2020’s biggest dental disrupter? HMRC

by Costs, Recruitment, Tax, Wealth management

It’s not the crashing retail rental values, the fallout from the general election, the NHS or even the post-Brexit blues that will have the largest impact on the future of dentistry in the UK in 2020.

It’s recruitment. A change is coming that will lead to a fundamental alteration in how associate clinicians are recruited, where they choose to work and, critically, how much they are paid. 

We already know that the single biggest blocker to growth in any ambitious private practice is the ability to recruit associates, in particular high grossing associates. Imagine if recruitment of these high grossing, talented associates suddenly became easier. Imagine if you had four suitably qualified applicants for each vacancy you were recruiting for.

HMRC will introduce a refreshed set of rules and guidelines on April 1st 2020 targeting the ‘lost’ tax revenue from contractors, which will apply to any associate whose working practices qualify. The rule change has been quite a while in the making; initially the banks showed their hand, as thousands of financial workers avoid national insurance by designating themselves as contractors. 

The banks anticipated the change and will now employ their contractors through a third party but will be paying the full 13.8% NI plus 3% mandatory pension contributions. Of course there are many industries that utilise contractors legitimately but HMRC will place the onus on the employer to prove that the contractor’s position is not in place simply to avoid paying NI and pension contributions. It will enforce the rule robustly — don’t expect any wriggle room. 

Theoretically, here are the factors determining whether an associate will be categorised as an employee liable for NI and pension contributions:

  • Where they spend most of their working time (however, while only having a single contract is an indicator, it isn’t by any means the key factor in determining whether the new rules apply — HMRC will evaluate the entire arrangement) 
  • Lack of a right to substitution (ie does the associate have to turn up, or can they send a suitably qualified alternative? HMRC will find it hard to swallow if not) 
  • Mutuality of obligation
  • Financial risk
  • Control over working hours and location

However the biggest, and realistic, concern is that employers simply roll over under the threat of HMRC oppression regardless of any associate’s technical status. We all know the HMRC approach is guilty until proven innocent.

Happily for the majority of dental practices in the UK there is a turnover threshold for the rule change (at least initially) of £10m, which means about 80% of practices will be safe for the time being. 

Clearly the change will impact the corporates and groups as their largest single cost is associates pay. If they were to absorb the entire extra cost of 16.8% their EBITDA would take a serious hammering. Alternatively, if they expect the associate to swallow the cost, there will be a migration of associates from the corporates to the independents.  

There’s another aspect to consider: associates like being contractors, not simply because they aren’t constrained by group pay plans or HR compliance but because they feel in charge of their own destiny, their tax and affairs management.

I believe that the first associates to move away from the corporates will be the highest grossers and the last to leave will be the steady Eddies — if I owned a sub-£10m practice or group of practices I would be anticipating this change and start my recruitment campaign soon (and if I were an associate I would be pulling my CV and portfolio together). If you need support with this please let me know.

All the best


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“HMRC will enforce the rule robustly — don’t expect any wriggle room”


Author: Jonathan Fine