Dentists Feel Pain As Taxman Hits a Nerve

June 7, 2012

A new Revenue move could mean bigger tax bills for dentists and their workers.  

Following their previous focus on the tax status of locum doctors, Revenue have now turned their attention to the Dental sector. In recent weeks, they have written to the Irish Dental Association stating that Dental Associates and Dental Hygienists, “who in Revenue’s view are employees”, must have PAYE/PRSI operated on their earnings with effect from 1 January 2012.

The net effect of this move will be to prohibit many dental associates and hygienists from working as self-employed contractors for dental practices. They must instead be treated as employees, and have PAYE/PRSI deducted on their earnings.

This is in line with the Code of Practice for Determining Employment or Self-employment Status of Individuals, agreed by the Employment Status Group, under the Social Partnership process in 2007.

The biggest impact of this change will be the imposition of 10.75% employer PRSI on the earnings of affected workers.  This will represent a major additional cost for dental practices. Given the current state of the economy it will be difficult if not impossible for practices to pass on these cost increases to paying customers.

While the Irish Dental Association have asked Revenue to defer the implementation of the changes to 1 January 2013, it is clear that the new rules will take effect sooner or later.

Of course Revenue will be anxious to implement the changes as soon as possible in order to maximise their own Income Tax, USC & PRSI take from the dental sector, so it is difficult to see them agreeing to the dentists’ pleas.

The key message for dental practitioners, associates and hygienists is that they will need to take immediate action to review their current status, and ensure that they stay Revenue-compliant.

Their first step should be to review the recent Revenue letter to the Irish Dental Association, copies of which are presumably being circulated to dentists nationwide.  Chartered Accountants Ireland have published extracts from the letter online and these are also reproduced below:

Practices will also need to review their contracts with dental associates and hygienists as many of these workers may now be entitled to additional employee rights which did not arise while they worked as contractors, eg rights to annual leave, unpaid breaks, minimum notice, redundancy etc.

Whether or not individual practices and their dental associates and hygienists are affected by the new rules will depend on the existing contractual working arrangements in place in each case. Revenue have pledged “to consider each case on its own merits”. In cases of doubt, they are urging dentists and hygienists to make a submission to their local Revenue District, outlining the terms and conditions of the particular engagement(s) and asking for Revenue’s opinion on their correct status.

I recommend that affected dental practices, associates and hygienists should seek expert professional advice on their status and working arrangements before making any such submission to Revenue.

It may well transpire in individual cases that existing ‘independent contractor’ arrangements already conform with the self-employment criteria set out in the Code of Practice, and (more importantly) existing case law precedents. In such cases there may be no need to treat the workers in question as employees.

However given the stakes involved, and the risks attaching to non-compliance with any Revenue matter, it would be foolish to ignore this issue in the coming weeks and months.

Extract from Revenue correspondence to Irish Dental Association:

“Employment Status of Dental Associates and Dental Hygienists engaged by Dental Practices

Revenue have considered the circumstances surrounding the engagement of dental associates and dental hygienists in dental practices, having regard to the criteria set out in The Code of Practice for Determining Employment or Self Employment Status of Individuals and relevant case law. It is the Revenue view that generally speaking associates and hygienists engaged by dental practices are engaged under a contract of service (i.e. they are employees) and their remuneration comes within the scope of PAYE and that PAYE should be operated on all payments from 1st January 2012.

It is accepted that there may be exceptional cases where the terms of engagement differ from the norm and in these instances Revenue is prepared to look at these on a case-by-case basis. Revenue will consider each case on its own merits and in cases of doubt a submission, outlining the terms and conditions of the engagement should be submitted by the dentist or the hygienist to their local Revenue District for consideration.”

Today is P35 & RCT35 Deadline Day

February 15, 2011

Today, 15 February, is deadline day for 2010 annual returns by employers and  construction, forestry and meat processing contractors.

15 February is the annual deadline for filing of paper-format P35 returns with Revenue. A later deadline of 23 February applies to P35 returns filed online, where the liability is also paid online using the  ROS system.  The site contains some useful guidance in relation to P35 returns.

This year’s P35 deadline is also the final opportunity for employers to make Self Corrections to PAYE underpayments for 2009 under Revenue’s Self Correction rules.  This is especially relevant in the case of locum doctors engaged to work in GP practices and possible exposure to PAYE/PRSI arrears if  they are subsequently deemed to be working as employees.

Revenue have previously warned affected General Practitioners to regularise their 2009 PAYE/PRSI position, if appropriate, by today, 15 February, otherwise they may face penalties for non-compliance.  See this recent Revenue eBrief for more on this topic.   The ‘if appropriate’ qualification is important as in many instances the question of GP’s liability to PAYE/PRSI is not at all clear-cut.

Finally, today is also the deadline for principal contractors to file 2010 annual RCT35 subcontractors returns with Revenue.  A similar deadline extension to 23 February applies also to the RCT35 return.  Again this later deadline applies only where both the return and the RCT liability payment  are submitted to Revenue using  ROS.  A recent Revenue eBrief stresses the importance to contractors of filing the RCT35 return on time.

Revenue and Locums: Tax Bonanza or Catch 22?

October 18, 2010

Revenue move on medical locums will boost tax take but may drive up GMS costs for taxpayer.

According to last Thursday’s Irish Times, the Revenue Commissioners are currently ‘negotiating’  with out-of-hours GP services, in relation to PAYE/PRSI tax liabilities on locum doctors.  This news follows recent moves by Revenue to have locum professionals classified as PAYE employees rather than self-employed contractors.  A number of out-of-hours GP companies have already paid large settlement sums to Revenue arising from this change.

Locums are effectively temporary workers who provide holiday and other cover for resident practice doctors. Where a practice hires a locum as an employee, they must pay employers PRSI  (generally 10.75% of salary), and in addition deduct PAYE, PRSI and levies from their locum’s paycheque.  This generates a higher tax yield for Revenue than the previous system where each self-employed locum invoiced the practice for their services, was paid gross, deducted overhead costs in calculating their taxable income, and paid tax and PRSI on this net figure.

Working as a locum doctor can be financially lucrative but presents its own challenges. Most locums work for a range of practices, often in different towns and cities, and frequently move from one practice to another as their services are needed, e.g for holiday cover.  Locums must also budget for periodic spells of unemployment and their schedules being dictated by the needs of the various practices  who hire them.

In addition, by definition locums work in treating and diagnosing other doctors’ patients, with whom they do not have the same level of familiarity and medical history knowledge as enjoyed by a resident practice GP. Hence their work tends to be more difficult and pressurised than that of a resident GP.

The Irish Times article raises fears that the new Revenue approach will cause a scarcity of locums and that medical practices will find it difficult to recruit them. Only time will tell whether this pessimism is justified, and in these recessionary times, it may transpire that locum doctors are generally quite happy to continue working in that capacity, regardless their tax treatment.

On the other hand, if practices find it increasingly difficult to recruit locums, this raises the prospect of heavier burdens on already overworked GPs (with implications for the quality of medical care they provide) and higher recruitment costs for practices.  As any such cost hikes will undoubtedly be passed on to patients, the biggest loser here could well be the taxpayer, who funds GP services for medical card holders through the GMS system.

It would be ironic indeed if the boost to the Exchequer from the Revenue move is lost through higher costs within the GMS medical card system. Did anyone mention Catch-22?

The Irish Times article is here.