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Are dentists employees or sole traders?

Are dentists employees or sole traders?

Charlie Clarke-Hughes

 Changes to tax treatment of Associate Dentists

Up until now anyone who was subject to a British Dental Association (BDA) or Dental Practitioners Association (DPA) contract, and where those terms were followed, would be considered by HMRC to be self-employed for tax purposes. This meant that the individual would be responsible for reporting their total income less allowable expenditure and paying any resulting tax to HMRC each year via the self-assessment system.

From 6 April 2023 HMRC will no longer consider BDA and DPA contracts to be confirmation of self-employment and will instead view each individual’s personal situation on a case by case basis to determine their taxable status. This means there is a possibility some associate dentists could be deemed employees of the practice owner.

The determination of tax status will be based on the facts and circumstances of each case. There are various considerations which will be factors in determining the taxable status of each individual associate. For example:
  • Who has the right to appoint a substitute if the associate is absent?
  • Who decides on the associate’s working hours?
  • Is the associate restricted to working in one location or are they able to work at multiple practices?
  • Does the associate provide their own equipment or is this provided by the practice?
  • Who is responsible, both physically and financially, for correcting the associate’s work if something goes wrong?
  • Is the associate entitled to annual leave and sick pay?

It is likely that some factors will point towards employment and others self-employment. HMRC’s assessment of the individual’s taxable status will be based on which way the majority of the evidence points.

How will the changes affect Associate Dentists?

If an associate dentist is deemed to be an employee of the practice rather than self-employed it will have a financial impact on the associate as they will have their income treated as a salary as opposed to self-employed earnings. This means that the payment they receive will be subject to deduction through the PAYE system with tax and national insurance contributions etc. being deducted at source from any payments they receive. It will also no longer be possible for the individual to claim a deduction for their business expenses. As an employee, the individual will be automatically enrolled on the practice’s workplace pension unless they opt out.

How will the changes affect Practice Owners?

Practice owners who share their practice with associates should consider the tax status of their colleagues carefully as the changes will not just affect the individuals in question. In situations where an individual is deemed to be an employee and not self-employed, the practice owner will become their employer and will be responsible for processing the payroll, and ensuring appropriate deductions are made from the individual’s payment and paid to HMRC.

As an employee the associate will have the accompanying rights and protections of being an employee for example, entitlement to sick pay, holiday pay, employer’s pension contributions and so on. If the practice is not set up for this already, there could be significant compliance involved to ensure that all the relevant payments can be made correctly.

Next steps

It is recommended that associates and practice owners go through the online HMRC CEST test carefully and honestly to establish the associate’s likely tax status based on the current contracts in place.

The CEST test is anonymous, and a hard copy should be kept on file of the conclusions arrived at. Although this is no guarantee of how HMRC will view the specific facts and circumstances of each case, it should give a good indication of whether an individual will be considered as self-employed or employed based on their current circumstances.

If you believe you are likely to be affected by these changes get in touch with your local Moore advisor.

It is important that these issues are considered in advance of 6 April 2023 when the changes will come into effect.