Building a dental practice from scratch is one of the most rewarding and one of the most financially demanding things a dentist can do. A squat practice, opened with no patient base on day one, is a genuine business start-up, and like most start-ups it loses money before it makes any. The defining financial challenge is the ramp, the period while the patient list builds and the costs run ahead of the income, and getting through it depends on funding the cash burn and making the most of the tax position the early loss creates.

This guide focuses on exactly that: the working-capital need through the ramp, the capital allowances on the fit-out that drive the early loss, and how an unincorporated dentist can turn that loss into cash with the loss reliefs. It is the financing-and-tax companion to the decision-level question of whether to go squat at all, which we cover in our guide to squat versus buying an existing practice. The figures are illustrative and the rates are 2026/27.

What a squat practice is and why it loses money first

A squat practice is built rather than bought. The dentist finds premises, fits out the surgeries, registers with the regulator, recruits staff and opens the doors, all before a single patient is on the books. Because there is no established list and no purchased goodwill, the income starts at zero and builds, while the costs, rent, staff, equipment finance and marketing, run from day one. The arithmetic of that gap is why a squat almost always makes a trading loss in its early period.

That early loss is not a sign of failure. It is the normal shape of a start-up, and it is precisely the thing the tax system gives relief for. The skill is in funding the cash gap and capturing the relief, so the loss works for you rather than simply hurting.

The ramp: building to a viable list

The ramp is the period from opening to a viable, profitable patient base. Depending on location, marketing and whether the practice is NHS or private, this commonly takes somewhere in the region of eighteen months to three years, and recovering the start-up investment takes longer still. During the ramp the patient list grows month by month, but for a long stretch the income is below the running cost, so the practice is consuming cash.

The single most common planning error is to fund the fit-out generously and then underfund the ramp. The fit-out is visible and easy to cost. The ramp is a slow drain that is easy to underestimate, and it is where squats run into trouble. The working-capital plan has to cover the whole ramp, not an optimistic short version of it.

The cash burn: costs before the patients

Through the ramp the practice is paying out before the patients pay in. The main outflows are:

  • The deposit and the fit-out, often the largest single commitment.
  • Rent or premises costs from the start.
  • Staff wages, including nurses and reception, before the chairs are full.
  • Equipment finance repayments.
  • Marketing to build the list.
  • The owner's own living costs, which still have to be met.

Against that, the patient income builds slowly. The gap between the two is the cash burn, and it has to be funded by working capital. Our guide to working capital and overdraft finance options covers the facilities that can bridge a cash gap, though for a squat the more important point is to size the gap properly in advance.

Capital allowances on the fit-out, and why they create a loss

A large part of the early loss comes from capital allowances on the fit-out. The Annual Investment Allowance gives 100% relief on up to one million pounds of qualifying plant and machinery, which covers most surgery equipment, the chairs, X-ray units, autoclaves and compressors. Integral features in the fit-out, such as the electrical, water, heating and ventilation systems, go into the special-rate pool. For a new main-rate asset there is also a 40% first-year allowance available from 1 January 2026 as an alternative to the Annual Investment Allowance.

Because a squat fit-out is substantial and the allowances can be taken immediately, they often turn what would be a modest operating loss into a larger tax loss, which is good news for the loss reliefs below. Our guide to how the way you finance equipment changes the capital allowances is worth reading when planning the fit-out, because the funding method affects which relief you get.

Turning the loss into cash: early-trade-losses relief

This is where an unincorporated squat has a real advantage. Early-trade-losses relief, under section 72 of the Income Tax Act 2007, lets a loss made in any of the first four tax years of a trade be carried back against your general income of the three tax years before the loss year, set against the earliest year first.

For a dentist opening a squat, this is often the standout relief. Most dentists were earning, as employees, foundation dentists or self-employed associates, in the years before they opened. Early-trade-losses relief lets the opening loss reach back and offset that earlier income, reclaiming income tax already paid. That refund is genuine cash, and because it relates to earlier years it can be claimed and paid during the ramp, which is exactly when the practice most needs it.

Building the ramp cash-flow forecast

The discipline that gets a squat through the ramp is a month-by-month cash-flow forecast that runs from before opening to comfortably past break-even. The forecast lists every outflow, the deposit and fit-out, rent, staff, finance repayments, marketing and the owner's living costs, against the slowly building patient income, and shows the running cash balance month by month. The lowest point of that balance, the maximum cash deficit, is the figure the funding has to cover, with a buffer on top.

Two things make the forecast realistic. First, build the patient-income line conservatively, because squats almost always grow more slowly than the optimistic version, and running out of cash in month fourteen because the list built more slowly than hoped is a common and avoidable failure. Second, model the income net of the fact that NHS or private cash collection lags the work, so the income line in the forecast should reflect when money actually arrives. A forecast built this way turns the ramp from a leap of faith into a planned, funded period, and it is also exactly what a lender wants to see.

Funding sources for the ramp

A squat is typically funded from a combination of sources, each suited to a different part of the need:

  • A start-up or fit-out loan for the capital cost of building the practice, often from a specialist healthcare lender that understands the squat model and the ramp.
  • A working-capital facility or overdraft to bridge the operating cash gap through the ramp, covered in our guide to working capital and overdraft finance.
  • The dentist's own capital, contributed as equity, which lenders usually expect to see alongside the borrowing.
  • Asset finance on the equipment, which spreads the cost of the big-ticket items rather than funding them all up front.

