The Real Cost of Setting Up a Dental Practice from Scratch in the UK

Setting up a dental practice from scratch, commonly called a squat or de novo start-up, is one of the largest financial commitments in a dentist's career. The headline cash figure matters, but for planning it is only half the story. The other half is the tax treatment of each cost area, which decides how much of the spend you recover through relief and how much is a permanent cost.

The defining feature of a squat is that the spend is largely capital expenditure on plant, machinery and integral features, not ordinary running cost, and that single fact shapes everything below. This guide walks the cost categories of a new practice and the tax treatment of each on 2026/27 figures, so you can plan funding and timing around the reliefs. We focus on how each area is taxed, not on equipment or fit-out price lists, which vary too much by location and specification to be useful here.

The Cost Categories of a New Dental Practice

A squat setup breaks into six broad cost areas, each behaving differently for tax: premises (lease or freehold, deposits, planning approvals); fit-out (the works that turn a shell into surgeries, split between general plant, integral features and structure); clinical equipment; registration and regulation (CQC, GDC, indemnity and insurances); working capital for the loss-making ramp-up; and professional fees. The sections below take each in turn, and the table near the end gathers the treatment at a glance.

If you are weighing a build-from-scratch route against buying an established practice, the tax contrast is set out separately in our guide to a squat practice versus buying an existing dental practice: a squat is mostly fresh, relievable fit-out and equipment, whereas a purchase buys goodwill and a stock of fixtures that need a specific election to claim. This page assumes you have chosen the squat route and focuses on costing it.

Premises Costs and Their Tax Treatment

Your premises position drives much of the rest, and a leasehold shell and a freehold purchase behave very differently for tax.

On a lease, the rent is a deductible business expense once you are trading, and rent paid during a pre-trading fit-out period is generally allowable as a pre-trading expense (treated as incurred on the first day of trade). A rent deposit is a balance-sheet item, not a deduction.

On a freehold, the purchase of the building is capital. The land never attracts relief, the structure may attract the Structures and Buildings Allowance (SBA) at 3% per year on qualifying construction spend incurred on or after 29 October 2018, and the plant and integral features embedded in the building are stripped out and pooled for capital allowances (see the fit-out section). Stamp Duty Land Tax can arise on a freehold or on the grant of a lease, and a freehold purchase by a partly-exempt practice can also bring the VAT Capital Goods Scheme into play on building spend of £250,000 or more (VAT-exclusive), spreading any VAT recovery over a 10-year adjustment period. Most fully-exempt practices recover no VAT here at all, the point covered next.

Fit-Out: The Largest Capital Allowances Opportunity

The fit-out is where a squat earns most of its tax relief, because nearly all of it is fresh expenditure you incur and pool yourself. For tax it splits three ways, and the split decides the rate of relief:

• General plant and machinery (cabinetry that functions as plant, loose fitted equipment, signage plant) goes to the main-rate pool, writing down at 18% reducing to 14% for relief from 1 April 2026 (corporation tax) and 6 April 2026 (income tax), under Finance Act 2026 section 28.
• Integral features (electrical systems, cold and hot water, heating, air conditioning and ventilation) go to the special-rate pool at a 6% writing-down allowance, which is unchanged.
• The building structure (walls, floors, the shell) attracts no plant allowances, but qualifying construction spend can attract the 3% SBA.

The Annual Investment Allowance (AIA) of £1,000,000 per year gives 100% first-year relief on qualifying plant and machinery, and you can point it at either pool. Because the special-rate pool writes down slowly at 6%, the planning rule is to direct AIA at the integral features first, then at main-rate items, so the slowest-relieving spend is relieved fastest. A new (not second-hand) main-rate asset can alternatively use the 40% first-year allowance introduced by Finance Act 2026 section 29 from 1 January 2026, which leaves the balance in the pool, but for most squat fit-outs the AIA at 100% is still the first port of call (full expensing, companies only, remains a further route once AIA is exhausted).

