Employment status changes – your questions answered

April marks the starting point of the implementation of new guidance for determining the employment status for tax in relation to associate dentists.

This is a reminder that the employment law position also needs to be considered.

One of the industry challenges that poses the question as to whether an associate is considered employed or self-employed is the lack of legislation that provides a definitive answer.

Previously, associate dentists relied on case law and, additionally, according to dentist-specific wording in HMRC’s Employment Status Manual, could be deemed as self-employed as long as they had a contract that was in line with that provided by the BDA. This was with the provision that key conditions of the contract were followed.

However, this stance is set to change. To cover the tax, legal and protection considerations, we caught up with industry experts in this field to help provide some clarity on what the changes to HMRC guidance may mean for associates and practice owners.

What’s changing?

Paul Tucker (PT), senior employment tax Specialist at UNW, shares: ‘From 6 April 2023, dentists can no longer rely solely on having a BDA or WPA style contract in place to protect the self-employed status of their associates.

‘Practice owners need to look at any workers that are not paid through the payroll and their position from a tax perspective, the same as any other business.

‘What this means is that HMRC, and of course the practice owner as an engager of an individual, will look at how this person has been engaged. Are you and the worker satisfied that they should be treated as self-employed for tax purposes?

‘For associates, whether you’re being engaged on a self-employed basis or an employed basis, you as an individual need to understand what the contractual terms of either arrangement are. HMRC will look at what happens in practice, and they will expect that to be confirmed by the contract.

‘If HMRC undertake a review, they may well discuss the engagement with both the hirer and the worker. They will pose a series of questions and expect both parties to understand how the arrangement works.

‘HMRC will expect both parties to clearly understand the arrangements in the contract and the procedures that follow within the practice.’

How can you check employment status?

PT: HMRC is trying to help people determine whether someone is employed or self-employed for tax purposes and, over the last few years, they’ve devised a tool which engagers can use to come to a conclusion. The tool is called the Check Employment Status for Tax tool, CEST for short.

This can be completed by the hirer and the engager, but ultimately it is usually the engager who has the responsibility to determine the status and apply the correct tax and National Insurance treatment.

Care should be taken, however, when answering the questions on this tool. HMRC will accept the results of the tool, if they undertake a review, providing the questions have been answered correctly based on the facts.

In some circumstances, the tool may not be able to give a determination and there are other commercial tools available that may be used to establish the status of the worker.

It’s good practice to undertake a review every six months and certainly when there has been a significant change to how a person is being engaged within the practice.

When completing the CEST tool, it’s wise to check the supplementary guidance in HMRC’s Employment Status Manual as some questions may be subject to interpretation.

What are the legal considerations for employment status?

Sarah Buxton (SB), head of dental employment law and HR at FTA Law, says: ‘There are two elements to employment status, the tax perspective, defined by being employed or self-employed, and the employment legislation perspective, defined by three types of employment status – employee, worker and self-employed.

‘Both the tax and the employment tribunal look at similar indicators of where people fit and it’s usually a judge who decides whether a case sits in the tax tribunal or the employment tribunal.

‘A key difference is that if you are deemed self-employed by the CEST test which would be acceptable in a tax tribunal, that doesn’t mean that it would hold up in an employment tribunal because the two institutions don’t work together.

‘However, in both employment and tax cases, it’s not the role of the individual that’s important when it comes to defining status – it’s the relationship between the engager and the individual that will come under scrutiny.’

Beyond the contract

She adds: ‘There’s no point in having a contract with several self-employed indicators if you don’t follow these terms in practice. In both cases, they will look beyond the contract and look at what’s happening in practice to determine the employment status.

‘With regards to employment status, something that we see regularly in terms of discrimination claims against the practice is the lack of understanding around maternity leave and the rights of the self-employed.

‘An example is an associate going on maternity leave who is replaced either by a locum or another associate – the replacement may form a stronger working relationship with the owner.

‘Should the practice owner then hand a three-month notice to the associate on maternity leave as they would prefer to keep on the replacement, they could be left vulnerable to a discrimination claim as it would be unlikely this situation would have occurred had they not been on leave.’

Should I be employed or self-employed?

SB: It really depends on the relationship that you want to have at the practice. You need to weigh up the pros and cons for each – for employed associates, you have the employee benefits such as sick pay, maternity pay, paid holiday and more.

However, it is likely you will have to accept a lower salary than you have earned when self-employed.

As a self-employed individual, the tax position is often favourable and the big benefits are that you have more flexibility and control over how, when and where you work.

The harder you work as a self-employed person the more you can expect to earn but, equally, the less you are able to work, the less you can expect to earn. There’s a lot more onus on you.

The starting point is really about understanding your contract and making sure that any changes to your contract are fully understood. I come across so many people that do not understand an associate agreement because they’ve never had it explained to them.

From the early days as foundation dentists, they often just sign a 20-odd page legal document, having not done the full due diligence beforehand. It’s essential that you understand what you’re signing.

How can self-employed status be protected?

Iain Stevenson, head of dental at Wesleyan Financial Services, says: ‘For many practice owners and associates, the benefits of self-employment may far outweigh that of employment from a financial planning perspective.

‘Should associates be considered employed, owners 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 and, in some cases, unsupportable.

‘To protect self-employed status, both practice owners and associates need to be able to demonstrate that the key indicators within the associate contract have been followed. One, in particular, worth noting forms part of the CEST tool questioning which focuses on substitution and enforcement of the locum clause.

‘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 associate’s workload rather than enforcing the locum clause.

‘This approach needs to cease to protect self-employed status as the Revenue will pull you up on this as an indicator of employment.

‘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 a big hit on income by paying for the locum out of their own pocket.

‘The owner can potentially support in offsetting the insurance cost with how the associate is paid – as an example, by slightly increasing UDA value.’