NASDAL

Supreme Court Ruling – pay out for dentists?

Last Friday saw the Supreme Court back many small firms including dental practices over business interruption insurance claims reports the National Association of Specialist Dental Accountants and Lawyers, (NASDAL) reports.

The Supreme Court found largely in favour of small firms receiving payments from business interruption insurance policies. For some practices it could provide a lifeline and the ruling is likely to cost the insurance sector hundreds of millions of pounds. The City watchdog, the Financial Conduct Authority (FCA), brought the test case, and the Supreme Court rejected the appeals from 6 insurers against the Judgement handed down by the High Court in September 2020 following the FCA Business Interruption Test Case.

Steven Davidson, NASDAL member and partner at Olive Clive & Co Chartered Accountants commented, “this does appear to be excellent news for policy holders claiming for Business Interruption following Covid-19 Lockdown. While today’s Supreme Court ruling provides clarity for many thousands of claimants, it is unlikely to provide a clear-cut resolution for all. There are still a number of issues that need resolving. One is the question of aggregation and whether insurers will accept that the disruption caused by the pandemic is one event or more – this issue has not been decided by the Supreme Court and may well have to be decided by future litigation.

“There is also the question of whether any applicable sub-limit or multiple sub-limits of liability applies to any one loss, any one claim, any one occurrence, any one event or any one originating cause under the policy and are recoverable particularly under non-damage BI extensions.”

Latest NASDAL Goodwill Survey released, covering 1st April – 30th September

This week saw the latest results published from the NASDAL (National Association of Specialist Dental Accountants and Lawyers) Goodwill Survey statistics. In a normal world, these statistics are produced on a quarterly basis – however, 2020 has proved to be far from normal – hence six months delay since the last publication. This survey covers the period from 1st April to 30th September 2020 and is based on deals done (i.e. practices bought or sold by NASDAL members’ clients in the period).

As the graph illustrates, goodwill prices have held up very well. Goodwill as a percentage of fee income in the period across all types of practice averaged 141% of gross fees – only down from 159% from the quarter to January 2020 – the last pre-Covid quarter.

And, the level of deal activity is very much higher than many expected.

NHS Goodwill values were higher when compared to the previous quarter with 191% of gross fees across the six months to 166% of gross fees last time. Private goodwill values fell back to 114% of gross fees from 143% of gross last time. The big fallers were mixed practices – falling from 188% of gross fees in the quarter ending January 2020 to just 110% of gross fees this time.

What does this mean?

Alan Suggett, specialist dental accountant and partner in UNW LLP who compiles the goodwill survey, said, “I have to say that both the level of deal activity and the pricing levels have surprised me. I was expecting to see a big drop in the number of practice sales coupled with a sharp fall in prices. In NASDAL members’ experience, there have been only limited price reductions and the corporates haven’t used Covid as an opportunity to negotiate lower deal values. It certainly does show that the UK dental practice sales market is not the nightmare that some commentators have suggested!

“We do know that many lenders are coming up with an increasing array of hoops for borrowers to go through – which puts cash buyers in a stronger position.

“We decided not to include valuations during this six month period as the amount of data was lower than usual, and valuations are invariably subjective, which is unhelpful during this period of uncertainty.

The goodwill figures are collated from accountant and lawyer members of NASDAL in order to give a useful guide to the practice sales market. These figures relate to the six months ending 30th September 2020.

NASDAL reminds all that as with any averages, these statistics should be treated as a guideline only.

NASDAL: More than half of UK dental practices rely on Government loans

A recent NASDAL (National Association of Specialist Dental Accountants and Lawyers) survey has found that 52% of UK dental practices have relied on either CIBLS (Coronavirus Business Interruption Loan Scheme) or BBLS (Bounce Back Loan Scheme) from the government.

The survey was carried out last month and a sample of 121 practices (with a total fee income of £88 million) was taken from NASDAL accountant member practice owning clients on a random sampling basis. The survey found that:

  • 11% of practices have taken out CBILS loans, mainly private practices
  • The average CBILS loan is £105k (12% of fee income)
  • 41% of practices have taken out BBLS loans, covering all types of practices.
  • The average BBLS loan is £49k (7% of fee income).

