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Tax Relief When Buying A Practice

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Geoff Long, leading Dental Accountant, explains how Dentists can obtain tax relief when buying a practice.

If you are an ambitious Dentist wanting to hit the big time, one good way of
getting there can be by a programme of Practice acquisitions rather than waiting for a start-up squat to grow organically. Practice acquisitions are usually a good idea where some or more of the following factors are present:

  • The target Practice is likely to fit in well with your other current activities, so as to give you “economies of scale”.
  • You can see ways in which you can make the Practice more profitable than the current Dentist.
  • You have surplus funds that are currently returning an inadequate income where they are.
  • You want to become the dominant player in a town or PCT area and the best way to do this is by acquiring your competition.

Tax Relief When Buying A Practice 

On the other hand, there are a lot of bad reasons for acquiring a business, one very common such reason being the vanity of presiding over a high turnover organisation. Some may argue that this is what some corporates have done. It is surprising how often this is the true underlying motive behind someone buying a big Practice. When it is acquired, it can be run at a loss for a long time for the same reason – definitely bad for your business’s health.

Tax-Efficient Financing

It is surprising how often a Dentist lands himself in a tax charge before he has even bought the new Practice. The way this usually comes about is this. In order to provide the funds to buy the Practice, a mixture of bank borrowing and existing funds is used. Sometimes those funds cannot be taken out of where they are (e.g. in a Limited Company Bank Account) without triggering a tax charge. If say you have a Dental Practice run through a company at present and you want to tap into some of the value to provide the “equity” in your new Practice purchase, a thoughtless person would simply take the money out of that company by way of dividend.

The problem is, to provide you with your £100k deposit (say) you need to take out a net dividend of £135k from your Company, paying £35k higher-rate tax to the Chancellor (assuming you are already a higher-rate taxpayer) and then using the £100k you have left to put into the new business.

This is just one example of how you can finance your purchase in a tax efficient way.

What are the alternatives? Well a straight forward alternative would be simply to buy the new business within your current company structure. Unfortunately though, there are a number of reasons why this might be a bad idea.

A reason why you may not want to buy the new Practice through the vehicle of your existing Company is if you are concerned to ring fence the different Practice, perhaps because one or more of them are risky. You don’t want one Practice going bust to bring all the others down.

While the above problem may be soluble by setting up a group structure, where the different Practices are run in different subsidiaries of a holding company, this in turn has disadvantage and so on and so on.

Finally, using a Limited Company as your business vehicle going forward is very unlikely to be the most tax efficient way of doing so. A Sole Trader structure gives you in many cases a much cheaper ongoing National Insurance cost on your own remuneration from the business. Also, the punitive “company car” regime doesn’t apply to Sole Traders.

Tapping into your Pension Fund

What a lot of Dentists don’t realise is that there is a potentially huge untapped source of business finance or the acquisition of new freehold Practices in the form of personal pension schemes.

What I have been talking about in the above is just a selection of the tax planning points that tend to be important in a lot of Practice purchases. Every case is different and you should at the very least have a Dental Accountant on board at a very early stage in the negotiations.

Geoff Long Dental Accountant is a specialist based in Hertfordshire. He advises on a wide range of dental tax issues and regularly writes for the dental press. Geoff has over 20 years’ experience with dentists accounts and is recognised for his proactive approach to dental taxation and business problems.

You can contact Geoff on 01438 722224 or email office@dentax.biz

Geoff LongTax Relief When Buying A Practice

Action Summary For Dentists

Leading dental accountant Geoff Long, has some valuable advice for practice owners on retaining ‘star’ performers post Brexit. Here he talks to The Probe

 

Geoff Long Dental Accountant is a specialist based in Hertfordshire. He advises on a wide range of dental tax issues and regularly writes for the dental press. Geoff has over 20 years’ experience with dentists accounts and is recognised for his proactive approach to dental taxation and business problems.

You can contact Geoff on 01438 722224 or email office@dentax.biz

Geoff LongAction Summary For Dentists

Should You Buy Your Own Practice

Leading Dental Accountant Geoff Long looks at the options open to young Dentists looking to go it alone, post Brexit.

Should You Buy Your Own Practice?

Over the past five years we have seen the price of Dental Practices sky rocket with Dental Corporates snapping up the larger Practices and the availability of cheap finance for Dentists. The problem is compounded by the fact that the best small viable Dental Practices rarely come onto the market. If they do they are often sold by word of mouth, leaving the Dental Press to sell the rest – which often turns out to be a selection of overpriced white elephants.

Setting Up From Scratch


Squatting is probably the cheapest way of setting up. A single surgery practice can be started from a budget as cheap as £100,000. This includes second hand equipment, units, marketing and working capital. If something a little better is sought, then £130,000 to £150,000 will buy you a state of the art Squat more akin to attracting the sought after independent patients. The cost of the squat is broadly speaking tax deductible – a major advantage compared to buying a freehold or dental goodwill and a friendly principal may allow you to bridge out your existing Associate job (spend 2 days at his practice and 2 days at your own) to ease your cash flow.

