The management work carried out by PCN clinical directors could be subject to VAT, HMRC has confirmed to the Association of Independent Specialist Medical Accountants (AISMA).
This could mean some PCN budgets are reduced by 20%, according to AISMA.
In a technical briefing at the AISMA annual conference on 20 May, AISMA’s specialist VAT lead, Jonathan Main, explained that HMRC does not see the role of clinical directors as falling under healthcare services, which would have made it exempt from VAT.
He said: ‘When PCNs were first set up there was an assumption that the work carried out by PCN clinical directors would be exempt from VAT because they would be involved in healthcare services.
‘However, HMRC does not agree where the role of the clinical director is leading and managing the PCN and supporting practices with planning, direction and governance, rather than directly concerning the protection, maintenance or restoration of the health of the patient.’
Therefore, management work carried out by clinical directors on behalf of practices within the network could be seen as a ‘standard rated service’.
Under HMRC rules, any organisation providing services that exceed £85,000 in a 12-month period must register for VAT.
However, HMRC added that ‘specific VAT treatment will depend on the facts in any given case’.
A spokesperson said: ‘HMRC cannot give a general view on whether arrangements that PCNs have in place would meet the conditions of the Cost Share Exemption.’
PCNs ‘do not work’ from a VAT perspective
Andrew Pow, AISMA board member, added that the way PCNs have been commissioned ‘does not work’ from a VAT perspective, especially in relation to staff employed to work across practices.
‘Those who have taken advice regarding re-structuring, for example moving the PCN employed staff within a federation or company owned by the PCN members, may be able to manage any VAT exposure using a cost sharing exemption. However, many PCNs are loose arrangements with no formal structure for dealing with VAT,’ said Mr Pow.
‘This could lead to a position where VAT becomes due which would not be recoverable. This would reduce the budget available to the PCN by 20%.’
Mr Pow said there was an urgent need for PCNs to look at their structure to mitigate the risk of supplying employed staff to other practices in the network.
He said: ‘It’s not simply a question of buying an off-the-shelf company and getting on with it. The company needs to be set up correctly, with shareholdings allocated to each of the participating practices in the network, and a cost-sharing arrangement put in place. These are complex and time-consuming issues for PCNs to deal with and specialist accountancy and legal advice will be required.’
AISMA said it marks a ‘blow’ for clinical directors on a subject which it had been seeking clarification on since 2019 when PCNs were first established.
In 2019, AISMA said VAT was a concern for practices because they have to work together in networks, which creates ‘sub-contract arrangements’.