The average loan is £32k (4% of fee income) and overall, 52% of dental practices have taken advantage of Government backed Covid loans.

 Alan Suggett, specialist dental accountant and partner in UNW LLP who compiles the goodwill survey, commented, “these findings don’t surprise me and reflect what I have found when speaking to dental clients. The CBILS application process was particularly arduous and difficult and this meant that in my experience, those practices that applied for CBILS loans really did need the funds. BBLS however, required just a couple of ticks and the money was in the account 48 hours later. I suspect that a large number of applicants did so on a ‘just in case’ basis and will be happy to pay the money back in full next year.

“One of the major concerns that NASDAL had when we reported to the short life working group (SLWG) headed up by Deputy CDO England, Jason Wong, was that most dental practices are fundamentally sound businesses and to see a good number in potential difficulty purely because of capital loan repayments, is a real concern. That is why it was key for us that in the recommendations, a government guaranteed loan support scheme to underpin lenders confidence in supporting dental practices and dental laboratories at risk was included.

“When the CIBLS and BBLS repayments become due next year, we will see how many dentists and practices are in difficulty.”

NASDAL COVID SURVEY RESULTS

Number of Practices in survey   121  
Total Fees     £88,418,701  
Total NHS Fees   £35,948,501 41%
Total Private Fees   £52,470,200 59%
Total COVID Support Borrowings   £3,822,000  
Average Support Borrowings (Per Practice)   £31,587  
Percentage of Borrowings to Total Turnover   4%  
         
Number of Practices with CBILS   13 11%
Total Fees (of Practices with CBILS)   £11,896,317 13%
Total NHS Fees (of Practices with CBILS)   £1,941,133  
Total Private Fees (of Practices with CBILS)   £9,955,184 84%
Total CBILS Borrowing   £1,369,000  
Average of CBILS Borrowings to Number of Practices with CBILS £105,308  
Percentage of Borrowings to Total Turnover (of Practices with CBILS) 12%  
         
Number of Practices with BBLs   50 41%
Total Fees (of Practices with BBLs)   £34,481,458 39%
Total NHS Fees (of Practices with BBLs)   £15,198,902  
Total Private Fees (of Practices with BBLs)   £19,282,555 56%
Total BBLs Borrowing   £2,453,000  
Average of BBLs Borrowings to Number of Practices with BBLs £49,060  
Percentage of Borrowings to Total Turnover (of Practices with BBLs) 7%  

NASDAL Goodwill Survey – what happens next

This week saw NASDAL (National Association of Specialist Dental Accountants and Lawyers) release their Goodwill Survey statistics – these statistics are normally produced on a quarterly basis and provide a useful snapshot of the dental practice sales market.

However, these are not normal times. Due to the Covid-19 pandemic, this week saw the delayed release of the figures for the quarter ending 31st January 2020.

The survey for the quarter saw a small increase – again – in the goodwill as a percentage of fee income in deals done. This is the sixth quarter in a row that deals have risen – from a low of 122% of gross fees in quarter ending October 2018, to 159% of gross fees in this latest quarter.

Again, NHS practice values fell back a little – from 166% of gross fees in the previous quarter to 155%.

The quarter did see a big rise in valuations though – up from an average goodwill value of 132% of gross fees in the quarter ending 31st October 2019 to 157% of gross fees this time. Valuations of NHS, private and mixed practices were all up in the quarter with particularly big rises in the valuations of mixed and private practices.

What will happen next?

Alan Suggett, specialist dental accountant and partner in UNW LLP who compiles the goodwill survey, said, “It is fair to say that the most interesting part of this survey is effectively what it doesn’t show – that is what has happened since March 2020 and the advent of the Coronavirus pandemic. Following this, I think it is fair to say that the days of the spectacular corporate deals we have seen in recent years, are over.

“At NASDAL we obviously spend a good deal of time speaking with other professional service providers such as bankers, valuers, IFAs and so on; the prevailing view is that we are currently in a ‘marking time’ stage as everyone waits for normality to return. And, most do expect normality to return. The number of practice sales during the last few months has massively reduced and those that are being done are often seeing a substantial discount to go through.

