Taxes for Dental Groups

Running a dental group is very different from owning one practice. Once you have several clinics under the same umbrella, the tax situation becomes more complex but it can also open the door to useful planning opportunities.

This article guides you through how to build a structure that keeps your tax position efficient, how to improve EBITDA when you want to grow or prepare for a future sale, how to make proper use of group relief and loss sharing, and how to plan ahead for succession and inheritance across different locations. It also includes clear advice and up to date UK tax information for dental businesses.

Why Tax Planning Matters for Dental Groups

Running more than one practice completely changes how tax works. A group structure allows you to bring management under one roof, move money between different companies in the group and reduce overall risk. At the same time, it increases the number of areas where HMRC will look closely, such as VAT, corporation tax, transfer pricing between group companies, payroll rules and staff benefits. Setting up the right structure from the start and keeping on top of compliance helps protect the value of the group, supports steady growth and makes any future sale far simpler.

Group structures and tax planning

Common Ways to Structure a Dental Group

• A holding company with trading subsidiaries. In this setup, a parent company owns the shares of several trading companies. Each practice can sit in its own trading company or you can use one shared operating company.
• One trading company that owns several sites. This is simpler to run day to day, although it can leave all trading assets exposed to risks that arise in any single site.
• Mixed or associate based structures. When you combine employed dentists, self employed associates and corporate associate arrangements, you need well written contracts and careful payroll planning.

The best structure depends on how much risk you want to take on, how you plan to fund the group, your long term exit plans and how you want to take profit out of the business. Many dental groups choose a holding company model because it allows cash to be centralised and helps protect the assets of each individual practice.

Tax and Commercial Benefits

• Better cash control. Dividends and internal loans can move profit to the holding company where it can be reinvested or taken out in a more tax efficient way.
• More flexibility when selling. A holding company makes it easier to sell one trading company at a time rather than selling the entire group in one go.
• Stronger protection from risk. If each practice sits in its own company, problems in one site are less likely to affect the whole group.
• Easier to raise finance. Banks and investors usually favour a clear and well organised group structure.

Areas to Watch and Where HMRC Often Looks Closely

• VAT rules for dentistry. Clinical work is exempt from VAT, while cosmetic and retail services are usually standard rated. Groups must keep these income streams clearly separated.
• Employment status and PAYE. If associates are treated as self employed when their working arrangements suggest otherwise, the group could face PAYE and National Insurance issues.
• Transactions between group companies. Loans, management fees and service agreements must be commercial and properly recorded so that they stand up to HMRC scrutiny.

Corporation Tax and Optimising EBITDA for Growth or Exit

Corporation Tax Explained

The UK now uses two corporation tax rates with a relief band between them. Company profits up to £50,000 are normally taxed at 19%. Profits above £250,000 are taxed at 25%. Anything in between receives marginal relief. These limits matter when you plan group profits and when you decide whether to leave money inside the company or take it out personally.

EBITDA is so Important

Buyers, lenders and private equity groups often focus on adjusted EBITDA rather than the profit shown in the accounts. EBITDA shows the core trading performance before owner pay, unusual costs and non cash accounting entries. A clear and well supported EBITDA figure makes due diligence easier and usually leads to a higher valuation.

Practical Ways to Improve EBITDA

• Bring finance, HR and purchasing into one central team so that the group benefits from economies of scale.
• Use standard associate contracts across all sites to control pay drift and manage performance properly.
• Increase chair use and improve case acceptance, as more billable time improves income without adding major fixed costs.
• Grow higher margin private treatments, while keeping an eye on the VAT position for cosmetic and therapeutic work.
• Review supplier and lab contracts often and use group wide volumes to negotiate better prices.
• Remove unusual or one off costs from adjusted EBITDA, such as restructure spending or legal fees linked to acquisitions, so that the valuation reflects ongoing earnings.

Group Relief and Loss Offsetting

What Group Relief Means

Group relief allows one company within a qualifying group to give its current year trading losses to another company in the same group. This helps reduce the overall tax bill for the group. To qualify, the companies must meet the 75% ownership test. This means one company must own at least 75% of another, or both must be at least 75% owned by the same parent company. This rule is essential and must be kept in mind during any acquisition or reorganisation.

How Dental Groups Can Make Use of Group Relief

• Use losses from a new or struggling practice to offset profits in other companies within the group and protect cash.
• Plan large refurbishments so that any related losses fall in the same accounting year as profits made by the rest of the group.
• Think carefully about how a central holding company absorbs costs. If the holding company carries group wide expenses, make sure charges are set up so that losses sit in the company where they are most useful.

Common Issues to Watch Out For

• Changes in ownership after buying a practice can break the seventy five per cent test, so check that the relationship holds throughout the accounting periods.
• Keep detailed records of intercompany charges, transfers and all group relief claims. HMRC will expect clear paperwork showing how the losses were calculated and passed across the group.
• Remember that VAT grouping follows different rules. It is separate from corporation tax group relief and should not be assumed to work in the same way.

VAT for Dentists: Exemption, Partial Exemption and Cosmetic Work

Healthcare services that protect or restore a person’s health are usually exempt from VAT. Everyday dental treatments such as check ups, fillings and NHS care normally fall within this exemption. Cosmetic treatment that is carried out only to improve appearance is generally taxable. The final position depends on the clinical purpose and the evidence you keep. HMRC guidance explains that some cosmetic procedures may still be exempt if they are genuinely part of necessary healthcare, but every case depends on the facts and on what is recorded in the patient notes.

