Building a dental squat from the ground up can be one of the most rewarding yet financially demanding journeys for a dentist or healthcare entrepreneur. Whether you’re branching out from an associate role or expanding a dental group, understanding your financing options—and the associated tax implications—is critical to long-term success.
In this article, we’ll explore the main ways to finance a dental squat build, including the pros and cons of each, and the tax liabilities you should consider when planning and funding your new practice. We’ll also discuss how establishing a limited company can create opportunities for VAT recovery and improved tax efficiency—including an advanced strategy of owning the property through a VAT-registered company that rents the premises back to the dental practice.
1. Traditional Bank Loans
What it is:
A secured or unsecured loan from a commercial bank, often tailored specifically for healthcare professionals.
Pros:
- Fixed repayment terms.
- Lower interest rates compared to other lending options.
- Larger funding amounts available.
Considerations:
- Requires a strong credit profile and business plan.
- May need personal guarantees or collateral.
- Monthly repayments begin immediately, even before the practice is profitable.
Tax Implications:
- Interest paid on the loan is typically tax-deductible as a business expense.
- Capital repayments are not deductible.
2. Specialist Healthcare Lenders
What it is:
Lenders that focus on dental and medical start-ups.
Pros:
- Understand the industry’s specific cash flow cycles.
- More flexible repayment structures.
- Higher approval rates for first-time squat owners.
Considerations:
- Slightly higher interest rates than high street banks.
- Some may offer staged payments during construction or equipment fit-out.
Tax Implications:
- Similar to bank loans: interest is tax-deductible.
- Staged financing may ease cash flow pressure but should be carefully tracked for accounting purposes.
3. Asset Finance (Equipment Leasing and Hire Purchase)
What it is:
Used to fund dental chairs, cabinetry, X-rays, and IT infrastructure. The lender retains ownership until the final payment.
Pros:
- Preserves working capital.
- Fixed monthly costs.
- Allows for rapid upgrading of technology.
Considerations:
- Total cost over time may be higher than outright purchase.
- Early repayment penalties might apply.
Tax Implications:
- Lease payments are fully deductible as business expenses.
- Under hire purchase, you may be able to claim capital allowances on the equipment.
4. Business Grants or Local Funding
What it is:
Grants from government or local councils for setting up healthcare services in underserved areas.
Pros:
- Non-repayable capital.
- Encourages practices in regeneration zones.
Considerations:
- Competitive application process.
- Limited availability depending on region.
Tax Implications:
- Generally not taxable, but must be disclosed in your accounts.
- Any assets acquired with the grant may affect capital allowance claims.
5. Private Investment or Partnership Capital
What it is:
Funds raised from private investors or silent partners who take equity or a revenue share in the new practice.
Pros:
- No loan repayments required.
- Brings in additional expertise or connections.
Considerations:
- You give up a portion of ownership or control.
- Investors expect a return on capital over time.
Tax Implications:
- Investment income is not taxable to the company.
- Dividends paid to investors are not tax-deductible.
- Ensure clear shareholder or partnership agreements to avoid disputes.
6. Personal Savings or Director Loans
What it is:
Using your own funds or lending money from yourself to the company.
Pros:
- Full control.
- Avoids interest charges or external approval processes.
Considerations:
- Ties up personal capital.
- Poses personal financial risk.
Tax Implications:
- Director loans to the company can be repaid tax-free.
- Interest charged by you to the company can be claimed as a business expense, but it must be declared as income on your personal return.
7. NHS Capital Support (if applicable)
What it is:
Occasional funding or grants provided when NHS contracts are awarded to new providers.
Pros:
- Rare but possible if fulfilling specific service needs.
Considerations:
- Highly competitive and often conditional.
- Must meet strict compliance and usage requirements.
Tax Implications:
- Usually non-taxable if structured as a grant.
- Must be recorded properly and linked to capital expenditure.
8. Setting Up a Limited Company: VAT and Tax Efficiency
Why Choose a Limited Company?
Operating your dental squat through a limited company can offer several financial and operational advantages, particularly when it comes to managing VAT and corporation tax liabilities.