“At present, most buyers are requesting a delay in the process. There is more uncertainty with regard to lender valuations, some valuers are valuing at pre Covid levels but based on the assumption of a longer sale period rather than the previously normal 6 months. Lenders are still happy to lend but they want more information such as up to date management accounts, or even vendor prepared cashflow forecasts.”

The goodwill figures are collated from accountant and lawyer members of NASDAL on a quarterly basis in order to give a useful guide to the practice sales market. These figures relate to the quarter ending 31st January 2020.

NASDAL reminds all that as with any averages, these statistics should be treated as a guideline only.

NASDAL: “Beware 31st January tax pitfalls”

Last week saw the Summer Economic Statement delivered by the Chancellor of the Exchequer. Rishi Sunak concentrated very much on job support, job creation and job protection with temporary tax reductions targeted specifically at the hard-hit hospitality sector and at the sluggish residential property market.

There was relatively little of direct relevance to the dental sector and Charles Linaker, a tax partner with NASDAL members UNW, says that the most important Covid-19 measure of which dentists need to be aware is a measure announced previously in relation to their 31 July payments on account due under Self-Assessment.

“The majority of dentists will have had average earnings above the limits which might have rendered them eligible for help under the Self-Employment Income Support Scheme and so, for them, the main measure of relief is the opportunity to defer their second payment on account for tax year 2019/20, due at the end of July, until next 31 January 2021, which was brought in as a response to Covid-19. By now, most dentists should have received their Self-Assessment statements from HMRC showing that their 31 July payment has been deferred automatically to 31 January 2021.

This has been done so that HMRC’s IT systems do not automatically charge late payment interest on any 31 July 2020 payment on account paid between 1 August 2020 and 31 January 2021. In other words, while it remains an option to make the payment as normal, should dentists choose not to, so as to preserve cash at this uncertain time, they need take no action to inform HMRC and will not be at risk of interest or penalty charges so long as the amount has been paid by no later than 31 January 2021.”

Linaker continued, “of course, it may be argued that deferring until 31 January 2021 is doing no more than putting off the evil day and that there will then be a doubling up of tax payments, because the first payment on account will then be due for tax year 2020/21. But that is to overlook the fact that there is a long standing facility, of which many dentists may never have needed to take advantage previously in their professional careers, to make a claim to reduce the 2020/21 payments

on account for 31 January 2021 and 31 July 2021, on the grounds that current year profits for 2020/21 will be reduced significantly compared to those for the preceding year 2019/20. Given the timing of lockdown as a result of Covid-19, this is likely to be a facility which many dentists will want to make use of and they should ensure they liaise with their accountants well before 31 January 2021, so that appropriate calculations can be made to justify a claim to reduce their 2020/21 payments on account.”

NASDAL offers clarification on SEISS

The National Association of Specialist Dental Accountants and Lawyers (NASDAL) have welcomed clarification on the potential issues that may arise when dentists were eligible to claim the Self-Employment Income Support Scheme (SEISS) grant whilst also receiving their usual level of NHS income. It was highlighted that the amount of grant received may exceed the reduction of private income.

The eligibility criteria for the SEISS grant requires that you have been adversely affected by Covid-19 and that your average self-employed earnings (from all sources) over the last three tax years have not exceeded £50k pa. HMRC have confirmed that if part of a dental practitioners’ income (private income) reduces, but another part remains the same (NHS income), it is legitimate for a claim to be made in full and retained.

Alan Suggett, specialist dental accountant partner in UNW LLP and NASDAL Media Officer, said, “We have received communication from the BDA following discussions with NHS England on this matter and they confirmed that receiving both NHS income and the SEISS grant does not constitute a duplication of wider government support and therefore does not breach any of the terms of the NHS contract payment arrangements.”

Fellow NASDAL accountant Johnny Minford of Minford & Co, who has a number of clients in Northern Ireland, added, “However, our Principal colleagues in Northern Ireland still have a problem as the mechanism there does not permit a double claim and the choice is in the hands of associates. There could be practices where the associate has chosen to claim SEISS, so the practice gets NONE of the IOS payment due for the associates’ proportion of the healthcare.”

