Dental practices are not known for their prowess when recording numbers. In fact, the contrary might be true. Nonetheless, running successful, profitable, and complaint-friendly dental practices in the UK cannot be achieved without accounting. A study by the National Center for Medicine showed that errors emanating from medical reporting errors plagued dental practices.
To make matters more difficult, dental practices must navigate mixed NHS and private income streams and the tightening of rules surrounding employment status. While the attention to patient care is paramount, practices must be familiar with the core concepts of accounting and financial management.
This blog is an in-depth guide to accounting for dentists, to help them gain familiarity with requirements of auditing, costs, and compliance.
Understanding the Accounting Process for Dentists
For UK dentists, the accounting process revolves around recording and tracking all financial transactions. These transactions are then converted into accurate, up-to-date, and transparent records that comply with regulations under HMRC, GDC, UK GAAP, and NHS requirements. The following section displays the detailed step-by-step guidelines for accounting for dentists:
Data Capturing
All transactions, including dental procedures, patient fees, NHS payments, and expenses, must be recorded and retained in compliance with GDC. In the accounting pipeline, this is the bookkeeping stage. This data-capture procedure can be performed in real time using digital record-keeping tools. It helps dentists, especially those who meet the thresholds, stay aligned with HMRC’s Making Tax Digital (MTD) initiative.
Codification of Data
The recorded data is then assigned specific codes or labels in accordance with the UDA system. Since all NHS dental activities are tied to a specific band under the UDA system, the UDA system dictates the remuneration, which is the payment of the dentist. For instance, certain. The codified version of the data is then submitted to NHBSA through PF 17.
Categorisation of Transactions
In the accounting process, this is a vital step for calculating profit margins. This includes categorising expenses into dental-specific groups such as consumables, laboratory bills, staff wages, and associate payments. For dentists, all transactions fall under a category of assets, expenses or revenue according to standard dental practice standards.
Reconciliation of Data
Reconciliation compares transaction filings with financial records to ensure accuracy. Weekly or monthly bank statement reconciliation with bookkeeping helps prevent revenue loss, identify discrepancies, and reduce fraud risk. This includes matching deposits and payments in software with bank statements, covering credit card payments and NHS transfers. Regular reconciliation detects errors like missed payments, duplicates, or unrecorded expenses, ensuring accurate financial data for decision-making and proper cash flow monitoring.
Managing Accounts (AR/AP)
For dental practices, adopting a proactive approach to managing accounts receivable (AR) when cash flows in involves maintaining accurate records. Similarly, managing accounts payable (AP) when cash flows out also require precise record-keeping. This step is essential not only for ensuring transparency but also for avoiding any “bad debt.” The process entails bookkeeping transactions in both directions.
- On the AR side, this includes recording transactions typically involving NHS resources, patient fees, and private insurance claims; such transactions would be recorded on the current asset side of the dental practice’s balance sheet.
- On the AP side, this involves transactions where the dental practice owes payments to others, such as dental laboratory fees, material and supplier costs, and overhead utilities. These transactions should be reflected on the current liability side of the dental practice’s balance sheet.
Depreciation Calculation and Asset Tracking
Dental practices typically have massive numbers of capital assets, with the most common dental capital asset purchases being high-value capital assets like dental imaging systems, dental chairs and digital scanners. It is important to keep track of fixed assets such as computers, scanners and imaging devices and to accurately calculate the annual depreciation of those assets for the purpose of reporting to tax authorities. Also, tax reliefs like the Annual Investment Allowance (AIA) will grant you 100% tax relief on qualifying purchases of capital assets up to £1 million made during the years 2024-2025, thereby reducing your overall tax liability while improving your cash flow position for capital reinvestment.
Periodic Reviews of Financial Documents
Maintaining a monthly profit and loss statement or balance sheet enables practice owners to keep track of their financial performance on a consistent basis throughout the year. Quality control on the data from these reports should be carried out quarterly to trend performance against budgeted costs and to evaluate overhead percentages (i.e., staff, lab, supplies) against the industry average. This productive review/managing system enables Practice Owners to identify excessive spending in areas such as laboratory fees and supplemental consumables so that they can adjust their operation accordingly.
Year-end Tax Accounting and Compliance
The annual account is a legal requirement in order to comply with United Kingdom Generally Accepted Accounting Principles (UK GAAP) as set out by Financial Reporting Standards (FRS) 102/105. The preparation of perfectly prepared tax returns by way, for example, of self-assessment, if a partner, or corporation tax, if a limited company, is very important. It is also necessary to prepare for statutory obligations such as VAT returns and to administer tax payments to ensure timely payment.
Specifically for the payment on account system which is due for either January or July and if late incurs a penalty detailing this. Managing year-end correctly ensures that the practice uses optimum tax efficiency and meets the regulations set forth by HMRC, including Making Tax Digital (MTD) regulations.
