Understanding Why Dental Practices Fund Their VAT In Finance Agreements

Dental practices are often required to acquire financial agreements for various reasons. It could be to acquire equipment upgrades or to expand the services they offer to their patients. However, a significant number of dental practices finance their VAT along with their finance agreements instead of paying the VAT upfront. Under terms of a hire purchase agreement, for most UK companies, the VAT has to be paid upfront however for healthcare companies this is not the case. This leaves healthcare professionals wondering why they’re allowed to fund this, where they may not be able to in other businesses they’re involved with. In this blog post, we’ll look at why most dental practices fund the VAT of their finance agreements.

Improves Cash Flow

Dental practices fund their VAT in finance agreements to directly improve their cash flow. While VAT collected by the practice would eventually be submitted to HMRC (if the practice is VAT registered), funding VAT ensures that the full cost of the asset being financed is covered initially by the finance provider. By doing this, the practice can free up funds that they would typically have to use to purchase the asset. Thereby, improving their immediate cash flow.

VAT Eligibility

Most practices choose to fund the VAT on a finance agreement purely because they are not VAT registered and cannot claim this money back. Dental services by registered dentists and other dental care professionals are exempt from VAT, meaning VAT cannot be charged on their work. As a result of this exemption, many dental practices do not hit the £85,000 threshold for VAT eligible sales to become VAT registered. As a result, it does not make sense for a practice to pay the VAT upfront, knowing they cannot have this money returned to them.

Reduces Upfront Costs

Another reason dental practices fund the VAT of their finance agreements is to reduce the upfront costs of the asset. Typically, VAT is charged on top of the purchase price of an asset. This means that if the asset costs £10,000, an additional £2,000 would be added to account for VAT. By funding the VAT in finance agreements, the finance provider can pay the total amount upfront. This splits the cost into monthly manageable payments. This allows the dental practice to spread the cost over the term of the agreement.

Offers Payment Flexibility

Funding VAT in finance agreements also provides flexibility in payment options. The dentist or practice owner may choose to pay a larger amount upfront or adjust the monthly payments. This depends on their immediate cash flow needs. This flexibility can be especially helpful when financing significant upgrades or new equipment for the practice.

Conclusion:

In conclusion, dental practices fund their VAT in finance agreements to experience cash flow improvements. They also do it to reduce upfront costs, offer payment flexibility or simply because they cannot claim it back. Considering these reasons, dentists are encouraged to work with reliable finance providers when financing assets for their practices. Doing so ensures that they remain compliant while enjoying all the considerable benefits that come with financing their assets and VAT. Not all healthcare finance companies can fund the VAT on an agreement. At VRW, almost all of our agreements have the VAT funded. To discuss the best options for you, please give a member of the team a call on 01494 422 610.