Whilst accepted wisdom is that there are two distinct forms of arrangement whereby more than one dentist practises together but outside a corporate or limited liability arrangement, it is difficult to determine in practice the specifics which differentiate the two.
There are guidelines within the Partnership Act 1890 which would assist in the determination. That legislation defines partnership as:
“the relation which subsists between persons carrying on a business in common with a view of profit”.
The problem is in identifying whether a dental practice with two or more dentists is carrying on a business in common, or if it the dentists are each carrying on a separate and individual business, but sharing facilities. The profit element is a given, and in either case the parties are in a relationship. Indeed the Act makes it clear that common ownership of property does not create a partnership; nor necessarily does sharing gross returns, although the sharing of profits is prima facie evidence such a relationship.
HMRC and the Care Quality Commission both appear to take a clear cut view. According to the Revenue expense sharing agreements typically involve sharing the common expenses of the practice “such as insurance premiums, lighting and heating, staff and other office expenses”. For VAT purposes, the Revenue considers that each dentist “remains an independent practitioner and there is no partnership”.
Clearly the facts of each case will be the crucial element in deciding status, and this will be supported by the written documentation, especially as expense share agreements are likely to deny that the parties intend to be bound by a partnership. However, such a declaration cannot bind third parties and would be no bar to a court considering that a dental practice had held itself our as a partnership.
There are reasons why the distinction is important and so far as a partnership is concerned the benefits include:
- Tax advantages and accounting costs; a partnership is only required to have one set out accounts
- Ability of a partnership to provide for cross life insurance cover options and trusts which enable the partners to ensure the finance to acquire a retiring partner’s share
- In the case of an NHS practice, security for the continuation of the GDS Contract in the event of early death of one of the partners
- Clarity with regard to CQC registration as the partnership is the registered provider and following changes in February 2013 it has become simpler to change partners without having to re-apply; expense sharers in most cases are required to register separately
Interestingly, the CQC takes the view that:
“you should only register as a partnership if you have made arrangements for all partners to accept joint and several liabilities for the way the activity is carried on, and each individual partner has agreed to this”.
Responsibility for the liabilities of the practice is the crux of the distinction, but it is too simplistic to state that it is determined by agreement between the parties, and indeed this is not the case.
Partners are liable both jointly and severally, not only for their own debts, but also for the debts of the other partners in relation to the partnership. An expense share arrangement can stipulate that it is not intended to create a partnership, and in this way seek to avoid liability for the debts of other dentists in the practice, but if third parties form the view that the dentists are in fact holding themselves out as partners, then each may be at risk due to the act or default of the other in the course of the business of the practice.
The BDA draft partnership takes the view that it includes “expense sharing partners” who whilst benefiting equally from the profits of any jointly engaged health professional, retain their own individual incomes.
The distinction is clearly blurred, notwithstanding its significance. It may be possible for a practice to be organised on the basis that the dentists simply share a surgery but their business and earnings are kept entirely separate, but the overlap in most cases will be significant. Common expenditure is likely to extend beyond accommodation and equipment and as soon as staff are jointly employed and management functions are shared, there is a real possibility of a partnership having been created. In such a case, it may be that a partnership is created in respect of the joint income and liabilities for such staff, but the dentists are able to maintain the position of sole trader in respect of their individual earnings; a complicated scenario.
In each case the existence of a partnership will be a question of fact, determined on the basis of how it is carried on in practice, and how it is perceived by others.
A document may be entitled Expense Share Agreement, but whether limited to jointly engaged or employed staff or extending to the whole relationship, this would not prevent the affiliation between the parties from being a de facto partnership.
For more information call Julia Posener on 0151 707 0090
or email [email protected]
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