Taxes for Dental Practice Owners

Running a dental practice means managing patients, staff, equipment and, on top of that, a long list of tax rules. This guide helps practice owners understand the four main tax areas you need to know about: Corporation Tax, VAT and the difference between exempt and taxable services, Capital Gains Tax and Stamp Duty Land Tax when buying or selling property or assets, and Capital Allowances on equipment and refurbishments. 

Corporation Tax

What is Corporation Tax and Who Pays it?

If your dental practice operates as a limited company, whether it is a single site or part of a larger group, the company itself pays Corporation Tax on its taxable profits. These profits include trading income from clinical work after allowable expenses, rental income from rooms you let out, and any gains you make when selling assets.

Current Corporation Tax rates

The basic structure in the UK is as follows:

• Small profits rate (profits up to £50,000): 19%. 
• Main rate (profits over £250,000): 25%. 
• Profits between £50,000 and £250,000: marginal relief gives a tapered rate between 19% and 25%.

How Corporation Tax influences practice decisions

Paying clinical staff and directors.

Salaries and employer pension contributions count as allowable business expenses, which means they reduce the company profits that are taxed. Pension contributions can be a smart way to lower company profits while also giving the individual personal tax relief.

Dividends compared with salary.

Many practice owners take a small salary and then draw the rest as dividends. Dividends do not reduce company profits for tax purposes, but they can still be efficient for personal tax planning when combined with employer pension contributions. It is always worth comparing both the company tax impact and the personal tax impact before choosing a mix.

Timing of spending.

Buying equipment or carrying out work that qualifies for capital allowances in a certain accounting period may change the profit shown for that year. This can help smooth tax bills and support cash flow planning.

Key compliance points

Submit the company tax return, also known as the CT600, on time and make sure any Corporation Tax due is paid by the deadline. Keep proper digital records as required under Making Tax Digital. Missing deadlines leads to penalties and interest, so staying organised is essential.

Value-Added Tax (why dentists have a special VAT position)

The Basic Rule is that Most Routine Dental Treatment is VAT Exempt

Dental services that are carried out by a registered dental professional and are mainly for protecting, maintaining or restoring a patient’s health are generally exempt from value-added tax. This usually covers NHS work and most private treatments that focus on genuine oral health needs.

When dental services become VATable

Purely cosmetic procedures, where there is no medical or health purpose, are usually charged at the standard rate of VAT. HMRC does allow some flexibility. If a cosmetic element is part of a wider treatment that is mainly for health reasons, it may still be treated as exempt. It depends on the exact facts of the case.

Supplies that are not health related, such as selling whitening kits, retail oral care products, non clinical training courses or consultancy services to other practices, are normally treated as standard rated VAT supplies.

Mixed Supplies and Partial Exemption

Many practices provide a blend of exempt and taxable services. When a business has both, it becomes partially exempt. This means it cannot automatically claim back all input VAT on its purchases. In these situations you must use either the standard partial exemption method, which applies a simple percentage calculation, or a special method that you agree with HMRC. This is one of the most complicated VAT areas for dental practices, so precise records and an approved method are vital to prevent expensive mistakes.

VAT Registration Threshold and What it Means

Since April 2024 the VAT registration threshold has been £90,000 in any rolling twelve month period. If the value of your taxable sales passes this limit, you must register for VAT. Some practices with mixed income choose to register voluntarily because it allows them to reclaim input VAT on taxable costs. However, this also brings extra admin and can increase prices for patients who receive services that are not exempt.

Practical VAT Tips for Dental Practice Owners

• Keep clear records that separate exempt sales from taxable ones. Your accounting and practice management software should help with this.
• If you offer retail products or cosmetic only treatments, keep an eye on how these sales contribute to your taxable turnover and how close you are to the VAT threshold.
• Before setting up management fees or other internal charges between a practice and an associated company, get specialist VAT guidance so you do not trigger unexpected VAT liabilities.

