Since 2021, there have been four cases concerning dentists. Three of the cases were in employment rights and one was in personal injury. The employment rights cases were all brought on the basis of a claim by the associate dentist that they were either an employee or a worker but, that they weren’t self-employed.

In all three employment rights cases the employment tribunal originally held that the associate dentists were self-employed but, by the time they reached the Employment Appeal Tribunal (EAT), the EAT thought differently. All three cases have, however, been referred back to a different tribunal to hear the case again but, leaning towards the associate dentist being a ‘worker’ rather than an employee. 

Not akin to an employment relationship

In Huges v Rattan [2022] EWCA Civ 107 in the Court of Appeal, Mrs Hughes made a claim against the dental practice owner Mr Rattan for negligent treatment on the NHS by four associate dentists. One of the dentists was employed but, the other three were self-employed. The preliminary issue for the High Court was whether Rattan was liable for the acts or omissions of the three self-employed dentists by virtue of vicarious liability or a non-delegable duty of care.

The High Court found that all three associate dentists were providing dental treatment as an integral part of the defendant, Rattan’s, dental practice.

In the Court of Appeal, however, the court revised the judgment on whether the relationship was sufficiently akin to employment, albeit obiter.

Mr Rattan’s case, in a nutshell, was that the judge attached too much weight to factors pointing towards his relationship with the associate dentists being akin to employment and too little weight to the factors pointing the other way.

The judge was particularly influenced by the following:

  • The associate dentists were free to work at the practice for as many or as few hours as they wished
  • They were also free to work for other practice owners and business, and some in fact did so
  • The defendant had no right to control, and did not control, the clinical judgments they made or the way in which they carried out treatment
  • They were responsible for their own tax and national insurance payments, and were treated as independent contractors by HMRC
  • They were required to carry personal professional indemnity insurance and to indemnify the defendant against any claims made against him in respect of their treatment of patients
  • There was no disciplinary or grievance procedure.

A point of interest, again obiter, it was not being suggested that “…the associate dentists were employees of Dr Rattan, any more than it was suggested in Uber vs Aslam that the drivers were employees of Uber.” 

The important point here is that for HMRC to be able to prove employment status for tax purposes, they need to get over the higher threshold for the associate dentist as an employee, not just as a ‘worker’.

It was held that the dental practice owner, Mr Rattan, had a non-delegable duty of care to a patient of the practice, although it is likely that her being an NHS patient had a sizeable impact on this, it may be different for private practices.  

Mr Rattan did not, however, have vicarious liability because the relationship was not ‘akin’ to employment.

What are the costs?

If the dental practice is found liable for the tax for the associate dentists, they will have to pay income tax and NIC as an employer. At present, HMRC hasn’t stated whether there will be an amnesty on historical cases but, if not, HMRC could go back four to six years. There could be an offset for the taxes that have already been paid by the associate dentists but, the dental practice could be liable for at least the employer’s NICs at 13.8%.

This could be a very costly amendment by HMRC, which practice owners would be well advised to take advice on.

This article was amended on 15 February to reflect the fact that Hughes vs Rattan was heard in the Court of Appeal and the decision was reversed on vicarious liability.

Replies (21)

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By Hugo Fair
14th Feb 2023 17:05

"the dental practice could be liable for at least the employer’s NICs, which were 13.8% and are now 15.05%"???
... it was only 15.05% for a brief part of the current tax year, and has been back at 13.8% since 6th Nov!

Also, "HMRC recommend using their digital tool (CEST) to establish whether the dentist is employed or self-employed" ... but you'd be a fool to rely on it.
Not only is it under formal review for a re-design (yet again), but HMRC's supposed promise to stick by the result it generates is completely undermined by their caveat that this is totally subject to their acceptance of the answers you fed it!

Thanks (11)
Replying to Hugo Fair:
Rebecca Seeley Harris
By Rebecca Seeley Harris
15th Feb 2023 13:42

You are absolutely right Hugo, my error!

However, as author of CEST Explained, I disagree with your comments about CEST. CEST, in my opinion, serves a purpose and a very useful one because it gives HMRC's view.