VAT Efficiency
While most private dental treatments are VAT exempt, VAT incurred on building costs and fit-out may still be recoverable if structured correctly:
- Mixed-practice model: If your practice offers both exempt (private dental) and taxable services (e.g. facial aesthetics, teeth whitening, hygiene plans), you may be able to reclaim a proportion of VAT.
- Establishing a limited company and VAT registration allows for VAT recovery on eligible business expenses, including professional fees, equipment, IT systems, and some building works.
- Use of a VAT group structure may help if you’re operating multiple businesses under the same umbrella.
Advanced Strategy: Property Ownership and Leaseback
One effective strategy is to set up a separate VAT-registered property company (PropCo) that builds or refurbishes the dental premises. This company then leases the space to the trading dental practice (OpCo):
- The PropCo can reclaim VAT on the construction and fit-out costs, as it charges VAT on rent to the OpCo.
- The OpCo, if partially VAT-registered due to mixed supplies, may be able to reclaim some of the input VAT on rent.
- This structure separates property risk from trading risk and can be tax efficient for long-term ownership or investment.
Always structure this carefully with your accountant and legal team to avoid unintended VAT exposure.
Corporation Tax Planning
- A limited company pays corporation tax on its profits, currently 25% for profits over £50,000.
- Capital investments (chairs, cabinetry, flooring, IT systems) can be offset through Annual Investment Allowance (AIA).
- Directors can take income via a combination of salary and dividends, often resulting in more tax-efficient personal income compared to self-employment.
Limited Liability Protection
- A company structure protects your personal assets from business liabilities.
- Useful for separating your personal finances from business debts or disputes.
Tax Planning Considerations for Squat Builds
Whether you’re building a squat as a sole trader, partnership, or limited company, it’s crucial to understand the broader tax implications:
Capital Allowances
- Most fit-out costs (e.g. flooring, surgery chairs, cabinetry) can qualify for Annual Investment Allowance (AIA), currently up to £1 million.
- Structural changes (e.g. walls, plumbing, electrical) may fall under Structures and Buildings Allowance (SBA).
VAT Considerations
- Construction of new healthcare premises may qualify for zero-rated or reduced VAT, depending on the end-use and classification of services.
- Practices registered for VAT may reclaim input VAT on eligible expenses, but care must be taken with exempt supplies.
Pre-Trading Expenses
- Expenses incurred before opening the doors (e.g. design fees, legal costs, initial marketing) can often be treated as pre-trading expenses and deducted once the practice begins trading.
Corporation Tax Planning
- Salaries paid to directors are deductible; dividends are not.
- Timing of asset purchases and income recognition can help manage taxable profits.
Business Rates
- Once fitted out, your squat will be assessed for business rates. Consider applying for small business rate relief or checking eligibility for startup incentives.
Tips for Managing Finance and Tax Risks
- Work with a specialist dental accountant early in the planning stage.
- Create a cash flow forecast that includes loan repayments, VAT staging, and seasonal income variations.
- Choose the right legal structure (Ltd company, partnership, sole trader) based on your goals.
- Plan for tax at every phase: build, pre-trade, and post-opening.
- Consider separating property ownership to enhance VAT recovery and asset protection.
Conclusion
Financing a dental squat build is a major step, but with the right strategy, it becomes a manageable and even an empowering process. Whether through traditional lending, specialist finance, leasing, or personal capital, each route has its own set of risks, rewards, and tax nuances.
Setting up a limited company—or even multiple companies for trading and property purposes—can offer a number of tax planning opportunities, including more efficient handling of VAT and corporation tax, while protecting your personal assets. When structured correctly, this can unlock significant savings and long-term benefits.
The key is to balance access to capital, cost control, and tax efficiency while ensuring your practice is built for long-term sustainability. With good planning and the right advisors on board, your dream of launching a modern, thriving dental squat can become a reality.
Always seek professional financial and legal advice tailored to your specific circumstances before committing to any funding strategy.
For more information please don’t hesitate to get in contact with us to discuss your squat practice project.
We also partner with dental finance specialists Vector Finance who will be happy to assist with the finance element of your project.