A worked illustration shows why the split matters. Suppose a fit-out generates £160,000 of integral-features spend and £90,000 of general plant, £250,000 of qualifying expenditure in total. Pointing the full £1m AIA at all of it relieves the entire £250,000 in year one. If instead the AIA were used up elsewhere and this spend fell to writing-down allowances, the integral features would relieve at only 6% a year (£9,600 in year one) and the general plant at 14% (£12,600 in year one), so the same spend would take well over a decade to relieve. Same expenditure, very different timing of relief.

Clinical Equipment and Its Tax Treatment

Clinical equipment is classic qualifying plant and machinery. Dental chairs and units, X-ray, OPG and CBCT imaging, autoclaves and decontamination kit, compressors, suction, practice-management computers and software, and loose instruments and loupes all sit in the main-rate pool and almost all qualify for the AIA, giving 100% relief on up to £1m of spend in the period.

How you finance the equipment changes the route, not just the cash flow. Outright purchase and hire purchase are treated as buying the asset, so you claim capital allowances on the capital cost (often 100% via AIA) and deduct any HP interest separately. A finance lease or operating lease gives no capital allowances; instead the rentals are revenue-deductible over the term. We cover that decision and the mechanics behind each route in our guide to the tax implications of dental equipment finance, so this page does not repeat the lease-versus-buy detail.

Two timing points matter at setup. AIA is £1m per 12-month period, time-apportioned for short or long periods, and cannot be carried forward, so a short first accounting period restricts the AIA available and any unused AIA is lost. And the asset must be brought into use to claim, so kit delivered but not commissioned before the period-end falls into the next period. Aligning the first period-end with the bulk of the spend is part of the setup tax plan.

The VAT-Irrecoverable Reality

This is the cost that quietly inflates every other line, and it surprises dentists arriving from a normal business background. The supply of dental care is exempt from VAT under VATA 1994 Schedule 9 Group 7, whether NHS-funded or private. Exemption is not zero-rating: a fully clinical practice cannot reclaim the input VAT on its fit-out, its equipment or its professional fees. The VAT charged on the build, the chairs and the imaging is a real, permanent extra cost of setting up.

It also feeds forward into capital allowances. Because the VAT is irrecoverable, it forms part of the cost of each asset, so you claim capital allowances on the VAT-inclusive figure. That is a small consolation (relief at the WDA rate over years never matches reclaiming the VAT in full), but it does mean the irrecoverable VAT is not entirely lost for tax.

A practice that also makes taxable supplies (cosmetic-only treatment such as facial aesthetics or whitening with no therapeutic purpose) is partially exempt and can recover the input VAT attributable to the taxable side, plus a proportion of overhead VAT under the standard method. The VAT registration threshold is £90,000 of taxable (non-exempt) turnover, and exempt clinical income does not count towards it. If a squat plans a meaningful cosmetic arm, partial-exemption recovery on the setup spend is worth modelling before completion. For a purely clinical squat, plan on the VAT staying with you.

Registration, CQC and Regulatory Costs

A new English practice must be registered with the Care Quality Commission (CQC) before it can provide regulated dental activities, under the Health and Social Care Act 2008. CQC registration fees are an allowable business expense, as is the General Dental Council (GDC) annual retention fee (restoration fees and CPD-shortfall penalties are not). So are professional indemnity (Dental Protection, MDU or MDDUS) and the practice's insurances, with employers' liability insurance compulsory once you have staff. All of these are revenue costs of the trade, deducted against profit rather than capitalised.

The planning point at setup is the lead time, not the deduction: CQC registration in particular takes time and is a precondition to opening, so it belongs in the project timeline and the working-capital runway, not just the cost list.

Working Capital: Funding the Ramp-Up

A squat opens with no patient list, so it runs at a loss while the base builds. The working-capital requirement, the cash to cover staff salaries, rent, utilities, laboratory work and consumables through that period, is routinely the most underestimated area of a setup. These are all deductible running costs as they are incurred, but a deduction against a loss is not cash: it builds trading losses in the early years.