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Replying to seeleyharris:
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By Hugo Fair
15th Feb 2023 14:04

I don't dispute that CEST "serves a purpose" ... it's the usefulness in practice that I endorse less fulsomely.

1. HMRC's supposed promise 'to stand by the results' has been fully compromised by their insistence (however understandable) that this can only be the case where they agree with the answers entered by whoever completed the exercise ... given that many of those answers are subjective and require interpretation (so the mechanistic is replaced by HMRC's opinions).

2. The PAC report published on 25th May 2022 said, amongst other findings, that there were "problems with the guidance and Check Employment Status for Tax (CEST) tool that HMRC provided".

3. Although I haven't the time right now to look up the full history, the tool has been completely redeveloped on at least 2 occasions (more I think) since its first release ... and I'm told is currently under review for another proposed attempt.

Although there are a lot of commentators who may not be regarded as unbiased (and this of course includes HMRC), readers might wish to avail themselves of another perspective.
Here's one plucked at random from a Google search:
https://www.theemploymentlawsolicitors.co.uk/news/2022/09/09/review-ir35/

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Replying to Hugo Fair:
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By C Graham
15th Feb 2023 14:25

The ultimate test of an employee should be whether they have statutory rights and are protected under employment law. The law is clear that all employees have statutory rights and entitled to 28 days paid holiday and auto enrolment into the company pension scheme. And where qualifying circumstances allow - for SMP/SPP.

If they are not then there is no employer/employee relationship.

It always makes me laugh when HMRC talk about disguised employment. Because the disguise only refers to the parts HMRC doesn't want to recognise in IR35 and that is the right to statutory employment rights.

But it is backfiring. Those employers who cannot contract the skills in when needed are now resourcing from outside the UK where there's no IR35 situation.

So well done HMRC - you've lost a lot of corporation tax from those small service companies who decided to party in Ibiza and work remotely. And with exception of the dentist/patient appointments a lot of the technical work (implants etc) is now done through 3D imaging now so the lab work is not even necessary in the UK. SEnt in the cloud to eg Geneva and a bit like a fax machine (remember those) the matched teeth can be wired to print back to a 3d printer in the lab.

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By Roland195
14th Feb 2023 19:33

Have HMRC as we know & love at the moment really got the appetite to engage in another futile war against targets essentially supported by the NHS?

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the sea otter
By memyself-eye
15th Feb 2023 09:18

IR35 with another hat on. GP's will be next.....

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Replying to memyself-eye:
Rebecca Seeley Harris
By Rebecca Seeley Harris
15th Feb 2023 13:45

They are already investigating the GPs!

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By ireallyshouldknowthisbut
15th Feb 2023 09:31

Joined up thinking there from government.

Dental service on its knees due to frozen incomes making it largely uneconomic to run an NHS dentistry service other than a social service subsidised by private practice, and give it another kick up the cost base.

Thanks (7)
Replying to ireallyshouldknowthisbut:
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By philaccountant
15th Feb 2023 09:51

Whilst I tend to agree with the sentiments that this is unhelpful given the lack of dentists we have in the UK now, let's not kid ourselves. You can make a very good living being an NHS dentist.

But as there is now a shortage of dentists, you can make a lot more money working privately. People are desperate for a dentist and if you can't get one (nearest one taking on patients to me is two towns over) you'll pay whatever you have to as a punter.

It's a completely rational choice from the dentists, why work for less than you have to? But let's not pretend it's anything but that.

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Replying to ireallyshouldknowthisbut:
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By C Graham
15th Feb 2023 10:34

and absolutely slaughtered by claims from patients - the Prof indemnity firms just pay out because it's usually not worth them fighting. The GDC is not fit for purpose either - it is woke and frequently supports a disgruntled employee looking to create trouble for an ex employer. Of course there's a few dodgy practices but generally GDC is biased and regulated to the point the good guys get hauled into tribunals and their personal reputations smeared in the press with unproven allegations. They can be closed down or prevented from practice yet the cosmetic firms that provide botox and whitening are completely ignored despite the damage they can do. And now HMRC on the case! What about the private hospital consultants then - will they fall under these rules!

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By vstrad
15th Feb 2023 09:49

As if going to the dentist wasn't expensive enough!

