A squat trades goodwill cost for ramp-up risk: you pay nothing for patients because there aren't any yet. Done well it's the cheapest route to ownership. Done naively it's eighteen months of payroll with an empty book.
Guide · Updated July 2026
Buying an existing practice means paying for goodwill and banking income from day one. A squat means no goodwill — but a build and fit-out bill, equipment, staff hired before any revenue exists, and months of filling a diary that starts empty. The right question is not "which is cheaper" but "which do the numbers support in this location, with your following?" A dentist with a strong local reputation and a visible site starts a squat with real advantages. A dentist relocating to a new area, where nobody has heard of them, usually should not.
Three things decide whether a squat works, and only one of them is the build: the irrecoverable VAT, the working capital, and the tax structure you open in. All three are settled before you sign anything, and all three are expensive to change afterwards.
Dental care and treatment provided by a registered dentist or dental care professional is exempt from VAT under Group 7, Schedule 9, VATA 1994. Exempt is not zero-rated: you do not charge VAT on treatment, and you correspondingly cannot reclaim the VAT you pay on your costs. For a running practice that is a mild annoyance. For a squat, where the single largest cheque you will ever write is a VAT-bearing building and equipment invoice, it is a structural cost.
Worked example — illustrative. A fit-out and equipment package quoted at £250,000 plus VAT is invoiced at £300,000. The £50,000 of VAT is not a timing difference you recover next quarter. It is a permanent cost, and it needs funding on day one alongside everything else. Any other trade opening premises would get that £50,000 back; you will not.
The exception is narrow. If you sell genuinely standard-rated supplies — purely cosmetic whitening, facial aesthetics, retail products — and that taxable turnover exceeds £90,000 in any rolling twelve months, you must register, and partial exemption then lets you recover the VAT attributable to that taxable slice plus a proportion of overheads. That is a partial recovery on a small fraction of the spend, not a solution. Our VAT guide for dentists sets out where the line sits.
Because the VAT is irrecoverable, it forms part of the cost of the assets. So the £300,000 — not £250,000 — is what goes into your capital allowances computation, and the Annual Investment Allowance gives 100% relief on up to £1 million of qualifying plant and machinery a year. Not everything in a build qualifies as plant and machinery, so the split between the building works and the qualifying items is worth getting right rather than accepting the builder's invoice description.
Which raises the question that actually decides the money: relief against what? A squat makes a loss in its first year. That is the point at which the structure decision stops being theoretical.
A limited company carries its early losses forward, against future profits of the same trade, relieved at the corporation tax rates that apply when the profits arrive: 19% on profits up to £50,000, 25% above £250,000, with marginal relief between.
An individual has a route a company does not. Under early trade losses relief (section 72 ITA 2007), a loss made in the tax year the trade starts or in any of the three following tax years can be carried back three years against the individual's total income, earliest year first. For a dentist who has spent those three years as a higher-rate associate, that means start-up losses relieved against income taxed at 40% or 45% — a refund of tax already paid, arriving in the year the practice most needs cash, rather than a deduction against profits that may be three years away at 19%.
Two limits to build into the plan. The cap on income tax reliefs restricts sideways and carry-back claims to the greater of £50,000 or 25% of adjusted total income in any tax year. And the relief is not available to trustees. The cash basis is no longer an obstacle: from 2024/25 the restriction on cash-basis losses was removed, so they can be set sideways or carried back on the same terms as accruals-basis losses.
None of this makes a company wrong. It makes the choice a modelled one — and it is far cheaper to model before you start trading than to unwind afterwards. Our guide to limited companies for dentists covers the other half of the trade-off.
Under-capitalising the ramp-up is the classic squat failure. The build gets funded because it has an invoice attached; the fourteen months afterwards do not, because they are a spreadsheet. Model them.
Worked example — illustrative. A three-surgery private squat with fixed monthly costs of roughly £18,000: rent, rates, utilities and insurance around £4,500; two full-time nurses at about £4,718 a month (£28,308 each a year, once employer's National Insurance at 15% above the £5,000 secondary threshold and 3% auto-enrolment pension are included); a receptionist at about £2,282; software, IT and compliance around £1,200; marketing at £2,000; and loan repayments on the build of £3,300.
