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How PCNs can manage potential VAT liabilities

Specialist medical accountants Jenny Stone and Kate Perry provide an update on the potential VAT liabilities for primary care networks and outline the options to avoid charges on the supply of staff

PCNs have now been in existence for just over two years and the events of last year have meant that Clinical Directors’ workload has soared. One issue that PCNs seem to be overlooking is whether the practices employing the PCN staff have a VAT liability on the supply of staff to the other member practices.

The majority of PCNs have been set up under the flat practice or lead practice model where one member practice is the nominated payee and receives the PCN funding on behalf of all member practices. They will then also employ the PCN staff.

If a practice is employing PCN staff who work in the other member practices, this constitutes the supply of staff which is standard rated for VAT. If the cost of staff supplied (plus any other standard rated supply) exceeds the VAT threshold of £85,000, the practice would need to register for VAT, charge 20% VAT on those supplies, complete a VAT return and pay this over to HMRC. 

When PCNs were introduced, the small number of PCN staff employed by a practice in the first year meant the value of the supply was usually lower than the VAT threshold.

However, as staff numbers have grown and will continue to do so, it is really important that practices employing PCN staff make sure they are reviewing the VAT implications with other member practices.

To avoid the VAT issue of supplying staff, PCNs have the following options:

1. Employ staff on joint employment contracts. This means that even if one practice pays the staff via their payroll, the joint employment contract means they are shared staff, so one practice is not supplying to another and there is no VAT issue.


  • Keeps matters simple.
  • No need to register separately to allow staff to join the NHS Pension Scheme.


  • Requires the drawing up of new contracts – which can be difficult as there is no overall employer, so dealing with holidays and other staff related issues become problematic.

2. Share staff amongst member practices. In this case the PCN nominated payee practice reimburses any practice which has a PCN member of staff on their payroll. As long as the total cost for PCN staff employed via each member practice’s payroll plus any other standard rated supply is below the VAT threshold of £85,000, then, although there is a supply of staff, there would be no requirement to register for VAT. Other standard rated supplies would include, for example, invoicing a pharmacy for service charges.

This is really only a short-term option, however, as with staff numbers increasing, the amounts involved will almost certainly exceed the VAT threshold in the future.


  • Delays the VAT issue.
  • No need to register separately to allow staff to join the NHS Pension Scheme.


  • Not a long-term solution.
  • Complicated to administer, as staff are not under the control of one organisation to manage.
  • PCN staff may not be employed under the same terms and conditions as each other, as these may not be the same across member practices.
  • Staff issues are entirely the responsibility of the employing practice, including dealing with grievances and possible redundancy costs.

3. Set up a cost sharing group company. This means that a limited company would be set up with each member practice holding shares. The staff would be employed on the company’s payroll. All members of staff will be able to join the NHS Pension Scheme as although the company is not an existing Employing Authority, it can apply for temporary access to the Scheme until 31 March 2023. The PCN company would invoice each practice for the supply of staff and the nominated payee practice, holding the funds, would make the payment to the PCN company. As long as the cost sharing group meets the relevant conditions (see below), the supply of staff would be exempt from VAT.


  • Keeps all PCN staff together so that they can be well managed and shared between practices.
  • All staff can be employed under the same terms and conditions.


  • Cost of setting up the company and drawing up a members’ agreement – which needs to include the fact that no dividends can be paid, as this would break the rules of the cost sharing group.
  • Need to register for access to NHS Pension scheme.

4. Employ staff through your local Federation.  Many PCNs are already employing staff via their federations, particularly those federations that hold contracts, as they will already be registered as an NHS body for superannuation purposes. The federation is then in control of all staff and can administer them accordingly.


  • Keeps things simple.
  • No need to register separately to allow staff to join the NHS Pension Scheme.


  • PCN loses overall control of staff.
  • Can involve a high cost charged by the federation for administration.

Cost Sharing Group (CSG) Conditions

  • There must be an independent group of persons (a CSG) supplying services to persons who are its members.
  • All the members must carry on an activity that is exempt from VAT.
  • The services supplied by the CSG to which the exemption applies must be directly necessary for a member’s exempt activity.
  • The CSG only recovers from its members, the members’ individual share of the expenses incurred by the CSG. The CSG must not exist for purposes of gain.

There is no definitive solution to this VAT problem. However, it is important for practices employing PCN staff to have the VAT position reviewed.

Jenny Stone and Kate Perry are partners at RBP Chartered Accountants


David Mummery 16 July, 2021 8:14 pm

All these hugely time consuming , bureaucratic unintended consequences from the PCN DES ; is it really worth it? Especially as the PCN structures seem to be workload generating. There will be more…