PCN VAT costs could reduce available budget by 20%, accountants warn

Management carried out by PCN clinical directors could be subject to VAT, and overall VAT costs related to PCN staff could reduce budgets by 20%.

Specialist accountants issued the warning after receiving newly updated PCN tax guidance from HMRC., set out by HMR.

This said that the role of a clinical director concerns the ‘leadership and management’ of a PCN rather than being ‘directly concerned with’ the health of a patient.

It said: ‘Providing management services to other parties would sit outside the exemption unless it was an ancillary part of a supply of VAT exempt healthcare services. A CD would need to consider what exactly they were supplying and to whom.’

This would mean that work carried out by directors on behalf of their network practices would now be a standard rated service.

Any individual or business providing services extending the VAT-rated threshold of £85,000 in a 12-month period must register for VAT.

However, the Association of Independent Specialist Medical Accountants (AISMA) warned that the way PCNs are commissioned does not work from a VAT perspective, particularly when staff are employed to work across practices.

Andrew Pow, AISMA board member, said: ‘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.

‘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%.’

He added that PCNs must now review how they are structured to limit the risk to practices employing staff and sharing them across 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.’

Jonathan Main, AISMA’s specialist VAT lead, said that when PCNs were first set up the assumption was that PCN directors’ work would be VAT-exempt as it is involved in healthcare services.

He said: ‘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.’

Note: This article was updated at 16.45 on 20 May to reflect that the accountant was talking about all staff VAT, not just clinical director VAT, when saying budgets could reduce by 20%.