*Any advice given is accurate at the date it was given*
• Did the IR35 reforms go ahead as planned for 6 April 2020?
Many businesses will have been gearing up for the introduction of the reformed off-payroll rules, which were expected to be introduced on 6 April 2020.
This note will not go into the details of IR35 or the changes as they have been well publicised elsewhere.
However, by way of quick reminder, the IR35 rules were introduced to ensure that people couldn’t hide behind their limited companies (known as Personal Service Companies) to avoid being treated as an employee (and therefore being liable to income tax and National Insurance Contributions). It was thought that by using a Personal Service Company, that “company” couldn’t be an employee and the person doing the work would therefore automatically be treated as self-employed for tax purposes.
The IR35 rules confirmed this wouldn’t be the case and instead noted it would be the reality of the work being carried out that would govern the treatment from a tax perspective i.e. if it wasn’t for that Personal Service Company, would the person doing the work be considered an “employee”? The employment status of individuals is subject to very detailed employment and tax law and is not explored further in this article.
The planned reforms for 6 April 2020 were designed to bring the private sector in line with the public sector and to put the burden of compliance on the business hiring the contractor, rather than the contractor themselves. This follows the same changes made to those in the public sector in 2017.
This caused fear and uncertainty amongst lots of businesses and contractors. However, amidst the severe financial disruption caused by the Covid-19 pandemic, the Treasury announced on 17 March 2020 that the introduction of these reforms would be deferred until April 2021.
It remains best practice for all businesses and contractors to have checks in place to ensure compliance, regardless of the deferral.
We will be providing a detailed article on the effect of the changes to IR35 in time for April 2021.
• Is there a scheme to protect the finances of self-employed people?
Yes. The Self-employment Income Support Scheme was announced on 26 March 2020.
This scheme will allow self-employed people to claim a taxable grant worth 80% of their trading profits up to a maximum of £2,500 a month. It is important to remember this will be a grant, and so will not need to be repaid.
The portal for such claims is expected in mid-May 2020 with payments being made by early June.
Full details of the scheme can be read HERE.
Unfortunately, this scheme is only available to those who have trading profits of less than £50,000 and where that income accounts for over half of that person’s taxable income.
Self-employed people are permitted to make a claim for Universal Credit but please be aware this income can be taken into account when assessing their eligibility.
We appreciate this will prevent many associate dentists from making a claim. The British Dental Association (BDA) has written to the Chancellor expressing their dissatisfaction over this position.
We will keep you updated should the BDA or Chancellor provide a specific response to these concerns.
• Should associates continue to be paid as normal?
The correct answer to this will rest on the interpretation of individual associate agreements. We are more than happy to review these and give you our view.
Generally, income can be split into three ways:
o NHS income
NHS England have confirmed that 1/12ths of the annual contract value will continue to be paid to practices, on the basis that that practice staff are made available for redeployment elsewhere in the NHS to assist in the COVID-19 response. (Please see Alex Hall’s detailed consideration on these payments HERE.)
NHS England made this move in order to protect the interests of practices and their staff. It is explicitly noted this income should be used to pay all staff as before.
It seems likely the monthly payments will be made with deductions for “variable costs” to account for the reduced treating expenses of the practice. We await clarity as to the percentage of these deductions as the BDA is continuing to argue an appropriate level for practices in England. The amount paid to Associates should be reflected accordingly.
There is a risk that should practices unreasonably fail to make staff available for redeployment or staff unreasonably decline, NHS England may request a clawback for a proportion of the monies paid under the contract. If this is because of the actions of a particular Associate, it may be appropriate to deduct a proportionate sum from their pay. This may also be the case where NHS England have received complaints that practices are not passing the monthly income onto staff, or are terminating their contracts.
It is not clear how NHS England will treat such non-compliance but clawback and breach notices must remain a possibility.
o Capitation schemes:
Capitation schemes such as Denplan or DPAS are continuing as normal, with payments still being paid to the practice. The starting point is that these payments can be retained by the Principal. However, this view does depend on the strict interpretation of the Associate Agreement since it is quite common to see Associate Agreements specifying a proportion of the capitation payment is payable to the Associate each month. Associates will also argue that they will be required to treat the patients once the restrictions are lifted so should be entitled to payment for those patients now, particularly if they have been issued with a list of capitation patients.
If the Associate is unlikely to be at the practice for when the restrictions are lifted, then an agreement should be sought between practice and Associate as to how to deal with those payments and respective treatment.
Some practices will be relying heavily on these capitation payments (particularly if they have a small or non-existent NHS Contract) and so may argue the payments are required to keep the practice in business.
Discussions should be had to ensure any contractual variations are clearly documented and understood.
o Fee Per Item treatment
It is likely Associate’s fees for Fee Per Item treatment will be dependent on the work actually undertaken. Since the Prime Minister announced the new social distancing and activity restrictions, all non-urgent dental work should be stopped. We do not expect therefore Associates to be able to claim payments for purely private work, however once again the contractual provisions in the Associate Agreement will be key.
• Can the Associate or the Practice still serve notice to terminate the Associate Agreement?
Yes. The contractual principles will still apply despite the COVID-19 pandemic and correct notice should be served.
We have come across some Associate Agreements being terminated without notice based on the agreement being "Frustrated." For more guidance on this legal concept, please refer to my colleague's article: Force Majeure and Frustration in Contracts affected by COVID-19.
Campbell McKellar, Solicitor, Company & Commercial