Taxes for Dental Groups Explained: Structure, EBITDA, Group Relief and Succession Planning

Running a dental group is a fundamentally different challenge from owning a single practice. The tax picture is more complex, the compliance obligations are heavier, and there are more areas where HMRC looks closely. At the same time, the planning opportunities available to groups are considerably greater than those available to single-site owners.

What this article covers

• Group structures and why the holding company model tends to work best.
• EBITDA: what it is, why it matters for day-to-day management, and how to improve it.
• Management charges and transfer pricing between group entities.
• Group relief: offsetting losses in one company against profits in another.
• VAT across multiple sites, capital allowances coordination, and succession.

What dental group accounts actually look like when they arrive

Natasha Gnanapragasam, Director of Operations, Accountancy and Tax at Samera, has reviewed group accounts from dental practices across the UK. Her assessment of what she finds is direct:

“All the groups are a mess. None of the groups I have ever seen, when they came to us, had their accounts in good shape. It was always a mess. So we do it properly once they’re with us. But that’s the reality of what we find. Group accounting is complex enough that without a specialist handling it from the beginning, it rarely gets done correctly.”

Natasha Gnanapragasam
Director of Operations

Group structures and why they matter for tax

The holding company model

Most dental groups that have been set up well use a holding company with trading subsidiaries beneath it. The parent company owns the shares in several trading entities, each running one or more practice sites. This model tends to work best for several reasons:

• Cash can be moved to the holding company through dividends and reinvested or extracted more efficiently.
• Selling one practice means selling that subsidiary rather than restructuring the entire group.
• A problem at one site is less likely to affect the others when they sit in separate legal entities.
• Banks, investors, and buyers generally find a clear holding structure easier to work with.

Some groups instead run as a single trading company owning several sites, which is simpler day to day but leaves every site’s assets exposed if problems arise at any one location. Others rely on a mix of employed dentists and self-employed associates without a formal group structure at all, which works at a small scale but creates contract and payroll complexity as the group grows. For most groups beyond two or three sites, the holding company model’s risk separation and sale flexibility outweigh the simplicity of the alternatives.

Where HMRC looks closely in dental groups

VAT across all sites. Clinical work is exempt; cosmetic and retail services are generally taxable. Groups with multiple sites must keep these income streams clearly separated at every location, not just at group level – a single site blending exempt and taxable income without proper records can distort the whole group’s partial exemption calculation, not just its own figures.

Employment status of associates. HMRC looks at the actual working relationship, not the contract label – control, fixed hours, and whether a genuine substitute is allowed all matter. Because most groups use one standard contract across every site, a single flawed clause can create PAYE and NI exposure at every location at once, not just one.

Intercompany transactions. Management fees, internal loans, and service charges must be commercial, documented, and priced at arm’s length. HMRC doesn’t need to prove a charge is unreasonable to challenge it – missing documentation alone is enough to create a problem, which is why the paperwork behind every intercompany arrangement matters as much as the pricing itself.

Corporation Tax for dental groups

Each company in the group pays Corporation Tax on its own taxable profits, calculated separately even where a holding company structure links them. The UK’s tiered rate structure means smaller companies benefit from a lower rate, with a higher rate applying above a certain profit threshold and marginal relief in between – check current rates and thresholds on gov.uk, as these are reviewed with each Budget.

This has a practical consequence for groups specifically: profits sitting in several smaller trading subsidiaries can be taxed differently than the same total profit concentrated in one larger company, depending on where the thresholds fall. How profits are distributed across the group – and whether they’re retained, moved to the holding company as dividends, or extracted personally – is worth reviewing with your accountant as the group grows, rather than assuming the structure that worked at two sites still works at ten.

Corporation Tax rates: gov.uk

EBITDA: what it is and why it matters before any sale

EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortisation. It is the figure buyers, lenders, and investors use when valuing a dental group. It strips out financing costs, depreciation, and non-cash entries to show the underlying trading performance of the business.

A clear, consistently calculated, and well-documented EBITDA figure also makes due diligence considerably faster once a sale process starts – buyers and their advisers spend less time querying the numbers and more time negotiating on them.

Natasha on the most common reason an EBITDA figure turns out to be unreliable:

“When they calculate EBITDA, different people might have different calculation methods. So we need to revisit that and ensure whether they have excluded or included the proper elements. That’s what we find, the calculation method hasn’t been consistent or correct. Before a sale or any valuation conversation, we go back through it and verify every line.”

Natasha Gnanapragasam
Director of Operations

Improving EBITDA practically

• Centralise finance, HR, and purchasing across the group to benefit from economies of scale.
• Standardise associate contracts so pay drift across sites is managed consistently.
• Improve chair utilisation and case acceptance rates.
• Grow higher-margin private treatment streams while monitoring the VAT position on cosmetic work.
• Negotiate group-wide lab and supplier contracts using combined purchasing volumes.
• Remove genuine one-off costs from adjusted EBITDA so the figure reflects ongoing trading performance.

Management charges and transfer pricing between group entities

Most dental groups have a holding company or central services entity charging the trading subsidiaries for finance, HR, marketing, IT, or management oversight. Done correctly this is legitimate and often tax-efficient. The documentation around how those charges are set is what HMRC scrutinises.

The arm’s length principle

Transactions between connected companies must be priced as if between two unconnected parties negotiating commercially. The management fee must reflect what an independent third party would charge for the same services.

