By Simon Vincent, Senior Tax Accountant at Hive Business
HMRC has apparently written to some associates to say they are reviewing their employment status. Although HMRC are supposed to send us copies of everything they send to our clients, we haven’t seen a copy of the letter.
If HMRC alters its stance with a single associate this will likely have a bearing on all associates, so broadly speaking the letter means some long-standing fiscal certainties for associates and principals are threatened.
HMRC gives special dispensation for dentists on employment status, which it agreed with the BDA years ago. However, this isn’t law. What is a matter of law is whether you are self-employed or employed, which comes down to a matter of the facts of the relationship.
Simply having a contract saying you’re self-employed isn’t good enough. If you get all the benefits of employment, a contract that says you are self-employed isn’t really worth the paper it’s written on. To determine your status, law states you need to look at key indicators, such as whether or not:
- You’re told when and where to work
- You’re told which clients to service
- You get paid holidays
- You get paid sick leave
- Your equipment is provided
- You don’t take financial risk
- The buck stops with someone else when something goes wrong
This might look like low hanging fruit for a government bent on increasing tax revenues without increasing headline tax rates. HMRC prefers employees because they pay more tax and they pay it at source rather than at the end of the year. Employees claim less expenses because these are for the employer to pay, along with employer’s National Insurance at a rollicking 13.8%. The latter alone would be £483m if you were talking about 35,000 associates on £100k.
But there are probably unforeseen consequences that HMRC hasn’t considered, and which may pit it against a whole industry. If the cost of paying an associate rose 13.8% then this would have to be paid by the owner or the associate. Profit margins for principals are already tight and it’s unlikely they could bear it, so it’s the associates who would lose out. Furthermore, added pressure would mean clinician KPIs such as average daily yield would become non-negotiable.
Meanwhile, without wanting to scaremonger, associates working through their own service companies could face VAT liability if their employment status changed. It’s likely associates would feel even keener on setting up their own practices than they do at present, and perhaps they would be more likely to set up solo or in co-ops or cost-sharing models (where for tax purposes each solo practitioner is a separate business).
Admittedly this is all conjecture, apart from the letter — do send it in if you have it. And if you’d like to explore contingencies to minimise the impact of uncertainty on your business, then please give us a call on 01872 300232 or email [email protected].