Capital Gains Tax (CGT) and SDLT

When Capital Gains Tax Applies

Capital Gains Tax, often called CGT, can arise when you sell certain parts of your dental business. It may apply when you sell goodwill or the practice as a whole in an asset sale, when you sell shares in the company in a share sale, or when you sell practice property. The rules differ depending on whether the property is owned personally or within a company.

Choosing between an asset sale and a share sale depends on tax, the buyer’s preference and how responsibilities move from seller to buyer. A share sale usually means the buyer takes on existing contracts and liabilities. An asset sale allows the buyer to choose which assets and liabilities they want. The tax outcome is also different. Selling shares normally leads to CGT for the individual shareholder. Selling assets inside a company creates tax charges for the company itself and may create further tax when the money is taken out by the owners.

Recent CGT Rate Changes and Available Reliefs

Capital Gains Tax rules have changed several times since October 2024, with further changes taking effect in April 2025 and April 2026.

For disposals made between 30 October 2024 and 5 April 2025, the main CGT rates on non-residential gains are:

• 18% for basic-rate taxpayers
• 24% for higher and additional-rate taxpayers

From 6 April 2025, the structure changes again. Most gains for individuals (including gains on shares in a dental practice company) are taxed at a single flat rate of 18%, regardless of income level. Only certain specialised gains, such as carried interest, continue to be taxed at a higher 32% rate.

Business Asset Disposal Relief (BADR)

BADR remains extremely valuable for dental practice owners selling shares or goodwill. The lifetime limit is still £1 million of qualifying gains per individual.

However, the rate is now scheduled to increase:

• 10% for qualifying disposals made on or before 5 April 2025
• 14% for disposals from 6 April 2025
• 18% for disposals from 6 April 2026

Because these rate changes can materially affect the tax payable on a sale, timing your disposal is important. You must also meet HMRC’s qualifying conditions – such as holding the shares for the required period and operating a trading company – to claim BADR.

Stamp Duty Land Tax When Buying Practice Property

Stamp Duty Land Tax, or SDLT, applies when you buy freehold or leasehold commercial premises. For non residential and mixed use property, the tax is charged in slices:

• 0% on the first £150,000
• 2% on the portion between £150,001 and £250,000
• 5% on anything above £250,000.

Examples of the bands and calculations are available on the official government site. If your practice owns property and you want to move it between personal ownership and company ownership, model the SDLT and stamp duty costs carefully before acting.

Tax Planning When Selling a Dental Practice

• Decide early whether the sale will be structured as an asset sale or a share sale, as it affects CGT, Corporation Tax and possibly National Insurance for owners.
• Think about any pre sale extraction of funds, such as dividends or pension contributions, but take care because withdrawing money shortly before a sale can lead to unnecessary tax if not planned properly.
• If you are using a holding company or a group structure, make sure it is arranged in a way that helps manage sale proceeds and makes use of any available group reliefs. Always seek specialist tax advice before agreeing the final sale terms.

Capital Allowances

What are Capital Allowances?

Capital allowances give you the ability to claim tax relief on the cost of certain qualifying capital items, often called plant and machinery. For dental practices, this is the main way to get tax relief on high value equipment such as dental chairs, x ray machines, scanners and some types of fittings. By claiming capital allowances, you reduce your taxable profits and lower the overall tax bill for the practice.

Annual Investment Allowance (AIA) & other key allowances

Annual Investment Allowance, known as AIA, allows you to claim 100% tax relief on qualifying plant and machinery up to the AIA limit within your accounting period. From 1 April 2023 the AIA has been set at £1 million each year, although it is always wise to check the current rules as governments can change the limit. This relief allows dental practices to deduct the full cost of major equipment in the same year it is bought.

Writing Down Allowances, known as WDA, apply when your spending goes above the AIA limit or when the items fall into specific categories. Instead of claiming the full cost in one go, WDAs spread the relief over several years at fixed rates.

