Buying a dental practice is one of the largest financial decisions a clinician makes, and the price on the heads of terms is only a starting point. Financial due diligence is the work of testing whether the numbers, the contracts, and the regulatory position support that price, or whether they hide risks that should reduce it. This is a buyer's checklist: what to verify, and why each item moves the price you should pay or the risk you would inherit. Figures here are UK statutory positions for 2026/27, not advice on a specific deal.
Start with what is actually being sold
Goodwill, equipment, the premises (freehold or a lease), and the patient list rarely come in neat boxes. The first job is to establish exactly what transfers to you on completion, what is excluded, and what obligations come attached. Equipment that looks included may sit on hire purchase with a meaningful balance outstanding, or be leased from a third party with transfer restrictions. Ask for a full asset schedule showing current values, remaining finance terms, and any items the vendor intends to keep.
The structure of the deal then shapes everything that follows. An asset purchase lets you select the assets, claim fixed-rate goodwill relief at 6.5% a year on qualifying goodwill acquired on or after 1 April 2019 (subject to the qualifying intellectual-property condition), and claim capital allowances on plant and fixtures, while leaving the vendor's historic liabilities behind. A share purchase transfers the whole company, including any latent tax exposure or contractual baggage the accounts do not reveal, but it keeps the NHS contract inside the company so no novation is required. The right structure is fact-specific, so model both the tax and the risk before committing.
The NHS contract: UDA delivery and clawback
For any practice with NHS income, the contract is the largest single risk in the deal. NHS dentistry in England, Wales and Northern Ireland is paid in Units of Dental Activity (UDAs): a fixed annual sum for a contracted number of UDAs, with smooth monthly payments and a year-end reconciliation against actual delivery. There is no national UDA value, so the only figure that matters is the per-UDA value of the specific contract you are buying.
The reconciliation is where the money is. Deliver 96% to 100% of the contracted activity (an under-delivery of 4% or less) and the shortfall is carried forward into next year's requirements, so you take on extra workload rather than a cash penalty. Deliver below 96% and the commissioner recovers the overpayment for the activity not delivered: that is clawback, and it hits cash. Over-delivery may be paid up to a discretionary tolerance (commonly 102%, and higher under specific programmes), but it is never guaranteed, so do not bank it. Separate the two clearly in your model: clawback is an accrued liability that drains cash, while a carry-forward is a heavier delivery target on the same money next year.
Verify at least three years of UDA delivery, any clawback already returned and why, and whether the underlying cause (a clinician vacancy, recruitment difficulty, or a contract at risk of reduction) has actually been resolved. Note too that on an asset sale the contract transfers only by novation with commissioner consent, and some commissioners treat the sale as a trigger to renegotiate the per-UDA value downward. Our explainer on transferring an NHS contract on sale walks through the consent mechanics. Price the deal on the contract as it stands today, not on assumed reform upside.
Goodwill and the basis of the valuation
Dental goodwill is normally valued on normalised EBITDA multiplied by a market multiple, and goodwill is typically 60% to 80% of the total price with tangible assets making up the rest. The two questions to interrogate are: is the EBITDA genuinely normalised, and is the multiple defensible for this practice?
Normalisation strips out owner-specific and one-off items so the earnings figure reflects what the business produces in the hands of any reasonable owner: add back excessive or below-market owner remuneration, remove personal costs run through the business, adjust associate splits to market, and exclude exceptional or non-recurring income and costs. A valuation built on un-normalised earnings, or on an aggressive multiple borrowed from a stronger practice, inflates the price. The multiple itself should reflect the income mix and location: NHS-heavy single-handed practices in lower-demand areas sit at the bottom of the range, mixed multi-surgery practices in the middle, and private-focused high-demand practices at the top. Treat the multiple as a range, never a single number. For the mechanics, see EBITDA normalisation.
Associate status and IR35
A practice's value usually depends on its clinicians, so the associate arrangements need close attention on two fronts. The first is commercial dependency: notice periods, restrictive covenants, fee splits, and whether the people who generate the income intend to stay. Revenue concentration above roughly 30% on a single clinician is a key-person risk to price in.
The second is tax status. A dental associate is normally self-employed, but status turns on the substance of the working arrangement, not the label on the contract. HMRC weighs control, personal service and substitution, mutuality of obligation, financial risk, and integration. The BDA model agreement supports self-employed status as evidence, but it does not guarantee it, and a rostered, practice-supplied, no-autonomy arrangement carries genuine status risk. If an associate were recharacterised as an employee, the practice could face back PAYE and employer National Insurance, so review the agreements and how they operate in practice. Where an associate works through a limited company on NHS engagements, the off-payroll rules apply: since 6 April 2021 a medium or large client (most NHS practices and groups) determines IR35 status and issues a Status Determination Statement. Our IR35 guide for dental associates covers where that liability sits.
