The tax pendulum continues to move for associate dentists. HMRC announced last year that from April 2023 they will withdraw the paragraph in their guidance which mentions the BDA and DPA standard associate agreement.
What do the changes in IR35 mean for associate dentists and practice owners?
Up until recently, associate dentists were given a blanket concession by HMRC that allows them to be treated as self-employed for tax purposes.
This has allowed associates to process their income for tax purposes as trading income, as opposed to employment income.
Starting from April 2023, however, dental practices will be required to use the CEST (Check Employment Status for Tax) test to determine the tax status of all of their dental associates under contract.
If a dental practice is found to be treating an associate as self-employment, when in fact they act as an employee, they will be liable to additional tax.
What this means for dentists is that you will now need to determine your employment status (self-employed or employee of the practice) and act accordingly in your day-to-day business.
If you process your tax as a sole trader or limited company, when in fact you are an employee of the practice, you will be subject to added tax.
This will impact both the associate dentist and also the dental practice employing the dentist.
What is IR35?
IR35 is intended to combat employment tax avoiders who process their tax as though they were sole traders or limited companies, and not in fact employees.
IR35 is used to establish your employment status; whether you are self-employed, an employee of a limited company or both. It is usually the responsibility of the dental practice for which you work to determine your employment status and process both your tax and their accounts accordingly.
Previously, NHS dental practices had to pay additional tax if one of their staff was hired via a limited company but in fact operates as an employee. Since 2021, this has also applied to larger private practices.
As detailed above, from April 2023, HMRC have announced that they will be removing dental associates’ exemption from IR35 rules.
This means that dental practices will need to calculate their clinical staff’s employment status via the UK Government’s employment status test.
Am I self-employed or an employee?
How you operate in the dental practice which employs you will factor into whether you are a sole-trader or an employee.
Self employed dental associates act as either sole-traders or a limited company and process their own accounts and tax. They usually rent the surgery, equipment and consumables from the dental practice in which they work.
These are some of the things that distinguish employed and self-employed dental associates:
- Self-employed dental associates have clinical independence to choose their own treatments, plans and procedures.
- Self-employed dental associates have a say in their chosen work hours.
- Self-employed dental associates must be able to provide a locum substitute in their place should they be unable to work
- Self-employed dental associates can set their own prices and provide additional private work.
- Self-employed dental associates are not paid holiday pay.
- Self-employed dental associates have professional indemnity insurance cover.
- Self-employed dental associates pay for equipment maintenance out of their own pocket.
Determining your IR35 employment status
If you are a dental practice owner or a dental associate unsure of how the IR35 rule changes affect you, we can perform an IR35 review of your practice and contracts to determine the status of yourself or your employees.
We can review your contracts thoroughly, figure out the correct employment status and help process the accounts and tax to reduce your bill.
Our specialist dental accountants and tax experts are perfectly placed to help make sure your status is correct and you’re paying the correct tax.
To find out more, check out our Learning Centre, full of articles and webinars covering accounts, tax and finances for dental practices.
For everything you need to know about accounts and tax for dentists, read our How to Guide: Accounts for Dentists Explained.