The mix matters because the cheapest source is not always the right one for a given need. Long-term assets are best matched to longer-term finance, while a short operating cash gap suits a flexible facility. The funding structure should follow the shape of the forecast.

Sideways and carry-forward relief

There are two further routes for an unincorporated loss:

  • Sideways relief, under section 64, sets the trading loss against your general income of the loss year and/or the previous year. This suits a dentist who has other income in the loss year, perhaps continuing some associate work alongside building the squat.
  • Carry-forward relief, under section 83, carries an unrelieved loss forward against future profits of the same practice. Once the squat turns profitable, brought-forward losses shelter the early profits from tax.

In practice many dentists use a combination, carrying back what they can under section 72 for an immediate refund, and carrying forward the rest to shelter the first profitable years.

The cap and the commercial-basis test

Two conditions are worth knowing. First, claims that set a trading loss against your other income, which includes both early-trade-losses relief and sideways relief, are subject to a general cap on certain income tax reliefs of the greater of fifty thousand pounds or twenty-five percent of your adjusted total income for the year. Carry-forward against the same trade's own profits is not subject to this cap. Second, the trade must be carried on commercially with a view to profit for these reliefs to apply, which a genuine squat practice plainly is. For most squats the cap is not a constraint, but where the opening loss is very large it is worth checking.

Why a company squat is different

The loss reliefs above are income tax reliefs for individuals, so they are available to a sole trader or partnership, not a company. A company that opens a squat can carry a trading loss back twelve months against its own earlier profits, or carry it forward, but it has no equivalent of the section 72 three-year carry-back, and it cannot set the loss against the owner's personal income at all. That is a strong reason many squats start unincorporated, so the owner can use the opening loss against their own prior earnings, and then consider incorporating once the practice is established and profitable. Our guide to whether incorporation is still worth it covers when that later step makes sense.

NHS or private: how the ramp differs

The shape of the ramp depends heavily on whether the squat is NHS or private. An NHS squat faces the question of securing a contract in the first place, which is not guaranteed and is allocated by commissioners, but once a contract is in place the monthly contract payments give a more predictable income from the start, softening the ramp. A private squat has no contract to chase and can open as soon as it is built, but the income depends entirely on attracting fee-paying patients, so the ramp can be longer and more marketing-dependent, with income building patient by patient. Many squats are mixed. The point for planning is that the income line in the forecast, and therefore the depth and length of the cash deficit, looks quite different for an NHS-led versus a private-led squat, so the funding has to be sized to the model you are actually building.

The interaction with VAT and registration

Most of a dental squat's income is exempt from VAT, because dental care is exempt, so VAT registration is usually not an early concern. It becomes relevant only if the squat does enough standard-rated work, typically cosmetic treatment such as facial aesthetics or tooth whitening for cosmetic purposes, to approach the ninety thousand pound registration threshold on that non-exempt turnover. For most squats in the ramp, taxable turnover is well below the threshold, but a heavily cosmetic private squat should keep an eye on it. The fit-out VAT on a partly exempt practice also has its own recovery rules, which is a point to raise with the accountant when planning the fit-out, because not all of the VAT on the build may be recoverable.

The timing trap: relief lands later than the loss

The crucial practical point is that the tax relief does not fund the ramp in real time. You incur the loss as you trade, but you only quantify it when you prepare the loss year's accounts and tax return, and the carry-back refund arrives some months after that, once the claim is processed. So the relief is a valuable later injection, not a live subsidy. You still need working capital to bridge the gap between the cash going out now and the patient income and the tax refund arriving later. Treat the relief and the working capital as two separate things: the relief improves the eventual outcome, but the working capital is what keeps the doors open in the meantime.

A worked illustration

Take a dentist who spent the previous three years as a well-paid associate and then opens a squat. The fit-out generates large capital allowances, and with rent, staff and marketing running before the list has built, the practice makes a substantial trading loss in its first tax year. Using early-trade-losses relief under section 72, the dentist carries that opening loss back against their associate income of the previous three years, earliest year first, and reclaims income tax they had already paid as an associate. That refund lands during the ramp and eases the cash position. Any loss not used by the carry-back is carried forward under section 83 to shelter the first profitable years. Meanwhile, the dentist has funded the ramp itself with a working-capital facility and reserves, because the refund and the growing patient income only catch up later. The loss reliefs improved the outcome materially, but the practice survived the ramp because the cash gap was funded in advance.

Planning a squat properly

A successful squat is, more than anything, a well-planned one. Before committing, build a month-by-month cash-flow forecast for the whole ramp and fund to the low point with a buffer, structure the fit-out to make the most of the capital allowances, choose the trading structure with the loss position in mind, and plan the loss-relief claim so the carry-back refund is captured rather than missed. Our decision guide to practice acquisition financing options and the buy-in route in our guide to financing a partnership buy-in are useful comparators, because a squat is only one of several ways into practice ownership.

A specialist dental accountant earns their fee most clearly at the start-up stage, when the forecast, the structure and the loss-relief plan can be set up correctly from the outset. The early loss of a squat is a normal and reliefable part of building a practice. Funded properly and relieved properly, it is the price of admission to an asset you have created yourself.