Now ramp the income. Suppose fee income of £5,000 in month one, growing by £2,500 a month:
That is roughly £72,500 of working capital, on top of every penny of the build, before a single month goes worse than planned. Halve the growth rate to £1,250 a month and the deficit roughly triples. This is the calculation to do first, not last, and the one to stress-test hardest — because the number it produces is the number that decides whether you can open at all.
Dental-specialist lenders do fund squats, and they compete for good ones. What they fund is a modelled squat:
Once open, track five things every month: new patient numbers, chair utilisation by surgery and weekday, average treatment value, plan sign-ups, and actual against planned cash. An empty Tuesday in month three is a data point to act on — adjust marketing, hours or mix — rather than a reason to panic or to look away. Our practice benchmarks guide sets out how to build each of those ratios properly, and a squat should be running them from the first month, not the second year.
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The build and fit-out is usually the largest single line, followed by equipment — but two costs decide the outcome and both get missed. The first is irrecoverable VAT: dental care is exempt, so the 20% on a £250,000 fit-out is a permanent £50,000 cost rather than something you reclaim. The second is working capital for the ramp-up. On an illustrative three-surgery private squat with £18,000 of fixed monthly costs and income growing £2,500 a month from £5,000, the cumulative deficit to break-even is around £40,500, plus your own drawings. Fund the whole journey, not just the build.
In almost all cases, no. Dental care and treatment provided by a registered dentist or dental care professional is exempt from VAT under Group 7, Schedule 9, VATA 1994, and exempt is not the same as zero-rated: you do not charge VAT on treatment, and you cannot reclaim VAT on your costs. On a £250,000 fit-out that is £50,000 of permanent cost to fund on day one. If you sell genuinely standard-rated supplies such as cosmetic-only whitening or retail products above the £90,000 registration threshold, partial exemption allows recovery of the VAT attributable to that taxable slice — a partial recovery on a small fraction of the spend.
Yes. Dental-specialist lenders actively fund squats for credible applicants, and they compete for the good ones. What they lend against is a properly modelled plan: a month-by-month cash flow through the whole ramp-up rather than an annual summary, patient-growth assumptions you can defend, an identified break-even month, the peak cash requirement before it, and a downside case with the funding to survive it. A strong personal following in the local area is the single most persuasive thing a squat applicant can put in front of a credit committee, because it directly shortens the ramp.
It depends on location, treatment mix and how early marketing started, and the honest planning range is twelve to twenty-four months, with anything faster treated as upside rather than budgeted for. What matters more than the break-even month is the cumulative deficit before it, because that is the number you have to fund. On the illustrative model above, income growing £2,500 a month against £18,000 of fixed costs reaches surplus in month seven with a £40,500 cumulative shortfall; halve the growth rate and that deficit roughly triples. Model both, and fund the slower one.
Model it before you start trading, because the loss position often outweighs everything else in year one. A company carries early losses forward against future profits, relieved at 19% up to £50,000 of profit and 25% above £250,000. An individual can use early trade losses relief under section 72 ITA 2007 to carry a loss from the first four tax years of trading back three years against total income — so a dentist who has been a higher-rate associate can recover tax already paid at 40% or 45%, in the year the practice most needs cash. The cap on income tax reliefs limits that to the greater of £50,000 or 25% of adjusted total income.
In England, yes. CQC registration must be in place before you provide any regulated activity, so it belongs on the critical path alongside the build rather than in the week before opening. There is an application fee and an annual fee, with the annual fee set by the number of dental chairs at the location. Registration sits alongside the rest of the compliance build — indemnity, radiation protection, information governance, decontamination and the policy set — and each item takes longer than founders expect. Wales, Scotland and Northern Ireland are regulated separately, by Healthcare Inspectorate Wales, Healthcare Improvement Scotland and the RQIA respectively.
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