First Year Allowances and full expensing are also available for qualifying companies. These offer generous upfront reliefs on certain purchases, but the rules depend on the type of asset and the timing of the investment. Always check whether your planned purchase meets the criteria before relying on these reliefs.

What Counts as Qualifying Expenditure?

Items such as dental chairs, CAD CAM scanners, x ray machines, laboratory equipment, practice IT systems and certain fitting costs usually qualify as plant and machinery. Land is not eligible. Refurbishment work can be a mix, with fixtures often qualifying and structural work not qualifying, so it is important to split the costs correctly.

Practical AIA Strategies for Dental Practices

• Plan equipment purchases carefully so you use your AIA in a year when profits are high. This can help lower the Corporation Tax bill for that particular year.
• Compare the benefits of leasing and buying. Leasing can help with cash flow or help you stay within AIA limits, but the tax treatment of leasing is different from buying outright, so weigh up both options.
• Keep full records for every item, including invoices, installation notes and details of any later sale or disposal. This is important because if you claimed AIA on an item and then sell it in the future, you may need to adjust your taxable profits.

Practical Tax Planning Checklist for Dental Practice Owners

1. Choose your business structure with tax in mind, whether that is sole trader, partnership or limited company. Before you incorporate, compare the tax position and the level of personal liability under each option.
2. Keep detailed and separate records for your exempt and taxable VAT supplies, your staff payroll, pension contributions, benefits, capital purchases and any disposals. Use practice management software and cloud accounting to stay organised.
3. Keep an eye on your VATable turnover as it moves towards the £90k registration threshold and work out what voluntary registration would mean for your practice.
4. Make use of the AIA where it makes sense, up to £1m of qualifying spending, and consider the timing of larger purchases before the end of your accounting year.
5. Start planning early if you intend to sell your practice or part of it. Speak to your accountant and lawyer when you are thinking about selling goodwill, shares or property. Check whether you meet the requirements for BADR and decide on the most suitable sale structure.
6. Look at pension contributions as part of your planning. Company pension payments reduce company profits and can be an efficient way for owners to take value out of the business.
7. If your practice supplies both exempt and taxable services, get specialist advice on VAT partial exemption. You may also need to consider applying for a special method with HMRC if the standard calculation does not reflect your position accurately.

Common mistakes to avoid

• Believing that every type of dental work is VAT exempt. Treatments that are cosmetic only and sales of products can be taxable, so check each service carefully.
• Keeping poor records when you provide both exempt and taxable services. This often leads to incorrect VAT claims and increases the chance of HMRC asking questions.
• Overlooking important thresholds such as the VAT registration limit or missing filing dates for Corporation Tax or VAT. Penalties can build up quickly when deadlines are missed.
• Leaving planning for a practice sale until the last minute. If you wait until a deal is almost agreed, you lose valuable opportunities for tax planning and may end up paying far more tax than necessary. 

Next Steps – a Short Action Plan

1. Arrange a VAT health check so you know which parts of your practice are exempt and which are taxable. If you sell retail products, work out whether voluntary VAT registration would benefit you.
2. Look at your capital allowance options for the current tax year, including the AIA, and plan the timing of any major purchases so you use the relief effectively.
3. If you expect to sell your practice within the next three to five years, speak to a tax adviser now. They can help you confirm whether you qualify for BADR and advise on the best structure for the sale.
4. Make sure all invoices and sales are recorded digitally and clearly marked as exempt or taxable for VAT. Keep payroll and pension records organised, and always use separate bank accounts for business and personal finances.

Dental practice owners deal with a complicated tax landscape, but there are simple and practical ways to cut tax bills, improve cash flow and avoid unpleasant surprises. Getting specialist advice at an early stage is often the smartest investment you can make. VAT rules for dentistry, the structure of a future sale, capital allowance planning and pension strategies are all areas where an accountant who understands the dental sector can make a real difference and help you save money in the long run.

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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.