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How to… form a company

form a company

Specialist medical accountant James Gransby explains why PCNs might want to consider switching to a limited company business model

As the third year of the PCN DES approaches, now may be the time to consider if the present form allows a network to function at its best.

Most PCNs adopted either a lead or flat practice model to set up their network. However, these models can be problematic, particularly in terms of sharing staff.

There are two key reasons why PCNs are considering a possible move to a limited company (corporate) business model: the PCN workforce is now increasing with more funding available from the additional roles reimbursement scheme (ARRS); and a recent change in legislation means that limited companies can now access the NHS pension.

PCNs that are operating as a super-partnership or as a federation were equipped from the outset to deal with these legal and employment issues, and generally appear to be robust and fit for purpose.

What key problems can a company model overcome?


While healthcare services are often classed as VAT exempt, the sharing of staff around the network (including medical staff) is usually subject to 20% VAT (unless a practice is operating below the £85,000 registration threshold). This is a complex issue, but essentially a PCN operating a limited company can be structured to benefit from a separate VAT relief, called the cost sharing exemption, by operating a cost sharing group.


A network operating under a lead practice or with a flat practice structure is not a separate legal entity in its own right. It is a group of practices that are jointly and severally liable for what happens in the network. This means all practices – and therefore all the partners – are trusting each other to share the network’s legal and financial responsibilities.

The main concern here is that if a PCN needs to make staff redundant, the cost will fall on individual member practices. However,  if a company is employing the workforce the costs will come out of the assets of the company – which lessens the risk of destabilising the individual practices.

Legal framework

A PCN operating without a formal framework relies only on the guidelines set out in the network agreement. A limited company is governed by the Companies Act 2006, which sets out strict regulations on the company’s obligations. Having this formal framework makes the people involved accountable for their actions.

Tax on PCN surplus

If a PCN is not a legal entity it has no mechanism to report its taxes, except through its member practices, with each practice needing to report its share of the surplus through their own accounts.

With a company, the profits can be sheltered at lower tax rates, and in some circumstances without tax being applicable until profit is distributed to practices. This is far more attractive than the exposed route that lead and flat practice models need to adopt.

Why is TUPE important?

When moving the workforce into a corporate vehicle, such as a limited company, companies must follow the Transfer of Undertakings (Protection of Employment) – or TUPE – Regulations.

These ensure employees retain their terms and conditions and keep continuity of employment in the event of a change of employer. As a consequence of TUPE regulations, a number of PCNs, despite operating below the VAT registration threshold, have formed a company to avoid needing to transfer a larger number of staff (requiring time and resources) at a later date.

What about pensions?

PCNs operating as limited companies can now apply for staff to access the NHS pension under a temporary direction/determination order, available until March 2023, and expected to be written into legislation.

How can PCNs weigh up their options?

A quick way to assess if something needs to be done, particularly those using the lead practice model, is a VAT review to highlight if you are close to the £85,000 VAT threshold. Also, look at the likely scale of the PCN in coming years. Can the practices in the PCN accept circa £1m of income flowing through an unincorporated entity with only the network agreement to fall back on?

Next steps

Once a PCN decides to form a corporate entity the practicalities, for which specialist advice will usually be needed, to consider are:

• Forming the company, ensuring the underlying legal structure and paperwork are correct.

• Transferring any staff from the PCN (in accordance with TUPE regulations and after necessary consultation).

• Obtaining access to the NHS pension scheme.

• Other steps such as opening a bank account, arranging contracts of employment, exploring CQC registration and many other aspects.

Although there is a ‘pain barrier’, for many PCNs the long-term benefits of operating in this structure will outweigh the initial short-term effort.

James Gransby is vice-chairman of the Association of Independent Specialist Medical Accountants and a partner at RSM UK Tax and Accounting


David Mummery 3 May, 2021 9:46 am

Unlimited joint and several liability of the partnership model ( mostly regarding to premises and leases ) is the ticking time – bomb waiting to explode for GP partnerships and Super-partnerships