Where groups fall down

Natasha on what the actual problem almost always is:

“Intercompany management charges, that’s one that’s not widely used correctly. The documentation is almost always missing. There’s a charge happening between entities, but there’s no written agreement, no basis of calculation. HMRC doesn’t need to find the amount unreasonable to create a problem, they just need to show the records don’t exist to support it.”

Natasha Gnanapragasam
Director of Operations

What the documentation needs to include: a written intercompany agreement between the entities, a clear statement of what services are being provided and how the fee is calculated, payment terms, and evidence of the underlying costs. Review it at least annually. VAT applies to management charges between non-grouped entities.

Group relief and loss offsetting

Group relief allows a company in a qualifying group to surrender its current year trading losses to another company in the same group. To qualify, companies must meet the 75% ownership test: one company must own at least 75% of another, or both must be 75% owned by the same parent. Natasha on what proper allocation of losses actually requires:

“Group relief comes into play when one entity in the group has made a loss. It is really important that you allocate the losses properly. There is a specific rule that you need to apply in such cases. We look into that carefully and do it properly, because getting the allocation wrong means either losing the relief or creating a compliance issue.”

Natasha Gnanapragasam
Director of Operations

• Use losses from a new or struggling practice to offset profits in established profitable sites.
• Plan major refurbishments so related costs and losses fall in the same period as group profits.
• Check the 75% ownership test holds throughout the relevant accounting period after any acquisition.

Keep clear records of exactly how each loss surrender was calculated and agreed between the companies involved – the same documentation discipline that applies to management charges applies here.

Group relief for Corporation Tax and VAT grouping are entirely separate regimes, despite the shared terminology – qualifying for one says nothing about your position under the other, and each needs its own separate assessment.

Group relief: HMRC guidance

VAT across multiple sites

The basic VAT position is the same as for a single practice, but managing it across multiple sites adds complexity that single-site owners do not face.

• Mixed supplies across several locations can create partial exemption positions that need to be calculated for the group as a whole.
• VAT grouping can simplify intercompany supply arrangements but must be weighed against the partial exemption implications.
• Management fees between non-grouped entities may create VAT obligations.
• Clinical notes and separate invoices for cosmetic work must be maintained at every site.

Capital allowances across a group

The AIA operates at individual company level. Each entity in the group has its own limit rather than sharing one across the whole group. Coordinate major equipment purchases across all companies so each entity’s AIA is used efficiently. Only the company that owns an asset can claim the allowance on it.

Capital allowances: gov.uk

Construction costs and certain qualifying building improvements may also be eligible for the Structures and Buildings Allowance, a separate relief from the AIA that covers non-residential buildings rather than plant and machinery. This is particularly relevant for groups fitting out new sites or carrying out significant refurbishment work – check whether your specific costs qualify before assuming they fall under AIA alone.

Structures and Buildings Allowance: gov.uk

Succession and Inheritance Tax

Succession is considerably more complicated for a multi-site group than a single practice – shares are often held across founders, senior managers, and sometimes outside investors, and without clear planning in place, a death, illness, or retirement can quickly become disruptive to both the people involved and the value of the business.

Business Property Relief can provide full Inheritance Tax relief on qualifying business assets, and most actively trading dental companies qualify. Relief can be lost, however, for parts of the group that hold investment property or shares in non-trading companies – worth checking specifically where the group holds any assets beyond the trading practices themselves.

A properly drafted and current shareholders agreement is the foundation of group succession planning. It should address what happens on death, incapacity, or retirement, including pre-emption rights, how the business will be valued, and the transfer process. Beyond the agreement itself, groups also use staged share gifting to manage Inheritance Tax exposure over time, management buy-outs or phased exits to preserve continuity, and trusts or wills to ensure shares pass to the right people with minimal disruption.

Business Property Relief: gov.uk

The structure only works if the numbers behind it are right

Everything covered here – the holding company model, EBITDA, management charges, group relief, VAT, and succession – comes back to the same underlying requirement: a group structure only delivers its advantages when the accounting and documentation behind it are done properly, not assumed to be fine because the structure itself looks right on paper. An unreliable EBITDA figure, an undocumented management charge, or a shareholders agreement nobody’s updated in years can each undo value the structure was supposed to protect.

None of this gets easier by waiting. Group accounting complexity grows with every site you add, and the groups that get this right are the ones reviewing it continuously, not scrambling to fix it before a sale or a succession event forces the issue. Use this article as your starting point, then speak to a specialist who works with dental groups specifically, so the structure you’ve built is actually supported by the records behind it.

Taxes for Dental Groups: FAQs

Glossary

• Holding company: The parent company in a group structure that owns shares in several trading subsidiaries, each typically running one or more practice sites.
• EBITDA: Earnings Before Interest, Tax, Depreciation, and Amortisation – the figure buyers, lenders, and investors use to value a dental group, since it strips out financing and non-cash entries to show underlying trading performance.
• Arm’s length principle: The requirement that transactions between connected companies, such as management charges, are priced as if negotiated between two unconnected parties.
• Group relief: The mechanism allowing a company in a qualifying group to surrender its trading losses to another group company, offsetting the overall tax bill.
• 75% ownership test: The qualifying condition for group relief – one company must own at least 75% of another, or both must be 75% owned by the same parent.
• Transfer pricing: The practice of setting prices for transactions between connected companies, which must reflect what independent parties would charge to satisfy HMRC’s arm’s-length requirement.
• Structures and Buildings Allowance (SBA): A capital allowance separate from the AIA, covering non-residential buildings and qualifying construction or improvement costs.
• Business Property Relief (BPR): Relief that can provide full exemption from Inheritance Tax on qualifying business assets, generally available to actively trading companies.