Fixtures, the s.198 election and the price split
How the purchase price is split between goodwill, fixtures and other assets has a direct tax consequence, and one item is routinely lost through inattention. On a purchase that includes fixtures within the premises (integral features such as wiring, water, heating and ventilation, plus surgery fittings), a buyer's capital-allowances claim depends on a joint CAA 2001 s.198 election with the seller to fix the value attributed to those fixtures. The election must be made within two years of the transaction, and the seller must have pooled the fixtures (the fixed-value and pooling conditions in s.187A). Miss the deadline and the buyer's fixtures allowances are lost permanently.
There is a built-in tension to negotiate: the buyer wants a high election value to maximise future writing-down allowances, while the seller wants a low one to limit a balancing charge on disposal. Settle the figure in the sale agreement rather than leaving it open. Bear in mind the main-rate writing-down allowance fell from 18% to 14% from April 2026 (FA 2026 s.28), while the special-rate pool that holds integral features stays at 6%, so the value of getting the split right has if anything risen. See our note on the s.198 fixtures election.
Premises, lease and VAT
Where the deal includes a leasehold, read the lease for upcoming rent reviews, break clauses, repairing obligations and assignment terms, all of which affect your future cost base and flexibility. Where it includes a freehold, factor in Stamp Duty Land Tax on the property element and ask whether the seller has exercised an option to tax the premises, because that determines whether VAT is charged on the property and how it is recovered.
VAT on the practice itself is usually straightforward but worth confirming. The supply of dental care and dental prostheses by registered professionals is exempt under VATA 1994 Schedule 9 Group 7, whether NHS or private. Purely cosmetic treatment with no therapeutic purpose (for example cosmetic facial aesthetics or tooth whitening) is standard-rated, so a practice with a meaningful cosmetic book may be VAT-registered and partially exempt. The registration threshold for taxable (non-exempt) turnover is £90,000. Check the VAT history, any partial-exemption position, and whether a Capital Goods Scheme adjustment is in train on a recent refurbishment or freehold purchase.
Normalised earnings, cost structure and working capital
Test the cost base against sensible benchmarks for a practice of similar size and mix. Staff costs including associates commonly run at 50% to 60% of turnover, and materially higher figures suggest overstaffing or above-market pay. Laboratory costs are typically 8% to 12% of private revenue, and equipment finance and hire-purchase commitments are worth tracking as a percentage of turnover to spot recent heavy investment or over-leveraged purchasing.
Then look past reported profit to cash. Working capital is the question of who owes what and whether the business still has enough cash once debtors, creditors and any clawback provision are accounted for. A practice can report a healthy profit and still be tight on cash if it carries a clawback liability, large lab creditors, or stretched supplier terms. Establish what working capital is being left in the business on completion, because that is real money you would otherwise have to fund yourself.
Regulatory position and hidden liabilities
Two regulators matter. Every practising clinician must hold General Dental Council registration, and in England the practice must be registered with the Care Quality Commission to provide regulated dental activities. Review the CQC registration and inspection history, because an adverse report can mean remedial spend and can bear on NHS contract novation. Then look for the liabilities that surface after completion: outstanding patient complaints or claims, past or ongoing HMRC enquiries, staff issues and TUPE obligations you would inherit on the team, deferred maintenance on ageing equipment or premises, and any infection-control or building-compliance gaps.
The buyer's due diligence checklist
| Area to verify | What to request | Why it moves price or risk |
|---|---|---|
| UDA delivery and clawback | Three years of delivery vs target, mid-year and year-end reconciliations, any clawback booked | Below 96% delivery means cash clawback; 96% to 100% carries forward as extra workload |
| NHS contract transfer | Current contract, per-UDA value, commissioner correspondence on novation or value | Asset sale needs novation and commissioner consent; some commissioners cut the value on sale |
| Goodwill basis | Three years of accounts plus current management accounts, normalisation workings, multiple used | Un-normalised earnings or an aggressive multiple inflate the price |
| Associate status and dependency | Associate and hygienist agreements, notice periods, covenants, revenue by clinician | Recharacterisation risk plus key-person dependency above ~30% on one clinician |
| Fixtures and price split | Asset schedule, the seller's capital-allowances pool, draft s.198 election | No s.198 election within two years forfeits the buyer's fixtures allowances |
| Premises, lease and VAT | Lease (reviews, breaks, repairs), option-to-tax status, VAT registration and partial-exemption history | Future cost base, SDLT on a freehold, and recoverability of VAT on the property |
| Cost base and working capital | Staff, lab and finance costs as a percentage of turnover, debtor and creditor ledgers | Off-benchmark costs and a cash gap reduce the earnings you are really buying |
| Regulatory and hidden liabilities | GDC and CQC records, complaints and claims log, HMRC enquiry status, staff and TUPE position | Post-completion surprises in remedial spend, tax, and inherited employment obligations |
Bringing it together
Good due diligence does not just confirm a price, it gives you the evidence to renegotiate one. A clawback provision, a thin per-UDA value, a clinician with one foot out of the door, or a missed fixtures election are all reasons to adjust the offer, restructure the deal, or build protections into the sale agreement. Run the checklist early, before a completion deadline narrows your options, and model the asset-versus-share choice on the actual facts.
If you would like this tailored to a practice you are seriously considering, get in touch. We review dental acquisitions for buyers regularly and can flag the sector-specific risks a generalist adviser may miss.