What Is a Squat Practice and How Does It Compare to Buying an Existing Dental Practice?
When you decide to own a dental practice, you face a fundamental choice: buy an existing practice with a patient list, goodwill, and established systems, or start from scratch in a new location with no patients and no track record. The second option is commonly called a squat practice, sometimes referred to as a greenfield or startup dental practice.
Both routes can work financially, but they produce very different tax profiles, capital requirements, and risk exposures. This article compares the two from a UK dental accounting perspective, using real figures and the 2025/26 tax rates. We focus on the financial and tax differences that matter most to principals and practice buyers.
If you are weighing up which path suits your situation, you should also read our practice purchase financial due diligence guide for a deeper look at the buying process.
Capital Required: Squat vs Existing Practice
Buying an Existing Dental Practice
An existing practice purchase typically involves a substantial upfront payment for goodwill. Goodwill represents the value of the patient list, reputation, location, and established revenue stream. In UK dental practice sales, goodwill typically accounts for 60-80% of the total purchase price.
For a practice generating £400,000 in annual fees with a 50% private mix, the goodwill might be valued at £250,000 to £400,000 using an EBITDA multiple of 0.8 to 1.2 times adjusted earnings. On top of goodwill, you pay for the freehold or leasehold property, fixtures and equipment, and working capital.
Total capital requirement for a typical NHS/private mixed practice could be £500,000 to £1.2 million. Bank lending is available, but you need a deposit of 20-30% of the total, plus arrangement fees and professional costs.
Starting a Squat Practice
A squat practice avoids goodwill entirely. Your capital goes into leasehold improvements, dental chairs, X-ray equipment, compressors, suction units, IT systems, and fit-out costs. For a two-surgery start-up, you might spend £80,000 to £150,000 on equipment and £50,000 to £100,000 on fit-out depending on location and specification.
You also need working capital to cover rent, staff salaries, and your own drawings for 6 to 12 months while you build a patient list. A realistic total capital requirement for a squat practice is £150,000 to £350,000, significantly less than buying an established practice.
However, the lower capital requirement comes with higher risk. You have no guaranteed income stream. Patient acquisition is slow, and NHS contract values (UDAs) are hard to obtain in many areas. The NHS contract essentials guide explains the challenges of securing new UDA allocations.
Tax Treatment of Goodwill: The Key Difference
Goodwill on an Existing Practice Purchase
When you buy an existing practice through a limited company, the goodwill you acquire is an intangible fixed asset. Under the Finance Act 2019, tax relief on goodwill acquired after 1 April 2019 is available at 6.5% per year on a straight-line basis. This means if you pay £300,000 for goodwill, you get £19,500 of tax relief each year for approximately 15.4 years.
Goodwill purchased between 8 July 2015 and 31 March 2019 generally attracts no tax relief at all. This is a trap many buyers from that period still face.
If you buy the practice as a sole trader or partnership, goodwill is not amortised for tax purposes. Instead, you get relief only when you sell the practice, through the capital gains computation. This is less tax-efficient during the ownership period.
Squat Practice: No Goodwill, Different Reliefs
A squat practice has no purchased goodwill. You build goodwill organically over time, and it has no tax cost base. When you eventually sell the squat practice, the goodwill you have built is subject to capital gains tax, with Business Asset Disposal Relief (BADR) at 14% for 2025/26 (rising to 18% from April 2026) on the first £1 million of gains.
The absence of purchased goodwill means you cannot claim the 6.5% annual amortisation relief. However, you can claim capital allowances on your equipment and fixtures, which often provides faster and more valuable relief.
For a squat practice, the Annual Investment Allowance (AIA) of £1,000,000 means you can deduct the full cost of most dental equipment in the year of purchase. A £40,000 dental chair, £25,000 OPG machine, and £15,000 compressor and suction system can all be written off in year one against your practice profits. This is a significant tax advantage over an existing practice purchase where much of the price is locked into non-allowable goodwill.
Our practice valuation service can help you model the tax implications of both routes before you commit.
Cash Flow and Profitability: Real Numbers
Existing Practice Cash Flow
An existing practice typically generates positive cash flow from month one. If you buy a practice with £400,000 annual fees and a 55% associate fee split, the gross profit to the principal is around £180,000. After overheads (rent, staff, lab, materials, insurance), net profit might be £80,000 to £120,000 per year.
Your loan repayments on a £600,000 borrowing at 6% over 15 years would be approximately £5,060 per month or £60,720 per year. This leaves a modest surplus for reinvestment and drawings in the early years. The key advantage is that the practice pays for itself from day one.
