There has been much discussion in recent months about changes in HMRC guidance for associate dentists, which took effect on 6 April 2023. In this article, specialist primary healthcare partner Alison Oliver, employment partner Amy Millson and tax partner David Klass explore what this change in the guidance means and why it matters.
Employment status – what is it and why does it matter?
From an employment law perspective, a working individual will be categorised as an employee, a worker or self-employed, and that status is relevant in defining the rights and responsibilities of the individual, as well as the key considerations for an organisation in its relationship with the individual.
It will usually be the case that employees have a contract of employment, setting out their role, and are entitled to certain legal rights, albeit sometimes after a minimum period of employment. This includes, but is not limited to minimum wage, holiday pay and sick pay. There is usually an expectation on employees to do regular work, whether it be full or part-time.
Self-employed people are the other end of the employment status spectrum, and do not hold any employment rights or responsibilities, although some health and safety and discrimination provisions may be applicable. They are usually distinguished by factors like being able to decide what work is done, when, where and how; being able to ‘substitute’ or subcontract the work; working for more than one client; using their own equipment, and paying for their own insurance, at their own time and cost; and agreeing the rate and billing for the work done.
‘Workers’ are a distinct legal category. They generally work on a more casual basis than employees, accepting or turning work down, and often working on a job-by-job basis. They have the benefit of some employment rights (such as minimum wage and holiday pay) but not others.
Employment status is also relevant for tax purposes. In particular, self-employed individuals are responsible for paying their own income tax and national insurance contributions (with the latter being charged at different rates depending on whether one is an employee or self-employed) whereas, in an employment scenario, it is the employer who has the obligation to deduct tax at source from payments of remuneration made to the employee.
Employment tribunals have jurisdiction to determine an individual’s employment status for employment law purposes and HMRC is responsible for determining employment status for tax purposes.
How is employment status determined?
Employment status is not always clearcut. While there are various definitions of “employee” in statute, these definitions are not comprehensive. Case law has developed and sets out certain principles for establishing a person’s employment status based on their particular circumstances. HMRC have also developed an employment checker for tax purposes. The tests for the purposes of employment law and rights are not necessarily aligned with those for tax purposes, but there are common threads, such as:
- An employee is expected to provide their services personally, whereas a self-employed individual may be entitled to and/or have an obligation to appoint a substitute to perform duties on their behalf if they are absent for any reason; and
- An employer is able to exercise a high degree of control over what an employee does, how and when they do it, whereas a self-employed individual will have a high degree of freedom over what they do and how they do it and, indeed, whether or not they work at all on any given day.
The fact that a contract between an individual and an organisation states that the individual is employed or self-employed is not necessarily conclusive. What is relevant is the terms and conditions set out within the contract, whether these are consistent with employed or self-employed status (as the case may be) and – crucially – whether the written terms accurately reflect how the relationship plays out in practice. If the written terms are consistent with self-employed status but, in practice, the individual’s working practices suggest that they are employed, HMRC and/or an employment tribunal could determine that the individual is in fact employed.
Important employment law cases
In the case of Uber BV V Aslam (2021) (‘the Uber Case’), the Supreme Court handed down a landmark judgment which confirmed that Uber drivers are workers rather than self-employed contractors. The Supreme Court considered the relevance of written terms, and whether they should be completely disregarded. It was noted that an employment contract is unlike any other contract or contractual relationship, being categorised by subordination and control.
The Supreme Court found that the Uber drivers were subordinate, and wholly dependent on Uber for their work. Whilst the drivers could choose when they worked, because they could not substitute, the need to work personally meant there was a further element of control by Uber.
In the recent case of Ter-Berg v Simply Smile Manor House Ltd (2023), however, the Employment Appeals Tribunal (EAT) has clarified that the terms of the contract do matter, and can be the starting point for an assessment of employment status.
Here, Dr Ter-Berg (‘Dr TB’) was a dentist who seemingly worked as a self-employed contractor, but who claimed that he was unfairly dismissed when the assignment ended. He alleged that, over time, the relationship between the parties evolved into one of employment due to a mix of control, integration, and the requirement to provide services personally.
The Employment Tribunal (ET), as a starting point, looked at the terms of the contract between the parties to help establish the true nature of the relationship. The contract was a standard form provided by the British Dental Association (BDA), which stated that the dentist was not an employee and there was no employment relationship. It also included a ‘substitution’ clause requiring Dr TB to find a locum where he was unable to provide his services for 20 days or more ‘through ill health or other cause. The ET concluded that the dentist was not an employee, placing particular emphasis on the substitution clause, which meant Dr TB did not have to ‘provide services personally’ – a key component of employment status.
On appeal to the EAT, Dr TB argued that the ET should not have used the contract as a starting point for determining employment status, based on the ‘Uber Case’ findings, but the EAT agreed with the ET’s approach, and concluded it was appropriate to look at the broader picture, which could include the terms of the contract, as long as those terms were not included simply to deny the statutory protections granted to workers and employees.
Whilst the Ter-Berg Case seems to place more emphasis on the contract than the Uber Case, what is apparent in both cases – and when assessing employment status generally – is the need to consider all factors in the round, and contractual terms that do not reflect the reality of the situation can still be disregarded.
The particular case of associate dentals
The vast majority of dentists working in general practice are engaged on a self-employed basis as “associate dentists”. Template forms of associate contract have been produced by the BDA and Dental Practitioners Association (DPA) which aim to reflect the particular features of self-employed status. For example, rather than an associate being paid a salary by the practice owner, they would usually retain the NHS contract income and fees paid by patients, pay for the related laboratory costs and pay a percentage of the net fee income to the practice owner by way of a “licence fee” for use of the dental chair, facilities and the services of reception and nursing staff.
HMRC previously stated in their guidance that if associate dentists were engaged on these approved forms of contract and those terms were followed, the income would be assessable under trading income rules and not as employment income.
However, this guidance was withdrawn from 6 April 2023.
What does withdrawal of the HMRC guidance mean?
Withdrawal of the guidance does not mean that associate dentists no longer enjoy self-employed status. It just means that their employment status for tax purposes will be considered in accordance with HMRC’s employment status manual, using the Check Employment Status for Tax (CEST) rule. If the terms of their associate contract are consistent with self-employed status and those terms follow through into their actual working practices, they will continue to be treated as self-employed.
What happens if a self-employed dentist is found to be an employee?
If an associate is engaged on the basis that they are self-employed but a tax tribunal determines that they are, in fact, employed, the main implication would be that the practice owner would be treated as the employer for tax purposes, meaning that Pay As You Earn (PAYE) deduction at source obligations would fall on the practice owner. Additionally, employer’s national insurance contributions would fall due.
Depending on the circumstances, penalties and interest in respect of under-deducted income tax and national insurance contributions could apply (albeit we would not expect HMRC to revisit existing arrangements solely as a result of the change in practice under discussion here).
Associate contracts may provide for such an eventuality, by requiring the associate to indemnify the practice in respect of any such retrospective liabilities.
A disgruntled dental associate could also try to bring a claim before an employment tribunal to enforce their employment rights, which may include claims such as unfair dismissal, unlawful deductions from wages, claims under TUPE and/or discrimination.
What we can do to help
We can advise both practice owners and dentists on employment status matters and on dental associate contracts. We also advise on dental regulatory, corporate, commercial and real estate matters, including acquisition and disposal of practices. For more information about our services for the dental sector, please get in touch.
For further information, please contact:
Alison Oliver, Partner, Hill Dickinson
alison.oliver@hilldickinson.com
