The dental industry has a history with HMRC when it comes to employment status and challenges to self-employment. Is the authority planning to ramp up compliance in this area?
Back in the mid-2000s, HMRC undertook a targeted campaign against dental practices, opening a large number of status enquiries and looking specifically at the relationship the practices had with their self-employed associate dentists and hygienists.
The follow on from this was that HMRC introduced specific guidance in their Employment Status Manual (ESM) for associate dentists, the guidance being found at ESM4030. It confirmed that if an associate dentist was engaged under either a British Dental Association (BDA) or Dental Practitioners Association (DPA) standard contract, then HMRC would accept a dental associate as being correctly categorised as self-employed.
As of April 2023, however, this concession no longer exists, due to HMRC removing their guidance for associate dentists from the ESM. It is understood the reasoning behind this decision was that HMRC were becoming increasingly concerned that the BDA and DPA contracts were, in many cases, not being followed in practice by the contracted parties, highlighting a clear disconnect between the terms and conditions and the reality of the day-to-day working practices. We have always advised our clients that while contracts are ‘king’, they must be followed by all parties in practice, as sham contracts are very easily unravelled during the course of an HMRC enquiry.
The guidance has now been replaced with a short statement that refers to ESM0500 - Guide to determining status - and a link to encourage the use of HMRC’s CEST tool to help reach a status opinion. This may cause real concern to dental practices and their professional advisors looking to get accurate status decisions, given the well-documented problems with and large-scale mistrust of CEST. These opinions of CEST are somewhat justified by the fact that several government departments relied on CEST and ended up with eyewatering liabilities relating to underpayment of tax and NIC, having had their assessments overturned by HMRC. At the time of writing these combined liabilities total approximately £300 million.
Steps moving forward
So, what does this mean moving forwards?
Essentially, dental practices will now have to consider the normal status tests handed down through case law precedent. Specifically, is there:
- an obligation to provide personal service
- control over what, where, when and how work is undertaken
- mutuality of obligation
- other secondary in-business and financial risk factors
It remains to be seen if HMRC’s decision to remove its guidance is an indication of its intention to revisit the dental industry and to ramp up compliance activity in this area – only time will tell. However, it should certainly act as wake-up call, and if not already, dental practices should now seek specialist professional advice in order to avoid any unexpected tax and NIC liabilities becoming due from an HMRC status challenge.
This should include a full review of all contractual paperwork, policies, procedures and working arrangements that form part of their engagements with not only their self-employed associate dentists, but also their hygienists and any cosmetic practitioners that provide alternative treatments, such as Botox and filler injections, on a self-employed basis.
How Markel Tax help
Markel Tax’s Contractor Solutions team have been advising on all areas of employment status for many years, and have hands-on experience in successfully defending dental practices from an HMRC status challenge.
If any dental practice, or their accountancy provider, would like to discuss specific cases, the team can be contacted at IR35@markel.com.