Squat Practice Cash Flow
A squat practice typically loses money for the first 6 to 18 months. You pay rent, staff wages, and equipment finance before you have significant patient income. Even with aggressive marketing, building a patient list to 2,000 registered patients might take 12 to 24 months.
If your monthly overheads are £15,000 (rent £3,000, staff £7,000, equipment finance £2,000, marketing £1,000, other £2,000) and you generate only £5,000 in fees in month one, you are losing £10,000 per month. Over 12 months, that is £120,000 of losses to fund from your own savings or a business loan.
Once established, a squat practice can be highly profitable because you have no goodwill amortisation charge and lower debt service costs. A mature squat practice with £300,000 fees and low overheads might net £120,000 to £150,000 per year for the principal, with no loan repayments beyond equipment finance.
Use our practice valuation calculator to compare projected returns from both routes.
VAT and Tax Considerations
VAT on Practice Purchase
When you buy an existing dental practice, the transaction is typically treated as a transfer of a going concern (TOGC) for VAT purposes. This means no VAT is charged on the sale, which avoids a cash flow problem for the buyer. However, you must meet HMRC's TOGC conditions, including continuing the same type of business.
A squat practice involves VAT on your purchases. New equipment, fit-out costs, and professional fees will include VAT at 20%. If you are VAT-registered (because your fees exceed £90,000), you can recover this input VAT. If you are not VAT-registered in the early loss-making phase, the VAT on your start-up costs becomes a real cost.
Corporation Tax and Profit Extraction
Both routes typically use a limited company structure for the practice. Corporation tax is 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief in between. The choice between a squat and existing practice affects how quickly you reach these profit thresholds.
Profit extraction strategies also differ. An existing practice with loan repayments may leave less headroom for dividends. A squat practice, once profitable, can pay dividends up to the higher rate threshold (£50,270) at 8.75% dividend tax, with the balance retained in the company for future expansion.
Our profit extraction guide covers the options in detail.
Risk Profile: Which Is Riskier?
Existing Practice Risks
Buying an existing practice carries due diligence risk. The patient list may be overstated. UDA values may be at the low end of the contract range. Staff may leave after the sale. The seller may have deferred maintenance on equipment. Goodwill valuation is subjective and can be contested by HMRC if the price seems excessive.
However, the income stream is known and proven. Bank lending is easier to obtain for an established practice because the lender can see historical accounts. The failure rate for existing practice purchases is low, provided proper financial due diligence is done.
Squat Practice Risks
Squat practice risk is substantially higher. You have no guarantee of patient numbers. NHS contract allocation is extremely competitive; many areas have no new UDAs available. If you cannot secure an NHS contract, you must rely entirely on private patients, which takes longer to build.
Staff recruitment is harder for a new practice with no reputation. You may need to offer higher wages to attract experienced nurses and hygienists. Equipment breakdowns in the first year can be costly if warranties are not in place.
The upside is that a successful squat practice has lower acquisition cost and higher eventual sale value because you built the goodwill yourself. The BADR relief on sale is more valuable when your base cost is low.
Read our guide for practice buyers for a checklist of risks to assess before committing.
Which Route Suits Which Dentist?
An existing practice purchase suits a dentist who wants immediate income, has access to bank finance, and prefers lower risk. It also suits someone who wants to take over an NHS contract with guaranteed UDA value. The tax disadvantage of non-allowable goodwill is offset by the certainty of cash flow.
A squat practice suits a dentist with capital reserves, tolerance for 12-24 months of losses, and strong marketing skills. It also suits someone who wants to build a practice from the ground up with modern equipment and no inherited problems. The tax advantages of full capital allowances in year one and no goodwill amortisation are real benefits.
Some dentists do both: buy an existing practice for immediate income and later open a squat practice as a second site once the first is stable. This hybrid approach spreads risk and builds a group.
For personalised advice on which route fits your financial situation, speak to a dental-specialist accountant. Contact us through our contact page or book a free practice health check to discuss your options.
Summary of Key Differences
| Factor | Existing Practice | Squat Practice |
|---|---|---|
| Capital required | £500k-£1.2m | £150k-£350k |
| Goodwill cost | High (60-80% of price) | Zero |
| Tax relief on goodwill | 6.5% per year (company) | None (built organically) |
| Capital allowances | Limited (fixtures only) | Full AIA on all equipment |
| Cash flow from month one | Positive | Negative for 6-18 months |
| Risk level | Low to moderate | Moderate to high |
| Bank lending availability | Good | Limited |
| Sale value potential | Moderate (based on purchase price) | High (low base cost, BADR benefit) |
The right choice depends on your personal financial position, risk appetite, and career timeline. Both routes can lead to a successful practice ownership career if planned properly with professional advice.