Are the winds of change in motion for employment status?
Richard T Lishman, Managing Director of the 4dentists group considers employment status and the potential impact of HMRC’s recent letter to a number of associates.
Since 2016 when Uber drivers won a high-profile legal case ruling they were entitled to employee benefits such as minimum wage and holiday pay, there has been much confusion surrounding the employment status of dental associates and contract terms and conditions. That’s why having a concrete associate contract in place is absolutely essential to ensuring that disputes are avoided.
Yet, despite calls from professionals to take care when establishing contract details such as employment status, UDA rate and targets, special leave allowances, notice period and so on, the British Dental Association (BDA) still deals with a high volume of enquiries each week. To give a more accurate picture of how extensive the problem is, more than half of the calls to the BDA’s Practice Support team are to do with associate contract disputes.[i]
Part of the problem of dentists having been given a special dispensation from HM Revenue and Customs (HMRC) is that some associates have been enjoying the convenience of being self-employed whilst continuing to reap the benefits ordinarily associated with employees, such as the NHS pension scheme. Naturally, this has led to some debate as to whether experiencing the best of both worlds should be allowed.
Automatic enrolment has added fuel to the employment status fire since being introduced as well. With auto-enrolment, the rules clearly say that all individuals that work part- or full-time for an establishment and meet the pension requirements are required to be enrolled onto the scheme, regardless of their employment status.
Nevertheless, in the lead-up to the introduction of the scheme in dental practices there was some discussion around whether self-employed dentists should be included or not. The advice from the team of Independent Financial Advisers (IFAs) at money4dentists is that if a dentist is self-employed but completing NHS work and they’re a member of the NHS pension scheme, then it’s likely that they don’t need to be enrolled. Conversely, any dentist carrying out private dentistry would be eligible for enrolment. In saying that, even the appropriate Government offices aren’t prepared to provide a definitive answer, adding more uncertainty!
This creates further problems, because as soon as a dentist is enrolled onto a pension auto-enrolment scheme they then appear to be employed.The question is; when will HMRC start classing these associates as being employed? Well, in light of the recent letters issued to associates regarding employment status from HMRC, it seems that a review is taking place and the profession might well receive an answer to this question much sooner than expected.
It’s important to remember, however, that even if HMRC were to rule that dentists couldn’t remain self-employed moving forward (be it NHS or even private), if a dentist has a limited company they are technically employed. Thus, even if that were the direction that HMRC are heading towards, there would potentially be a solution offering the associate more control of their tax position rather than handing it over fully to the employer. Still, for those that don't operate under the guise of a limited company, changes to employment status could have a negative impact. Firstly, any self-employed dentist is likely to be worse off financially if they are required to change their employment status. Not only because there are certain tax advantages of being self-employed, but also because they would no longer be able to claim certain expenses. The dentist’s tax bill and National Insurance Contributions would also be higher as an employee, resulting in less take home pay.
With that being said, there are a number of advantages to being employed, including paid holiday and sick pay (or potentially more sick pay), maternity and paternity leave, not having to find the tax money twice a year, and PAYE tax arrangements. Needless to say, these benefits are available at the expense of the practice owners, whose tax and National Insurance bill and staff overheads would be greater if associates were no longer allowed to be self-employed. These costs are likely to be passed on to the “employed” associates, meaning lower incomes.
It may not yet be clear what the outcome of the letter will be, but there can be no doubt that dentists and practice owners should be prepared for all possible eventualities. The BDA has already advised those dentists that have received a letter from HRMC to contact their financial adviser before responding; it may be prudent for all self-employed dentists to seek professional guidance from a specialist IFA so planning can be made before it’s too late.
Contact the experienced, specialist team at the 4dentists group today for clarification on employment status and guidance on dealing with your finances, whatever the outcome.
[i] British Dental Association. Contract Checking. Accessed online April 2018 at https://bda.org/dentists/advice/career/Pages/contract-checking.aspx