The problem with a squat is how long it will take you to start to break even. In our experience this is usually about 7 or 8 months. To set up a private squat you will need some form of reputation locally, either as a specialist or a number of associate positions under your belt. During that period you will need nerves of steel – and a clued up dental bank manager – as each month more money goes out than comes in!

As dental accountants we have never had a squat that has failed; a very different picture for existing practices purchased. A squat has a large inherent capital profit when, at the end of the day, you sell.

Don’t forget a squat is your opportunity to set up exactly how you want to, with staff chosen and trained by you. A chance to practice your own unique brand of personal patient care to your following of like-minded appreciative patients.

OK that’s fine for some dentists, but squatting is not everyone’s cup of tea. So what are the alternatives?

Buying A Small Practice

This suits some dentists as there is a patient list from day one. The small size means you can to some extent, do your own thing and usually they are not too expensive.

The downside is you may inherit problems with the existing patients, existing staff, existing equipment or the former Principal’s reputation. Another problem is insufficient patients for your needs. It should be remembered that a practice that has only ever been part time is unlikely to support a full time dentist in the short to medium term.

Buying A Multi Chair Practice

The attraction here is high profits – may be – in a stable environment with plenty of patients. Another plus is this sort of practice will have more negotiating power with PCTs than say, a one or two chair practice with a smaller pool of NHS patients.

The downside? Cost. Multi – chair practices can be quite expensive, especially the goodwill values. Are you up to all the responsibility? Particularly managing the existing staff and associates who may well be older and more experienced than you! The associates may take a dislike to you and leave; this could be a very difficult situation to handle.

Often joining as an “Associate with a view” to buying in is an ideal compromise, because you try before you buy, have continuity with the patients and you know how the practice runs. Sometimes you can negotiate a small reduction in price on this type of practice, although haggling can prove awkward in this closed environment.

Going Into Partnership

Tricky one! Buying a share in a partnership practice is a step into the unknown. You have the question of compatibility with the existing partners. You may find it difficult to implement changes in the practice, depending upon the attitude of the other dentists. In addition, the new partner is often labelled as the junior partner, particularly if he is younger than the other dentists, making change even more difficult.

A useful question to ask here is whether the other Partners want you solely for your money?

The advantages are you have an existing book to work and established practice systems and protocols and it is often easier to take a career break if the need arises. These are useful if you are a little unsure of things.

The other advantage is they are often cheap to buy into because no-one else is interested!

Geoff Long Dental Accountant is a specialist based in Hertfordshire. He advises on a wide range of dental tax issues and regularly writes for the dental press. Geoff has over 15 years’ experience with Dentist’s accounts and is recognised for his proactive approach to dental taxation and business problems.

You can contact Geoff on 01438 722224 or email office@dentax.biz

Geoff LongShould You Buy Your Own Practice

Advice To Young Dentists

When visiting Dental Practices these days, part of the conversation is inevitably taken up discussing how the Practice gross can be increased and with the limitations imposed by the new Dental Contract the conversation soon turns to selling Private Dentistry.

Geoff Long Dental Accountant gives some timely advice on selling.

Learning to list plan and communicate is one of the hardest tasks for the young Dentist. The approach to selling is usually along the following lines:

The Wrong Way

Listen? Get the radio on, that drowns out any Patient conversation and allows you to work faster.

  • Plan? If I diagnose anything I might have to do something about it! I might hurt the patient. That would blow my popularity.
  • Communicate? If I keep the radio going I can get the patient in and out quickly. If I can see 40 a day everyone is happy and it is pretty easy money.

The Right Way


Turn the radio off.

  1. Arrange the seating so that it allows you to maintain comfortable eye contact with your Patient.
  2. Have your questions ready so that by asking questions you can get the information you want from the Patient. Your questionnaire should include questions to ascertain the:
  • Needs of Patients
  • Wants
  • Desires
  • Attitude and Patient knowledge.

Private Dentistry

In the NHS the Patient has a simple choice. This is my treatment plan, take it or leave it!

In any alternative the Dentist has to come to terms with the tricky issue of selling and a realisation that Patients will always pay for the best quality they can afford as long as a choice is given and quality perceived–just think of the type of car you drive!

If Dental care has to be sold in the current climate then sales training would be sensible. Good selling is based upon total honesty; bad selling will rarely allow the Dentist a second chance. Most Dentists decide that their Patients cannot afford what they have to sell and will not offer the best clinical solution or say what it costs. A growing overdraft is the symptom of this malaise. You just have to ask a simple question:

“Would you like to buy my solution to your Dental problem?”

They came to you to be asked this question so the answer is likely to be “Yes!”

The next question they will ask is cost. Practice answering this in front of the mirror. “I am too frightened to tell you”. “Have it for free” and “Don’t worry about the cost, I will pay you!” Once you have got this out of your system try reading from your price list then sit down. The Patient might just say “Yes!”

Geoff Long Dental Accountant is a specialist based in Hertfordshire. He advises on a wide range of dental tax issues and regularly writes for the dental press. Geoff has over 20 years’ experience with dentists accounts and is recognised for his proactive approach to dental taxation and business problems.

You can contact Geoff on 01438 722224 or email office@dentax.biz

Geoff LongAdvice To Young Dentists