Following on from the recent HMRC announcement in regard to the change in guidance on status of associate dentists, the employment status of associates continues to take centre stage.
Previously, we’ve been hearing about this from the cases of vicarious liability of dental practices for malpractice of associate dentists. Now however, we’re looking more at the threat of self-employed status itself for both principal dentists and associates – and it could seriously impact both parties.
What is the change in guidance?
The official HMRC statement is that there will be a withdrawal of specific guidance from 6 April 2023, and that status should instead be considered by dentists in line with the Check Employment Status for Tax (CEST) tool.
There is a key indicator of self-employment that is worth noting as part of the CEST tool, which is specific questioning surrounding substitution and enforcement of the locum clause within the Associate contract.
What is the locum clause?
Should the associate within a practice be unable to perform their duties as per their contract, this clause obliges the associate to provide a locum in their absence.
Something that has become somewhat of a standard practice within dental practices is the expectation that the remainder of the dental team will be able to absorb the absent
performer’s workload rather than enforcing the locum clause.
What are the risks for associates and principals?
As a principal, not enforcing the locum clause will flag up on the CEST test and will be questioned when the Revenue come to visit. Principals and associates will be interviewed separately and if their stories don’t tally then it could be bad news for the status of the associate.
Should the associates be considered employed, you will be required as an employer to pay employer National Insurance contributions and provide a standard basket of employee benefits – for many practices the impact on profitability would be considerable.
Based on ‘average’ associate pay then employer National Insurance contributions alone are £10,500 per associate, and HMRC could backdate six years. If you have four associates, then the liability on your practice ranges from £42,000 to £252,000.
For associates, in many cases being self-employed is the favourable position for maximising their income when taking taxes into account.
The alternative ‘risk’ is to enforce the clause and risk losing your associate as the hit on their income could be substantial.
How to mitigate the substitution risk
The optimal way forward for both parties is for the associate to obtain locum cover, protecting themselves for when they are potentially unable to work without having the big hit on income by paying for the locum out of their own pocket.
Principals could support this change in approach to associate absence by paying 10 - 15p per UDA (or equivalent in other areas of the UK) more. If an associate is doing 6,000 UDAs then that’s an extra £600 to £900 per annum, but that should cover the cost of the locum cover in most circumstances.
The question you need to ask yourself as a principal is, which ‘risk’ would you rather have - £900 or a figure somewhere between £42,000 and £252,000, depending on HMRC’s leniency?
For associates, it’s weighing up the substantial tax benefits of being self-employed, alongside more freedom over working hours against the benefits of being employed. If your
preference is the former, locum cover could be the solution to help ease any financial risk should you be unable to practise.
Want further guidance on protecting self-employed status? Book a no-obligation financial review with a Specialist Financial Adviser from Wesleyan Financial Services.