Pizza Deliveries, Dental Contracts and Taxes

Don’t be surprised if your thoughts turn to ordering a pizza the next time you sit down to consider your contract or your tax affairs says IDA Chief Executive, Fintan Hourihan.

His comments follow a recent Court of Appeal decision which is seen as potentially one of the most significant employment / tax law judgments for many decades and one which should prompt dentists to review their contractual arrangements without delay.

Thankfully, the Association stands ready to assist our members. Having represented dentists in four years of discussions with the Revenue Commissioners we managed to avert a catastrophic decision which would have seen all practice owners face a 23% VAT bill where they engage dental associates on a percentage fess sharing model typical of many practices. And of course this would also have had severe consequences for dental associates, many of whom would have faced termination of their arrangements in dental clinics. The success of the Association in persuading Revenue that there was not a VAT liability in such instances was one of the great campaigning success of ours in recent years and shows the importance of a strong representative body for the dental profession supported by a strong membership. This was an existential challenge for the profession and we are proud to say that the Association rose to the occasion and a major crisis was averted.

The other great role the Association has played in recent times has been in guiding and assisting dentists who prefer a self-employment model, whether as a practice owner or as an associate. Again, the Association was prominent in engaging with Revenue in 2010 and preventing the simple transplantation of tax policy which was determined for medical GPs and pharmacists (where employee status is now the norm for doctors and pharmacists practising where they are not the owner or a partner), amongst others, and which seemed likely to be applied to dentists as a consequence.

Self-employment status has been secured in the vast majority of practices who have sought help from the Association and professional guidance from their own solicitors and tax advisers reflecting the unique circumstances in their own practice.

True Self-Employment?

A third challenge has been to ensure that arrangements set up on the basis of a self-employment agreement are capable of being acknowledged as such where investigations could be mounted into such arrangements by either the Revenue Commissioners during a tax audit, the Workplace Relations Commission where a grievance might be submitted and where the question will arise – is this dentists self-employed or an employee, or by the Department of Social Protection whose SCOPE section may investigate a claim for welfare benefits such as maternity benefits and again where the first question will be to establish whether the claimant dentist is self-employed (in which case they will not be able to claim such benefits) or an employee (in which case they may be entitled to such benefits).

To assist our members, we have recently engaged Eversheds Solicitors to provide guidance to members who wish to prepare a self-employment agreement assisted by their own legal and tax advisers. A detailed FAQs document has been prepared which covers all the major questions to be considered in drawing up such an agreement.

We also asked Eversheds to review template contracts of employment for employees working as dentists, dental nurses and hygienists and again these are available free of charge to IDA members for adoption and preparation of contracts in their dental practice.

Business Practices Matter

Of course we know that Revenue especially will look not just at what is written down on paper and the extent to which business practices reflect the written terms of the contract (or not) and the same applies if no contract exists at all. In fact Revenue will evaluate every scenario individually when they audit a dental practitioner. They will look to examine the facts and essentially determine the extent to which control by the owner of the arrangements of the associate exists or indeed the extent to which an associate practices independently. Among the issues which are likely to be examined are the extent to which the Associate manages their own clinical decision making, leave and working time arrangements, their role in the appointment of locums, the extent to which they manage their own financial affairs in handling income from patients, their role in ordering supplies and equipment, their entitlement to determine their own fees.

In summary, to what extent does the Associate manage their own clinical and business affairs, albeit they may have an understanding with the practice owners on many of these matters?

That is why it is so important to review arrangements in your practice with appropriate professional advice and also to ensure that contract documents are in place and are reflected in everyday business practices within the dental office or surgery.

Our contracts of employment and our FAQs for self-employment have been prepared to assist our members and to help in discussions they should arrange regularly within the practice and with the assistance of their accountants and legal advisers.

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Pizza Time

So where does this leave those of us wondering about ordering a pizza? The Court of Appeal recently overturned the decision of the Tax Appeal Commission and the High Court in relation to the status of pizza drivers for a Domino’s pizza franchise. The previous decision makers had deemed that the drivers were employees of the company each night that they turned up to deliver pizzas. Recently, the Court of Appeal decided by a 2 to 1 majority that the drivers were contractors and not employees.

Eversheds say that this is a very significant decision for businesses in Ireland. To date, the Domino’s decision has caused much uncertainty about the use of contractors on short term and even one off engagements.

“The question for employers is how this decision impacts on your use of contractors in your business. The short answer is the decision is decidedly more supportive of the use of contractors in certain circumstances.”

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Mutuality of Obligation

Julie Galbraith from Eversheds says that “there are many tests used by both the courts and the Revenue Commissioner to analyse whether an individual is more appropriately deemed an employee or a self-employed contractor. Traditionally the “control” test was the most important, i.e. how much control did the master exert over the servant. If the company was not in direct control of the worker then they couldn’t be an employee. Over time, this test became less applicable as the methods in which employees did their work became less subject to day to day control of their employer.

“The test which is currently most relied on is that of mutuality of obligation; namely is the company required to provide work and is the individual required to carry out the work?

“The decisions of the Court of Appeal (in the unapproved judgements which have been published) review the significant cases in this area to date. Ms Justice Costello quotes at length the decision of Edwards J in the Barry case which related to veterinary inspectors engaged by the Minister of Agriculture.

“The requirement of mutuality of obligation is the requirement that there must be mutual obligations on the employer to provide work for the employee and on the employee to perform work for the employer. If such mutuality is not present, then either there is no contract at all or whatever contract there is must be a contract for services (contractor) or something else, but not a contract of service (employee).”

“In essence, this means that unless there is mutuality of obligation, then there cannot be a contract of employment. The courts to date have found that if this hurdle is not surmounted, then no further analysis is needed, the individual cannot be an employee. On the other hand, if this hurdle is overcome, they must then look to the other factors to further analyse the relationship (such as control, integration into the business and ability to make profit in their own right).

“There must be an ongoing and reciprocal commitment to provide and perform work in order to overcome the first hurdle to establish an employment relationship.”

Eversheds Top tips:

Continually review your contracts – they are not definitive on their own but they should reflect the relationship.

Ensure contractors are not integrated into your business.

Contractors should be able to work with multiple other (enterprises) or companies and have the ability to make profit in their own right.

Finally if there is an obligation to give them a certain amount of work (even on a part-time or regular short-term basis) and they are obliged to do it once offered, then they may well be employees.

Remember the elephant test; employees are like elephants, they are very hard to describe but easy to spot when you see one.