How Do You Transfer an NHS Dental Contract on a Practice Sale?

What Is an NHS Dental Contract and Why Does It Matter on a Practice Sale?

An NHS dental contract is not a piece of property you can sell like a chair or a compressor. It is a legally binding arrangement between a provider (you or your company) and an NHS commissioning body. When you sell a dental practice, the NHS contract must be transferred to the buyer through a process called contract novation. Without successful novation, the buyer cannot deliver NHS treatment under that contract, and the practice's value drops significantly.

This article explains how the transfer works, what NHS commissioners look for, the financial implications for both parties, and common pitfalls that delay or derail a practice sale.

How Does Contract Novation Work for a Dental Practice Sale?

Contract novation is the legal mechanism that replaces one party to a contract with another. In a dental practice sale, the seller (the outgoing provider) is replaced by the buyer (the incoming provider). The NHS commissioning body must consent to this change. Without consent, the contract stays with the seller, who remains liable for its delivery even after the practice has been sold.

The process typically involves three stages:

• Application to the commissioner. The buyer submits a formal application to NHS England (or the equivalent body in Wales, Scotland, or Northern Ireland) requesting approval to take over the contract. This includes evidence of the buyer's professional registration, Performers' List status, and financial viability.
• Due diligence by the commissioner. The NHS body reviews the buyer's credentials, checks for any past performance issues, and assesses whether the buyer can deliver the contracted UDAs (or equivalent units in devolved nations).
• Execution of a deed of novation. If approved, a deed is signed by the seller, buyer, and commissioner. The contract is then legally transferred to the buyer.

The timeline for novation varies. Simple cases with a straightforward buyer can take 8-12 weeks. Complex cases, such as those involving multiple sites or a buyer with a history of contract breaches, can take 6 months or more.

What Do NHS Commissioners Look for During a Contract Transfer?

Commissioners are not passive participants in a practice sale. They have a statutory duty to ensure that NHS dental services continue to be delivered to the local population. When reviewing a novation application, they typically assess:

• Performers' List status. The buyer must be on the Performers' List for the relevant region. A dentist who is not on the list cannot provide NHS treatment under the contract.
• Financial viability. The commissioner may request accounts, tax returns, or a business plan to confirm the buyer has the resources to operate the practice and meet UDA targets.
• Past performance. If the buyer has held other NHS contracts, the commissioner will check for any under-delivery, breach notices, or complaints.
• Premises suitability. The practice premises must be appropriate for NHS service delivery. If the buyer plans to relocate the practice, this requires separate approval.

Commissioners can refuse a novation. Common reasons include the buyer's failure to meet Performers' List requirements, unresolved financial issues, or concerns about the buyer's ability to deliver the contracted activity. A refused novation effectively kills the practice sale unless the buyer can appeal or restructure the deal.

What Happens to UDA Allocation During a Contract Transfer?

The UDA allocation under the NHS contract transfers with the contract. The buyer inherits the same annual UDA target and the same UDA value as the seller. However, there are nuances:

• Under-delivery. If the seller has consistently under-delivered UDAs, the commissioner may reduce the UDA allocation before novation. This reduces the contract's value and the practice's sale price.
• Over-delivery. Some contracts allow for over-performance up to a cap. The buyer should confirm whether any over-performance is permitted and whether it is funded.
• Contract variations. The buyer may request a contract variation after novation, such as a change in UDA allocation or service specification. This is a separate process and not guaranteed.

Buyers should request a full UDA history from the seller and confirm the current year's performance position before exchanging contracts. A practice that is 6 months behind on UDA delivery may face clawback or contract reduction, which directly affects the purchase price.

What Are the Tax Implications of an NHS Contract Transfer for the Seller?

From a tax perspective, the NHS contract itself is not a capital asset for goodwill purposes. The value of the contract is embedded in the practice's goodwill. When you sell a dental practice, the sale proceeds are allocated between goodwill, equipment, premises (if owned), and other assets. The goodwill element, which includes the value of the NHS contract, is subject to Capital Gains Tax (CGT).

For a company seller, the gain on goodwill is subject to corporation tax at 19% or 25% depending on profit level. For an individual seller, the gain is subject to CGT at 18% (basic rate) or 24% (higher rate), with the annual exempt amount of £3,000 available. Business Asset Disposal Relief (BADR) can reduce the CGT rate to 14% in 2025/26 (rising to 18% from 6 April 2026), provided the seller meets the conditions: owning the business for at least 2 years and selling the whole or substantially the whole business.

