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Dental Times - Dental Practice Incorporation
01332 609318
24 June 2017
There can be many tax advantages arising from incorporating a dental practice, and most practice owners would like to save tax.

Since 2006, incorporation of NHS practices has been legally possible, and since then, despite the postcode lottery of primary care trusts and NHS England local area teams’ attitudes to incorporation, many NHS practice owners have turned their sole trader or partnership practices into limited companies.

However, the NHS England postcode lottery has become almost as difficult to succeed in as getting six numbers correct in the National Lottery! This has given rise to an ever increasing number of ‘flawed’ incorporations.

What is meant by a ‘flawed’ incorporation?


There are many variations on this theme.
The most common flawed method is to keep the NHS contract in the practitioner’s personal name, but transfer the goodwill, related borrowings, and all operational matters into a new limited company. In some instances with no formality or legal agreements – as the Nike marketing slogan says, ‘Just do it!’

This gives rise to potential problems with:
1) Breach of the NHS contract
2) Excludes all dentists (principals and associates) from the NHS Pension scheme
3) Liability for VAT charges
4) Income tax and CGT irregularities.
As the likelihood of our friends at HMRC, NHS England and NHS Pensions being aware of the problems, and challenging the technical points, is low, many practice owners have been tempted to ‘just do it’ and reap the tax benefits.

However, the day of reckoning can come when the time comes to sell the practice.

In order not to have a total or partial reversal of the tax saved by the flawed incorporation, it is necessary to find a buyer who is prepared to take over the flaws, warts and all.

This can be done by the buyer buying the limited company shares, and taking the NHS contract into his personal name by a method known as ‘the partnership route’.

This buyer will almost certainly have advisers who will tell him not to go ahead, and many lenders will not provide funding for the acquisition of a practice structured within a flawed incorporation.

Over recent months the number of dental flawed incorporations coming to market has increased through non-reputable agents – some are sold, some not, but it’s vital that both buyers and sellers are aware of the facts and technicalities.

If there ever there was a case of ‘caveat emptor’ this is it!




Practice One
Practice Location
- this practice was first established by the outgoing principal in 1997 in a converted residential terrace within a large city. It is strategically located on a busy road next to other amenities, ensuring excellent visibility and footfall.

Type of Practice - the practice comprises four surgeries and holds a large NHS contract. The outgoing principal was working on a part-time basis with the majority of UDAs performed by the four associates. There is potential for future expansion at the practice through the acquisition of a neighbouring property.

Financials - annual turnover of £860,000 is almost exclusively generated from the NHS contract for the provision of 32,000 UDAs. The UDA rate is good and profitability at the practice is further enhanced by a moderate associate pay rate and low staff and property costs. The practice employs five dental nurses, two receptionists and a part-time practice manager.

Buyer Appetite - we marketed the practice to our Premier Tier buyers and found demand to be extremely high due to the large NHS contract and the sought-after location. Within six days of marketing we had carried out a viewings open day and secured seven above-asking price offers.

Reason for Sale / Incoming Purchaser - the outgoing principal was looking to reduce their responsibilities whilst the incoming purchaser was purchasing a second practice as an investment.

Price Achieved - £2,100,000 inclusive of goodwill, equipment, fixtures and fittings and freehold, which was well in excess of the original marketing price.
Practice Two
Practice Location
- located within a large coastal town, this transaction involved the sale of a two-site practice owned by the same principal. One site is within the town centre close to other amenities and the other site benefits from an excellent seafront position. Both practices are easily accessible with plentiful parking facilities.

Type of Practice - the income generated is mainly private supported by two small NHS contracts. There are seven surgeries located between the sites with the principal providing clinical hours at both sites. The vendor owned both detached freehold properties and was open to options with regards selling or retaining these.

Financials - the combined turnover of £1,500,000 is made up of 8% NHS income, 28% capitation income and 64% private income, which is delivered through both general dentistry and specialist treatments. Although the two NHS contracts are small they deliver healthy UDA rates of £28 and £30 for the provision of 4,500 UDAs.

Buyer Appetite - we marketed the practice to our general market with 1,471 buyers viewing the practice via our website, 960 buyers receiving detailed sales brochures, 33 viewings being carried out and 29 offers received.

Reason for Sale / Incoming Purchaser - the principal was looking to reduce their responsibilities and was able to negotiate a post-sale associate agreement to stay on at the practice. This helped ensure the continuity of income going forward.

Price Achieved - £1,925,000 inclusive of goodwill, equipment, fixtures and fittings. The freeholds were retained by the outgoing principal and leased back to the purchaser. The transaction took six months from initial marketing to complete.
Practice Three
Practice Location
- the practice is located within a large city in the Midlands and is situated within a health centre alongside other primary care professionals. Established in the 1990s, the current principal acquired the practice in 1993.

Type of Practice - This is a four-surgery NHS practice with all of the income generated by the current principal and two associates. The premises is held on a long-leasehold with a small nominal rental. Expansion is limited within the current footprint, but all surgeries are yet to be utilised.

Financials - the practice has an NHS contract value of £575,000 for 20,000 UDAs, representing a good UDA rate. There is £51,000 fee per item work completed creating a total annual turnover of £626,000. The associate generates 16,000 UDAs with the principal completing 4,000 UDAs alongside all of the private income.

Buyer Appetite - multiple offers for the practice were received from our Premier Tier buyers, which resulted in a higher sale price being achieved.

Reason for sale / Incoming Purchaser - the vendor was looking to reduce responsibilities prior to eventual retirement and wanted to continue working at the practice post-sale. This suited the incoming purchaser who already owned a small group of practices and was looking for an associate-led practice.

Price Achieved - £1,430,000 inclusive of goodwill, equipment, fixtures and fittings and freehold.
Posted by: Alan Suggett - UNW LLP on 18 Jan 2017