What Makes Accounting for Dentists Different from General Accounting
Accounting for Dentists entails various factors that play a part in making the dental accounting process more complex. This is due to the overlap between healthcare regulatory services and financial and tax regulatory entities. The table below illustrates the key differences in accounting treatment between dental accounting and general accounting:
| Feature | UK Dental Accounting | General UK Accounting |
|---|---|---|
| Income Streams | Highly complex: Mix of NHS (contracted UDA/UOA targets), Private (fee per item), Denplan/capitation, and cosmetic treatments. | Usually straightforward: Sales of goods/services, often standardised. |
| Revenue Recognition | NHS income is usually monthly, but subject to high clawback risks if annual targets are not met; private income is recognised on chair-side completion. | Revenue recognised when services are delivered or goods are sold/shipped (accruals basis). |
| Cost Structure | High fixed & variable costs: Specialised dental materials, high lab fees (lab-intensive), GDC fees, indemnity insurance, and compliance costs. | Varies widely; generally lower, more direct link to turnover. |
| Associate Payments | Complex: Self-employed associates paid a high percentage (often 45-50%+) of gross/net fees, requiring detailed fee-per-item tracking. | Standard payroll/PAYE or simple subcontractor invoices. |
| Capital Expenditure | High-value, frequent investment in specialised equipment (digital X-rays, chairs, scanners, decontamination units) requiring specialist tax planning (capital allowances). | General, less frequent investment (e.g., computers, office furniture). |
| Tax & Pension | Highly specialised: NHS superannuation (Tiered rates), superannuation reimbursement, and complex clawback risks. | Standard corporate or income tax (Sole Trader/Limited Company). |
| Performance Metrics | UDA/UOA targets, Private fee-per-item, Chair-side hours, Lab fees as a % of revenue. | General profit margin, ROI, EBITDA. |
| VAT Treatment | Often exempt (for dental care), but mixed-supply practices require complex partial exemption calculations and proportionate VAT recovery. | Taxable, exempt, or zero-rated, often straightforward. |
Best Practices for Dentists to Manage Financial Accounting and Compliance
For Dental Practices to hold a strong financial positioning, they must establish best practices to ensure a smooth and transparent accounting framework. The following section lists best practices that help dental practices execute a solid foundation for financial accounting. It also emphasises compliance with regulatory systems.
Implement Dental-Specific Software: Utilise specialised software by adopting accounting solutions specifically designed for dental practices. This ensures that financial management is accurate and that the practice remains compliant with relevant regulations. Tailored software addresses the unique financial needs of dental clinics, facilitating smoother operations and reducing the risk of errors.
Segmented Tracking: Categorising transactions into segments helps financial analysis and reporting by segmenting revenue and expenses based upon the types of dental services performed, which will allow practices to improve financial analysis and reporting accuracy. Proper segment definitions allow practices to accurately assess which services are the most profitable and provide opportunities to better manage costs.
KPI Monitoring: Monitoring KPIs on a continual basis concerning the volume of patients, revenue per patient, and operational costs will keep the practice’s financial status healthy, reveal areas for improvement, and facilitate well-informed decisions for overall practice performance improvement.
Budgeting and Forecasting: Comprehensive budgets/forecasts that represent the operational realities of a dental practice assist with the strategic planning of the dental practice by providing a financial roadmap to assist with planning for future resources and enable better overall management of resources while maintaining a continual, long-term, financially sound position.
Maintain an Audit Trail: Maintaining documentation for all financial transactions is critical; the documentation must be clear, concise and accurate. Through this description, the practice shows it has met regulatory standards to remain compliant, facilitates and eases the audit process and provides a complete and continuous audit trail that supports transparency and accountability for the dental practice through its financial activities.
Hire an Accounting Specialist: This is a vital step towards sound financial management. Engaging a professional accountant who specializes in dental practices ensures that compliance is maintained, tax matters are handled correctly, and financial reporting is accurate. Their expertise helps safeguard the practice against financial missteps and supports sustainable growth.
Conclusion
Accounting for Dentists is frequently overlooked with dental practices in the UK. There have been numerous reports of errors in records submitted to the NHS. These errors can lead to negative implications. Continued errors in accounting could damage a dentist’s reputation in the long run. Not being able to fulfil contract obligations can also be a cause for concern which results in the dentist’s license being suspended by the NHS. All of which are highly concerning.
Maintaining accurate, high-quality financial records is crucial to ensuring smooth clinic operations. Therefore, it is highly recommended that dental clinics have a professional accountant who specialises in treating dental practices. This will ensure they receive the necessary assistance while navigating the maze of regulations needed to comply with.
