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Finance Diary, November: Grey areas to watch in premises and staffing finance

This month’s column covers two areas for potential savings – changes to abatement rules, and a way to avoid a VAT liability.

After the new Premises Cost Directives emerged earlier this year, it seemed there was no limit to the amount of private work a practice could undertake. However, the Department of Health pointed out that significant private use might still lead to clawbacks.

Local area teams then considered whether it was right to only claw back rent charged to third parties, while ignoring service charges where surgeries were 100% funded by cost or notional rent. Some area teams now suggest that if service charges paid by third parties are significant, this might reduce rent reimbursement (the new directive refers simply to ‘income from property’, not ‘rent’). No doubt it will take time for this question to be resolved.

In the meantime, GPs who anticipate earning reasonable additional income by allowing premises to be used by third parties in return for a service charge might need to restructure the arrangement. A joint venture, for example, might give the practice a cut of profits. But of course if the venture doesn’t make a profit, the practice will not get a share.

Reduce the cost of sharing staff

Many localities are currently considering sharing management and administration functions across a range of practices, with practices charging each other.

Since most practices are not VAT registered, they rarely consider whether such cross-charging might give rise to a VAT liability. While cross-charging for nurse or doctor time is likely to be covered by the VAT medical exemption, administration or management time is not covered. If the value of these services, together with the practice’s existing potentially VAT-rated services, exceeds the VAT registration threshold (currently £77,000), the practice must register for VAT and charge 20% VAT on this income.

This issue was addressed in July 2012 when HMRC issued guidance on the cost-sharing exemption. Unfortunately, if practices want to avoid having to levy VAT on cross-charges, shared staff need to be employed by the cost-sharing group. However, staff in such a group would not be eligible for the NHS Pension Scheme unless the group held an NHS contract in its own right.

Things could be sorted out if NHS Pensions makes its rules flexible, but I suspect this might not happen quickly.

Bob Senior is chair of the Association of Independent Specialist Medical Accountants (AISMA) and head of medical services at Baker Tilly