NHS practice profits continue to fall

But there was better news for Associates with an increase in fee income and net profit

09 April, 2021 / indepth
 Will Peakin  

Last month saw NASDAL – the National Association of Specialist Dental Accountants and Lawyers – hold its annual press conference; this year, virtually, at the BDIA Dental Showcase. Many Principals, Associates and team members, along with the media, joined what was an enlightening event with five presentations and an interactive Question & Answer session.

This year’s event reflected the challenge of the past 12 months in its title, ‘State of the Nation’; an online gathering dealing with a wide variety of dentally related financial and legal matters. After being welcomed by Nick Ledingham, of Morris & Co, Specialist Dental Accountants and Chairman of NASDAL, the conference heard the latest goodwill value statistics announced by Alan Suggett, specialist dental accountant at UNW and NASDAL Media Officer. These are normally produced on a quarterly basis but due to the pandemic, the latest figures covered the four months that ended 31January 2021.

Against what many may expect, the latest period showed very little price reduction due to the pandemic. As with the last survey (which covered the period from 1 April to 30 September 2020), in NASDAL members’ experience, there have been only limited price reductions but considerable lengthening of the process. “It certainly does show that the UK dental practice sales market is not the dystopian nightmare that some commentators have suggested,” commented Suggett.

Benchmarking statistics

Continued fall in NHS practice profits but better news for Associates

Ian Simpson, Chartered Accountant and a partner in Humphrey and Co, presented the Benchmarking Statistics for the year 2019-2020. The NASDAL benchmarking statistics are published annually in March and reflect the finances of dental practices and dentists for the most recent tax year. The NASDAL figures provide a detailed picture of dental practice finances, sourced directly from dentists working privately and in the NHS. They are immensely useful but this year, as the period in question only ran until March 2020, they have limited information to share about the effect of the pandemic. However, they do make interesting reading.

Some of the key points from this year were:

  • A continued fall in NHS practice profits – this is perhaps as NHS practices tend to be more Associate led
  • A slight fall in net profit across the market as a whole
  • Better news for Associates with an increase in fee income of 3 per cent and increase in net profit of 2 per cent
  • Practice expense ratios stayed very consistent with previous years

Simpson said: “Overall, we have seen results similar to the previous year with a small impact of COVID-19 in Feb/Mar 2020. Net profit of a typical dental practice fell back to £129,178 from £134,387 in 2019 and both NHS and Private practices saw a reduction in profit (NHS – £116,284 in 19/20 down from £124,475 in 18/19; Private – £133,192 in 19/20 down from £140,591 in 18/19). Only mixed practices bucked this trend with a small rise from £132,940 in 18/19 to £134,342. What the figures will show for the year of the pandemic is conjecture at this point, but we certainly find ourselves in a very different landscape now from a little over a year ago.”  

NHS Quarter 4: meeting the targets

Alan Suggett then returned to discuss what has happened (in England), since the beginning of January in terms of Q4 targets and needing to achieve 45 per cent of pre-pandemic activity measures to avoid any financial penalties by way of ‘clawback’. He identified two key issues that were affecting practices. “First and foremost, my concern is for a small but significant number of practices that will be unable to hit the threshold of 45 per cent of UDA contract amounts and how that ‘cliff edge’ will affect them. The fact that many NHS practices are already hitting this target is great but irrelevant to those that cannot.”

“Another, perhaps unconsidered, consequence of the Q4 rules is pay cuts of more than 65 per cent for some self-employed dental associates who carry out NHS work. During the COVID 19 crisis a very important measure of financial protection has been given to NHS associates as so far, they have been paid in full. Q4 rules brought this to an end for those associates who work in practices which cannot hit the 45% UDA threshold.

“I feel that a fair compromise is quite simple – remove the ‘cliff edge’ at 36 per cent. I worry that without this change, a small percentage of the total NHS contract holders could be in real trouble. In addition, the associates who work in those practices could suffer a pay cut in excess of 65 per cent.” He added: “There will be no material change in circumstance between 31 March and the following day and therefore I would be surprised to see any movement from the 45 per cent figure.”

Practice sales market: ‘Still buoyant’

Damien Charlton, Chair of the NASDAL Lawyers Group and partner at Ward Hadaway, then discussed the Practice Sales market over the last year. As Alan Suggett had already referred to, this was a whole lot busier than many might expect. What the pandemic did do was slow the entire sales process. Charlton said: “From March 2020 until June 2020 there was a hiatus as society was locked down. Then, volumes of practice sales picked up quickly and NASDAL members saw a particular surge earlier this year as many sought to avoid a potential Capital Gains Tax increase in the Budget that as it turned out, didn’t materialise.”

“To illustrate the added time now involved, it can take up to 20 weeks for the CQC to register a new partnership allocation! As we move forward, it seems that those buying practices are having to do so in more of a ‘blind’ fashion than in is traditional. Even though a practice has been successful in the past, the new world that we find ourselves in, means it is no guarantee of future prosperity.”

The Future

What the end of furlough will mean for our economy

The final presentation was delivered by Heidi Marshall, who is NASDAL Secretary and heads up the dental team at Dodd & Co Chartered Accountants. Marshall had the unenviable task – even more so in these times – of considering what may happen in the coming months. She covered a wide range of areas including Q1 percentages, clawback and the ‘Zoom Boom’ of dentistry. She also shared evidence of mixed practices taking the decision to leave the NHS as they are finding that the numbers no longer add up.

Charlton particularly focused on the end of furlough and that September will see a real reckoning in many sectors. “I think that we will see the true impact of what the end of furlough will mean for our economy. Potentially hundreds of thousands of people could find themselves out of work and that will certainly mean a reduction in enquiries for elective dentistry but perhaps even the more regular care too?”

Nick Ledingham, of Morris & Co, Specialist Dental Accountants and Chairman of NASDAL concluded: “I am pleased to see that the UK dental sector has reacted to the challenge that COVID has provided in a typically robust fashion, but it has been a tough 12 months for many, and the future is still uncertain. Now, more than ever, it is important that dental practices take specialist advice so that they can understand and react to changes in their business situation.”

About benchmarking

NASDAL, the National Association of Specialist Dental Accountants and Lawyers, was set up in 1998. It is an association of accountants and lawyers who specialise in acting for and looking after the accounting, tax and legal affairs of dentists. It is the pre-eminent centre of excellence for accounting, tax and legal matters concerning dentists. Its members are required to pass strict admission criteria, and it regulates the performance of its members to ensure high standards of technical knowledge and service.

The NASDAL benchmarking statistics are published annually in March and reflect the finances of dental practices and dentists for the most recent tax year. The NASDAL figures provide a detailed picture of dental practice finances, sourced directly from dentists working privately and in the NHS.

The figures published by the Public Health England’s Information Centre later in the year reflect the income of NHS dentists only. NASDAL’s designation of practices as either private or NHS reflects that 80 per cent of business income comes from that source. The sample size is 650 principals and limited companies, and 600 associates.

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