Why practice owners could be at risk of HMRC fines
DENTAL BULLETIN, ISSUE 33
Correctly categorising staff members can avoid HMRC fines
Do you employ associates and hygienists? Are they treated as self-employed or employees? Ensuring that you have correctly categorised your staff for tax purposes is extremely important. If you get this wrong you will be liable to pay PAYE contributions, interest due on payments and even HMRC fines, irrespective of what the member of staff may have already accounted for.
It is common for HMRC to question and challenge the employment status of individuals in many situations including the medical and dental profession. If HMRC succeed in their challenge it is often because of an expectation by the engager (i.e. the dental practice who holds the contracts with the individuals) that it is ok to follow historical practices. The truth is that the interpretation of the rules and case law is both complex and also changing and is fraught with grey areas.
Consequences of getting it wrong
The consequences of getting it wrong can be significant with both Income tax and employer’s and employees’ national insurance obligations to pay. Interest on late payment is automatic but also penalties, such as HMRC fines, for incorrect declaration of taxes often arise although these can be negotiated. In the case of an employer found to be treating employees as self-employed, HMRC would seek to collect the unpaid PAYE and national insurance from the employer rather than the employee because it was the employer’s duty to deduct this from pay in the first place. The fact that HMRC have accepted self-employed tax returns from the employee is irrelevant.
Unfortunately there is no definitive test that can be applied to determine employment status. Instead, tax case law developed over the years has generated a number of key indicators to help define whether one would be considered employed or self-employed. A good summary of these indicators is shown below. You might like to consider how you engage your hygienist, for example, as you read through it.
It is important therefore to try to comply with as many of these indicators as possible. For example does your hygienist get paid if the patient does not show? Do you pay for them at the Christmas meal? Do you pay their indemnity insurance or subscriptions? Do they get paid leave?
It is important to note that employment status is not a choice but a matter of circumstances and HMRC will look through a contract that does not reflect the reality of the relationship.
If you would like to discuss any of these points please get in touch.
About Chandlers Chartered Accountants
Let’s be frank, no-one wakes up on a Monday and thinks ‘ooh, I can’t wait to see my accountant this week’, but if you’re a dentist, we can look after you in a way that will help you flourish, whilst taking away all the drudgery of day-to-day accounting. So, why us? Well, we’re a highly qualified team of accountants, and independent – we’re not part of a franchise and we only ever offer a tailored service for each client, rather than a ‘one-size-fits-all’ model. If you would like to know more take a look at our website or give us a call. www.chandlersca.co.uk 0207 112 9363.
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Julia Furley, Barrister
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.