Importantly, the NHS contract transfer itself does not trigger a separate tax charge. The tax treatment follows the sale of the practice as a whole. Sellers should take advice on structuring the sale to optimise BADR and minimise tax leakage.

What Are the Tax Implications for the Buyer?

For the buyer, the cost of acquiring the NHS contract is part of the goodwill purchase price. Goodwill acquired on or after 1 April 2019 qualifies for tax relief at 6.5% per year in the company's accounts, provided the goodwill relates to a trade with eligible intellectual property. This relief is given as a fixed-rate annual deduction, not as amortisation over the asset's useful life.

Buyers should ensure that the sale and purchase agreement clearly allocates a value to goodwill. HMRC may challenge the allocation if it appears artificial or inconsistent with the practice's financial performance. A professional practice valuation carried out by a dental-specialist accountant or valuer is essential to support the allocation.

If the buyer purchases the practice through a company, the goodwill sits on the company's balance sheet. If the buyer purchases as a sole trader or partnership, the goodwill is treated as an intangible asset for tax purposes, but the 6.5% relief is only available to companies. Sole traders and partnerships cannot claim this relief.

What Happens If the NHS Contract Cannot Be Transferred?

In some cases, the NHS contract cannot be transferred because the commissioner refuses novation or the buyer fails to meet the conditions. This creates a difficult situation for both parties.

Options include:

• Subcontracting arrangement. The seller retains the contract but subcontracts the delivery of NHS services to the buyer. This is a temporary fix and not a long-term solution. The seller remains liable for the contract.
• New contract application. The buyer applies for a new NHS contract for the same practice location. This is rare and depends on local commissioning priorities and budget availability.
• Private conversion. The buyer converts the practice to private-only. This eliminates the need for an NHS contract but may reduce the practice's value and patient base.

Any of these alternatives should be explored with legal and accounting advice before the sale completes. A practice sale that depends on an NHS contract transfer should include a condition precedent in the sale agreement that the sale only completes if novation is approved.

How Does the NHS Contract Transfer Affect Practice Valuation?

The NHS contract is often the most valuable asset in a mixed or NHS-heavy practice. A practice with a stable, well-performing NHS contract typically commands a higher goodwill multiple than a practice with a contract that is under threat of reduction or clawback.

Valuers typically assess the NHS contract by looking at:

• UDA value and volume. Higher UDA values and consistent delivery support a higher valuation.
• Contract term remaining. NHS contracts are typically rolling annual agreements. There is no fixed term, but the commissioner can terminate for breach. A contract with no recent performance issues is more valuable.
• Regional factors. UDA values vary significantly by region. A contract in a high-UDA-value area may be worth more than one in a low-value area, even with the same UDA volume.

Buyers should commission a financial due diligence review that includes a detailed analysis of the NHS contract's terms, performance history, and any pending commissioning reviews. This helps the buyer avoid overpaying for a contract that may be reduced or terminated soon after purchase.

What Are the Practical Steps for a Smooth NHS Contract Transfer?

To avoid delays and complications, follow these steps:

• Start early. Begin the novation process as soon as heads of terms are agreed. Do not wait until exchange of contracts.
• Prepare a complete application. Include all required documents: Performers' List evidence, proof of professional indemnity, financial statements, and a business plan.
• Engage with the commissioner. Introduce the buyer to the commissioner early. A positive relationship can smooth the process.
• Check the contract terms. Review the NHS contract for any clauses that restrict assignment or require specific conditions for novation.
• Get legal advice. Use a solicitor experienced in NHS dental contract law. The BDA's legal team or a specialist healthcare solicitor can advise.
• Plan for the timeline. Assume 3-6 months for the novation process. Build this into the sale timetable.

For a detailed walkthrough of the financial aspects of buying a practice, including NHS contract considerations, see our practice purchase financial due diligence guide.

Final Thoughts: Is the NHS Contract Transfer the Biggest Risk in a Practice Sale?

For many practice sales, yes. The NHS contract is the foundation of the practice's income. If the transfer fails, the sale collapses or the buyer is left with a private-only practice that may not support the purchase price. Sellers and buyers alike must treat the novation process with the seriousness it deserves.

Work with a dental-specialist accountant and solicitor who understand NHS commissioning and contract law. The cost of professional advice is small compared to the risk of a failed sale or a contract that loses value after completion.

If you are considering buying or selling a dental practice, speak to our team at Dental Finance Partners. We provide practice accounting and valuation services tailored to NHS and mixed practices.