Will the new IR35 tax rules affect your practice?
UPDATE: The Government has announced that the Extension to IR35, as detailed below, will be postponed until 6th April 2021.
Are you a dentist practicing as a limited company? If so, you need to be aware of the IR35 tax rule and what the implications could be for your practice.
The Intermediaries Legislation (IR35) was introduced in 2000 to remove the tax advantages of providing services via a limited company, for individuals who are not truly in business on their own account. It placed the obligation on the ‘intermediary’, the worker’s personal service company, to determine the ‘worker’s’ tax status.
However, in April 2020 IR35 will be amended, and the obligation to determine the tax status of ‘workers’ will now lie with the ‘client’; the person offering the work to the limited company.
What does this mean for your dental practice?
In private practice many dentists work via a limited company to ensure tax savings. This means the rules could apply in private practices. However, the new rules will only apply if you are not a ‘small company’. A small company is deemed to have two or more of the following:
- An annual turnover not exceeding £10.2m; or
- A balance sheet total not exceeding £5.1m; or
- An average over a year of no more than 50 employees
Most practices will fall within these parameters and so fall outside IR35. However, if your practice does not, then from 6th April 2020 you will need to determine the tax status of any dentist engaged by you via a limited company. Smaller businesses should also be aware that it is possible that these changes will be rolled out universally if they prove successful in combating tax avoidance at larger companies.
How do you determine tax status?
First, you will need to determine what terms a hypothetical contract between you and the dentist might contain. Then apply the employment status tests to those terms and decide if the dentist is employed or self-employed. HMRC do not recognise ‘worker status’ and so someone is either employed or truly self-employed. Given the raft of tribunal decisions on this topic in recent years, it is likely dentists will be deemed employed.
Once a decision has been made it is your responsibility to notify the parties. If you determine tax is payable, you will need to deduct tax and NI from the dentist’s fees. If you fail to take ‘reasonable care’ when making the tax determination, you will be liable to pay tax and NI.
If you are caught by the changes to IR35, give us a call (0207 388 1658) or drop us an email (firstname.lastname@example.org) to discuss how we can assist you in making the correct determination and notifying the relevant parties of the decision.
Please note that the information contained in this article was correct at the time of writing. There may have been updates to the law since the article was written which may affect the information and advice given therein.