NASDAL: Uncertainty reigns

The National Association of Specialist Dental Accountants and Lawyers (NASDAL) has called for clarification over a number of key financial issues affecting the profession.

Alan Suggett, specialist dental accountant partner in UNW LLP and NASDAL Media Officer said, “We quite understand that matters of patient safety and all things clinical taking are precedence in the current situation. However, dentists and practices need resolution on a number of financial and contractual issues. We cannot ignore the fact that dental practices are businesses. Indeed, a recent Dental Protection survey showed that more than one in two (53%) dental professionals said financial worries were having the biggest impact on their mental health in the face of Covid-19.

“A new NHS contract in line with the Prototypes must be introduced. The CDO (England) letter says “…mechanisms for the full 2020/21 contract year with the intention of reintroducing a link to delivery of activity and outcomes”. For the foreseeable future an activity-based NHS contract will be unworkable. Now is the time to implement the vision of the late Sir Jimmy Steele and achieve preventative dental care within a viable financial framework for NHS practitioners. Until this happens, our clients must attempt to make plans and financial forecasts with no idea of what the new NHS contract financial landscape will look like”

Other issues lacking clarity include NHS contract payment abatement, and duplication of government support e.g., SEISS, Bounce Back loans, and Small Business Rate Relief grants.

Johnny Minford, of Minford Dental Accountants commented, “in regard to SEISS, a number of difficult questions arise for dentists carrying out both the NHS and the private work. Many dentists earn more than the £50,000 threshold, but some don’t, for a variety of reasons.

The self-employed grant (SEISS) is paid if an individual’s taxable profit is less than £50,000, after capital allowances, but before pensions or superannuation. However, HMRC is unaware of any income under the NHS contract provisions. There is therefore a risk that the NHS Covid payment rules may be breached when the receipt of SEISS, in addition to NHS Covid earnings, exceeds pre-Covid income levels.

A recurring theme from the NHS is ‘reasonableness’. It is vital that NHS practitioners keep notes and records of the factors leading to decisions taken, and why they were made. This will give the best protection against comeback.”

Alan Suggett went on to add, “the fact that UK dentistry and healthcare are devolved, has further added to a sense of confusion. We would like the CDOs of England, Wales, Scotland and Northern Ireland, and the appropriate devolved administrations, to realise how vital clarity of financial matters is to NHS contract holders, and communicate this in a clear and unambiguous format as a matter of urgency. As a non–partisan association, NASDAL are happy to engage with and assist these parties with this vital task. The CDO (England) has stated that ‘all parts of the UK will be aligned’. However the differences in the systems of delivery of NHS dentistry mean that this cannot be achieved without an integrated plan dealing with technicalities.”

Financial solvency – tests fundamentally flawed

The Financial Capability & Capacity (FC&C) tests that are required when tendering or retendering for contracts with NHSE (NHS England) under the “Dynamic Purchasing System” are ‘fundamentally flawed’. That is according to NASDAL (The National Association of Specialist Dental Accountants and Lawyers) and Alan Suggett, specialist dental accountant and partner in UNW LLP.

“The solvency tests are flawed in their application to unincorporated businesses and most owner managed limited companies,” said Suggett. “NHSE don’t (want to?) understand this and their stance is that they are just standard accounting tests that are easily calculated so where is the problem? The problem is that from our initial testing, around 90 per cent of dental practices would fail the tests! As dental practices are regarded as one of the least risky sectors for business lending this is clearly ridiculous.

“The tests are appropriate for larger entities such as the larger corporate groups. However, it would be a cynic that might suggest this is by design rather than accident. As the tests are of a technical accounting nature, it seems that nobody involved (dentists and NHS employees including public sector accountants) understands the issues – they are only apparent to accountants who act for owner managed dental practices.”

Suggett continued: “NASDAL are working with the BDA to persuade NHSE that a cashflow forecast, supported if necessary by proof of deficit funding, is sufficient evidence of financial viability.”