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By Casterbridge Hardy LLP
15th Feb 2023 09:53

A bespoke (and competent) contract should do the trick and if H M Revenue and Customs feel lucky, then bring it on!

Thanks (3)
Replying to Casterbridge Hardy LLP:
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By DMS
15th Feb 2023 14:32

In my experience, HMRC are far more interested in the implementation of that contract - is it actually followed in working practices? The contract will be dismissed by the court if it bears no resemblance to the reality of the working relationship.

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By Springfield
15th Feb 2023 10:04

Our collective hearts should sink with the knowledge that HMRC are going to look at workers within an industry on a "case-by-case" basis.

It's hard enough to qualify as a dentist, find suitable premises where you can practice, deal with all the bureaucracy of the NHS, establish a working arrangement which involves you paying tax & National Insurance, and then find you might be subject to HMRC crawling into the minutiae of what you do in an attempt to possibly take some more tax off you.

When will HMRC (and the government) ever realise that a person wishing to be employed in their profession can only be employed if the entity engaging their services is willing to be an employer. If no-one is willing to be an employer to someone proving those services then HMRC needs to set out some very simple rules. If you do X, Y & Z to calculate your income (no more, no less) then you can have the certainty that the tax & NI that arises is correct, and HMRC and the professional can all move on with their lives.

This HMRC induced uncertainty will cost more to this country that any additional tax it ever raises.

Thanks (6)
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By farrcorfe
15th Feb 2023 10:17

And what about the employer's pension liability? I have a client who is 'self employed' by an NHS out of hours emergency provider but their income goes through a payroll where tax and class 1 N.I. is deducted (on the advice of one of the biggest accountancy practices) and no holiday/sick pay of course. Their payslip is marked as status 'self employed' but by no stretch of imagination is that a correct designation. They pay their own P.I.I. and provide their own scrubs but that is about it- place of work, nurses, equipment and patients all with the main 'employer'. Exactly where does the status of 'worker' fit into this? And should a worker have pension rights if their income goes through the payroll. A very grey area I suspect

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By johnjenkins
15th Feb 2023 10:17

Here we go again. HMRC or Government hell bent on destroying the small business. HMRC is a spectacle and not fit for purpose, yet it is still allowed to stick its nose in employment status.
Labour, listen very carefully. If you want a majority (not a hung parliament) get rid of IR35 MTDQU and allow the market place to choose employment status.

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Replying to johnjenkins:
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By C Graham
15th Feb 2023 10:44

The one thing that Kwasi did was to indicate getting rid of IR35. Amazing that Sunak with his government idea of levelling up is still attacking the entrepreneurs and specialist niche skillset individuals . No holiday pay, no sickness or SMP or employer pension - penalising individuals for not wanting to be an employee.

I means when you look at employment law who would employ anyone who could later put in a claim for unfair dismissal because of a protected characteristic or claim they had been discriminated against. Pity the employers because they are penalised for providing employment when they do not even need the person with those skills permanently. Totally backward and completely unfair to those caught up by it. IRE35 !

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By Postingcomments
15th Feb 2023 12:19

High tax rates and lack of certainty - I wonder if more people will tell the government they aren't going to be playing their game as much going forward.

I'm going to be working less from Spring onwards. Why spend my younger years working just to pay high tax and have savings rotted by inflation/taken in a market crash or the like? Working p/t and staying within the basic rate band will do me just fine. I've got the house I want and money in the bank. Now I want time.

Government and HMRC can shove it.

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By Mr J Andrews
15th Feb 2023 12:53

With their success attacking medical consultants with NHS employment , it's little surprise HMRC are now trying out the dental profession. Look out for their Business Guidance Notes on this one. The rather biased BGN006/09 caused quite some grief with doctors.
Meanwhile, of course the UK Black Economy and moonlighting escalates. The mandarins at 100 Parliament Street are too toothless to tackle this rife evasion.

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Replying to Mr J Andrews:
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By Justin Bryant
15th Feb 2023 14:57

Toothlessness caused by harmful dental practices no doubt?

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By carnmores
15th Feb 2023 14:21

HMRC dont you just love 'em. Dentistry is the cinderella of national health. Charges should be eliminate or cut so that people with less money can still access services which can have a huge knock on effect to ones overall health.

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