Those early losses are themselves a tax asset. For an unincorporated squat, early-trade-losses relief (ITA 2007 s.72) can carry a loss made in any of the first four tax years of the trade back against general income of the three tax years before the loss year (earliest year first), generating a useful repayment of tax paid in the dentist's associate years; sideways relief (s.64) against general income of the loss year or the prior year is also available. For an incorporated squat, trading losses carry forward against future company profits. The trading-vehicle choice below turns largely on which loss route is more valuable to you.

Professional Fees Across the Project

Professional fees follow the cost area they relate to. Fees on acquiring or constructing a capital asset (legal costs of a freehold purchase, architect fees on the build) are generally capital: construction-related fees can feed the SBA, and fees on plant can form part of the pooled cost. Revenue fees (general accountancy advice, ongoing tax compliance, lease negotiation in many cases) are deductible against profit. Incidental costs of obtaining loan finance (arrangement and broker fees on a practice or fit-out loan) are generally deductible, as is interest on borrowing taken wholly and exclusively for the trade, although the loan principal never is. The financing structure behind all of this is covered in our guide to dental practice acquisition finance.

Cost Category to Tax Treatment at a Glance

Cost category	Tax treatment (2026/27)
Clinical equipment (chairs, imaging, CBCT, autoclaves, compressors, suction, software, instruments)	Qualifying plant. AIA 100% on up to £1m; then main-rate WDA 18% reducing to 14% from April 2026, or 40% FYA on new assets.
Fit-out: integral features (electrics, water, heating, ventilation)	Special-rate pool, 6% WDA. Point AIA here first, as it relieves slowest.
Fit-out: general plant and cabinetry-as-plant	Main-rate pool, 18% reducing to 14% WDA, or AIA at 100%.
Building structure / qualifying construction	SBA at 3% per year (no plant allowances on the structure; land never qualifies).
Freehold land and building purchase	Capital. Land no relief; structure via SBA; embedded plant pooled. SDLT may arise; Capital Goods Scheme can apply to partly-exempt practices on £250k+ spend.
Lease rent and deposit	Rent deductible (pre-trading rent allowed as a pre-trading expense); deposit is a balance-sheet item, not a deduction.
VAT on fit-out, equipment and fees (clinical practice)	Generally irrecoverable (dental care is VAT-exempt). The VAT adds to the asset cost and is claimed within capital allowances. Partial recovery only with taxable (cosmetic) supplies.
CQC registration, GDC retention fee, indemnity, insurances	Deductible revenue costs (GDC restoration and penalty fees are not).
Working capital (staff, rent, utilities, lab, consumables)	Deductible running costs; early losses relievable (s.72 carry-back or s.64 sideways for unincorporated; carry-forward for companies).
Professional fees	Follow the cost they relate to: capital fees follow the asset; revenue fees deductible; loan-arrangement fees generally deductible.

Choosing the Trading Vehicle Before You Open

The trading vehicle affects how the setup costs are relieved and how the early losses are used. A company pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between those points, and its early trading losses carry forward against future profits. An unincorporated squat instead reaches the early-trade-losses carry-back that can recover tax paid in the dentist's associate years, often the more valuable position while the practice is loss-making. There is no single right answer (it depends on the funding structure, the loss profile and the dentist's other income), so settle the vehicle with a dental-specialist accountant before opening.

Planning Around the Reliefs, Not Just the Cash

The cash cost of a squat is substantial, but the tax position determines the true net cost. Four levers do most of the work: directing the AIA at the slowest-relieving special-rate spend first; aligning the first accounting period so the bulk of the qualifying spend can use the AIA; modelling the irrecoverable VAT as a real cost and checking whether any cosmetic arm changes the partial-exemption position; and structuring the early losses so they are usable rather than stranded. Settling these before the first invoice is raised, not at the first tax return, is what separates a well-costed squat from an expensive one.