NHS vs Private Revenue: Accounting for Complex Dental Income

Dental practice income is structurally complex. NHS revenue arrives from the NHS Business Services Authority (BSA) on a monthly basis, calculated against UDA (Units of Dental Activity) delivered. Private revenue arrives in multiple forms: fee-for-service treatment payments, monthly plan payments (Denplan, Practice Plan, in-house schemes), hygiene/therapy revenue split between the principal and the hygienist, and increasingly facial aesthetics revenue. Tracking each stream separately, against appropriate cost allocations, is what produces meaningful profitability reporting at the practice level.

This guide covers the income-accounting issues for dental practices. Each section links to a detailed companion piece.

NHS revenue accounting

NHS contracts are typically delivered against an annual UDA target. The mechanics:

1. UDAs delivered each month feed into Compass; the practice claims FP17 forms.
2. BSA pays monthly: contract value divided by 12, less any superannuation contributions.
3. Year-end reconciliation: UDAs delivered vs annual target. Underdelivery triggers clawback (the contract value pro-rata to delivery shortfall); overdelivery is paid at the per-UDA rate up to the agreed maximum.
4. Pension contributions deducted at source by BSA from associate and principal NHS earnings.

The accounting needs to track contract value, monthly UDA delivery, monthly Compass receipts, year-end position, and pension deductions per associate.

Private revenue accounting

Private revenue splits into several distinct streams:

• Fee-for-service: paid at the time of treatment. Standard accrual to revenue when the treatment is delivered.
• Plan revenue (Denplan, Practice Plan): monthly recurring revenue. Plan provider takes a fee and remits the balance to the practice.
• In-house plans: full revenue recognised by the practice. Direct debit administration overhead applies.
• Hygiene and therapy: typically split between the practice and the hygienist (e.g., 50/50 or 60/40); accounting needs to track each side.
• Facial aesthetics: a different VAT regime than dental services; needs separate revenue tracking.
• Lab fees recovered: where the practice charges lab fees to patients on top of the treatment fee, these can be tracked separately from the treatment revenue.

Overhead allocation between NHS and private

For practices running both NHS and private, overhead costs need allocation. The standard methods:

1. Time-based allocation: split overheads (rent, utilities, nurse salaries, reception) by the proportion of clinical hours spent on each.
2. Revenue-based allocation: split overheads by the proportion of revenue from each.
3. Chair-based allocation: where surgeries are dedicated to NHS or private, allocate by surgery.
4. Hybrid methods combining the above.

Most practices use revenue-based or hybrid allocation. The choice affects which side of the practice (NHS or private) shows higher margin and where management attention should focus. Auditors and HMRC accept any reasonable methodology consistently applied.

Patient refunds and credit notes

Patient refunds and credit notes are routine in dental practice (treatment plan changes, cancelled procedures, dispute resolution). The accounting needs:

• Original revenue must be reduced when the refund is processed (not increased on a separate refund line).
• Credit notes recorded against the patient account rather than as new revenue (avoids double-count).
• VAT adjustments where the original supply was VAT-rated (cosmetic / facial aesthetics).
• NHS revenue cannot generally be refunded directly; instead, FP17 claims may need to be amended or withdrawn.
• Documentation: clinical and financial reasoning for the refund retained for 6 years.