A Primary Care Network (PCN) will need to decide who will be the nominated payee and what structure their PCN will be.
The PCN funding is a national DES. This means that only a holder of a primary medical services contract can receive the funding, i.e. they hold a GMS, PMS or APMS contract. Therefore, it is expected that a PCN will need a nominated practice to receive the funding. A separate bank account should be set up, the details of which will need to be provided on the PCN registration form.
A federation can only be paid the PCN DES funding if it holds a medical services contract, for example, where a federation runs a GP practice, they could be the nominated payee.
Structuring of your PCN
The three main structures PCNs seem to be considering are:-
- Flat Practice Structure
- Lead Practice Structure
- Limited Company
When considering the structure of your PCN there are three main issues you need to consider:-
It is intended that the workforce of the PCNs will expand significantly over the next five years and therefore practices need to consider their exposure to potential employment liabilities. For example, what happens if the DES ends in five years, would staff be made redundant or would there be any employee claims, etc. Employment liability insurance may need to be reviewed to ensure adequate protection under these circumstances.
Most GP practices do not have to consider VAT (unless they are dispensing), as the provision for healthcare services aimed at the protection, maintenance and restoration of a patient’s health are exempt from VAT. However, the supply of staff seconded from one practice to another is a vatable supply and PCNs must not overlook this issue. This has been confirmed in an HMRC case (HMRC v Rapid Sequence Ltd) where the services of a medical professional to a medical institution by a company/agency were judged to be standard rated for VAT.
NHS Pension Scheme
The workforce employed by the PCN will only be able to access the NHS Pension scheme if they are employed by an ‘NHS Employing Authority”. To qualify as an ‘employing authority’ you have to hold a NHS contract.
Flat Practice structure
- Need to consider exposure to employment liabilities
- No VAT issues
- No NHS Pension Issues
The employment of staff would be under shared employment contracts so the employment liabilities are shared between all the practices within the PCN. The liability would not be limited under this arrangement
so the practices within the PCN need to consider their exposure to this. As there are shared employment contracts there is no supply of staff, so there would be no VAT issues.
One practice would be the nominated payee who would receive the DES funding and who would run the payroll and pay the staff. The staff would be able to join the NHS Pension scheme.
A separate bank account would need to be opened. Although the PCN would not be a separate legal entity, it would be advisable to prepare accounts each year for transparency.
Lead Practice Structure
- Exposure to employment liabilities would sit with the lead practice
- VAT issues as the lead practice would be supplying staff to other practices
- No NHS Pension Issues
The lead practice would be the nominated payee and also the employer for the workforce for the PCN. This means they would take the responsibility for the employment liabilities. However, the practices in the PCN could indemnify the lead practice against this risk. If other practices in the PCN pay, for staff there would also be potential VAT issues, as supplying staff to work in other practices is a vatable supply.
Separate Limited Company (PCN Co)
- Limited liability for employment liabilities
- VAT issues (as above)
- As the company is not an employing authority staff employed would not have access to NHS Pension Scheme.
The funding for the DES would still need to be paid to the nominated practice, as the company cannot receive the DES funding, as they do not hold a primary medical services contract. This means the nominated payee would have to transfer funds to the company.
The company would be supplying staff to the practices so there could be potential VAT issues. If this is deemed to be the supply of staff as opposed to providing healthcare services, VAT would be applicable.
If shared employment contracts were in place between the PCN Co and all the practices, there would be no supply of staff, so VAT would not be an issue. However, shared employment contracts would mean that employment liabilities are shared between the PCN co and the practices.
A limited company is a separate entity and would have shareholders. Each practice would need to nominate a partner to be the shareholder as a practice cannot hold shares themselves. The company accounts would be published on Companies House website and corporation tax, at 19%, would be payable on any profits arising.
Unfortunately, none of these structures appears to work particularly well. However, the flat structure model would appear to be the simplest as there are no VAT issues or NHS Pension issues providing you have shared employment contracts between all the practices within the PCN.
The lead structure model would appear to mean that the lead practice takes all the responsibility for the employment liabilities and where practices within the PCN pay towards the cost of the workforce this is likely to be a supply of staff and therefore Vatable.
Setting up a limited company is more complex as consideration needs to be given not only to the structure of the company, i.e. allocation of shares amongst practices, but also to the VAT issue and NHS Pension.
If you are considering setting up a separate company for your PCN we would strongly advise you to take independent VAT advice. We can put you in touch with Peter Perry who is a VAT specialist in the healthcare sector, who we have worked with for over 20 years. Peter would be able to review the structure and advise on the VAT implications.
We also recommend that you engage the services of a medical specialist solicitor for your network agreements and any shared employment contracts, to ensure that they are water tight on the arrangements between the practices within the PCN.
Prepared by RBP
Tel: 0208 370 7777