Practical VAT Considerations for Dental Groups

• Mixed supplies. When a practice offers both exempt clinical treatments and taxable services such as cosmetic dentistry, retail items or private aesthetic work, it may fall into partial exemption for VAT. This means that the way input VAT is recovered becomes more complicated, especially for groups with several sites.
• VAT grouping. A group made up of companies under common control may qualify for a VAT group. This can simplify how services are supplied within the group, although it must be weighed carefully against the partial exemption position.
• Clear records. Keep strong clinical notes and issue separate invoices for cosmetic work, for example stating that cosmetic veneers are not clinically required, to support the correct VAT treatment.

If your group earns a meaningful amount from taxable services, it is wise to involve a VAT specialist to carry out a partial exemption review, as this can have a real impact on your profit after tax.

Capital Allowances and Investment (including AIA)

What Dental Groups Can Claim

Capital allowances allow companies to claim tax relief on qualifying plant and machinery, such as dental chairs, X ray equipment and computer systems. The Annual Investment Allowance gives 100% first year relief on eligible purchases up to its current limit, which has recently been up to £1 million. Using the AIA wherever possible speeds up tax relief and helps cash flow in years when the group invests heavily.

Structures and Buildings

For construction work or buying or leasing premises with qualifying contracts dated from 29 October 2018 onwards, the Structures and Buildings Allowance may apply. This covers certain non residential buildings and improvements, although the rules and rates vary, so you should check whether your refurbishment work qualifies.

Practical Pointers

• Plan major spending across the whole group so that the AIA is not used up in one company while another company misses out on the relief.
• Keep clear records of who owns each asset, as the owning company is the one that claims the allowance.
• Think carefully about whether to buy or lease equipment, because leasing can affect both the timing of tax relief and how VAT is recovered.

Succession and Inheritance Planning Across Multiple Sites

Why Succession is More Complicated for Multi Site Groups

When a dental group has several companies, different owners and practice assets spread across those companies, succession becomes far more involved than it is for a single practice. Shares may be held by founders, senior managers and outside investors. Without clear planning, any transition can quickly become confusing, stressful and damaging to the value you have built.

Key planning tools

• A shareholders agreement. This sets out what should happen if a shareholder dies, becomes seriously ill or retires. It should include pre emption rights, how the business will be valued and the process for transferring shares.
• Gifting shares or passing ownership in stages. Gradual transfers can help reduce future inheritance tax, although the relevant survival rules must be taken into account.
• Management buy outs and phased exits. Selling to an internal team in steps can help keep the culture and continuity of the group.
• Trusts and wills. These ensure shares pass to the right people and that the business can continue to operate with minimal disruption.

Inheritance Tax and Business Property Relief

Business Property Relief can provide full relief from inheritance tax for qualifying business assets. To qualify, the asset must be relevant business property and must meet trading tests. Most dental practices count as trading businesses, so they often qualify. Relief can be lost, however, for parts of the group that hold investment property or shares in non trading companies. Future tax changes may affect how BPR works, so planning should take into account the potential for changing thresholds or limits.

Practical Steps for Succession Planning

• Review or update shareholder agreements and any buy sell arrangements.
• Check whether each company in the group qualifies for Business Property Relief and keep trading activities separate from investment activities where needed.
• Put funding arrangements in place for future buy outs, such as life policies held by the company or by the shareholders, or earn out arrangements.
• Agree a valuation method early on to avoid conflict and unexpected tax issues.

Common Mistakes and How to Avoid Them

• Assuming cosmetic dentistry is always exempt from VAT. The clinical purpose must be clear and supported with proper notes and invoices.
• Weak paperwork for group relief and charges between group companies. Keep accurate and timely records so every claim can be supported.
• Capital spending carried out without coordination. Plan investment across the whole group so the Annual Investment Allowance is used in the best place.
• Forgetting to update shareholder agreements. Circumstances change over time, so the agreement should reflect current plans for exit and succession.
• Ignoring VAT partial exemption rules. These calculations can have a real impact on how much VAT you can reclaim.

Practical Next Steps for Dental Group Owners

1. Carry out a full tax structure review. Map out every company in the group, what each one does and where the key assets are held.
2. If you offer any taxable cosmetic or retail services, complete a VAT segmentation and partial exemption review to confirm the correct VAT position.
3. Model EBITDA and corporation tax under different situations, paying close attention to the marginal relief bands.
4. Look for group relief opportunities when you buy loss making practices and check that the seventy five per cent ownership test will continue to be met.
5. Refresh shareholder agreements and succession plans and review which parts of the group qualify for Business Property Relief.

Conclusion

Tax planning for dental groups is not only about reducing the tax bill for the current year. It is about building a structure that supports long term growth, protects the value of each site and makes future sales or succession much easier. With the right company setup, clear accounting and careful planning for VAT and capital allowances, you can achieve stronger EBITDA, a smoother sale process and a lower overall tax burden over time.

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About the Author

Neha Jain

Neha Jain is a skilled content writer with a rich background in business and financial knowledge. With a bachelor’s degree in English Literature and Psychology, Neha has honed her writing skills, furthering her expertise with the Content Writing Master Course (CWMC) at IIM SKILLS and a Content Marketing Certification from HubSpot Academy.

Working alongside our business development experts, Neha specialises in helping accountants, dentists and other healthcare professionals start, scale and sell their businesses.

Read more of Neha’s articles.

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Reviewed by:

Arun Mehra

Samera Founder & CEO

Arun, founder and CEO of Samera, is an experienced accountant and dental practice owner. He specialises in accountancy, building businesses, financial directorship, squat practices and practice management.

Follow Arun on LinkedIn.