GPs could face tax bills for unspent PCN funding, accountants warn

GP practices could face unexpected bills for thousands of pounds in tax unless primary care networks (PCNs) make clear plans to spend cash reserves this month, accountants have warned.

PCN tax warning (Photo: Matthew Horwood/Getty Images)
PCN tax warning (Photo: Matthew Horwood/Getty Images)

Some PCNs are sitting on six-figure cash reserves, accountants have told GPonline - and unless the  money is spent or clearly committed to planned spending, it could count towards practice profits.

As a result, practices could face tax bills for thousands of pounds on money they have never received.

Practices will have to pay tax on funding that PCNs have been unable to spend during the 2019/20 financial year, with HMRC viewing unused cash as profit.

GP tax bills

Specialist medical accountant at RSM UK James Gransby said he knew of PCNs with six-figure sums in the bank, and warned that PCNs need to have ‘legally or constructively’ committed funding received in 2019/20 to a cost by 31 March this year in order to avoid a tax bill.

The tax expert warned PCN clinical directors - many of whom are GP partners - that they would be ‘shooting themselves in the foot’ if they failed to manage funds properly.

If PCNs have not been able to spend or allocate money by the end of the financial year, he warned, it was vital that they distributed funding among member practices to cover the cost of tax bills - to avoid a 'dry tax liability' - the prospect of paying tax on funding they never received.

During 2019/20, total PCN funding will be £296m, £110m of which is dedicated to recruitment of staff through the additional roles reimbursement scheme.

NHS funding

Practices will not be taxed on recruitment funding but will have to pay tax on unspent funding from other streams, such as the £1.50 per patient PCNs receive and a network participation payment.

Mr Gransby acknowledged that most practices would have attempted to spend 'every penny' of this year's funding, but warned some PCNs would be left with surplus funds which would need to be managed.

‘Let's say a PCN has got a surplus of £50,000 divided equally between five practices,' he said. 'Each one of those will have an extra £10,000 worth of profit to go through its account.

‘If the PCN has said, right, here's £10,000 and we’ll put it into your bank account by 31 March, they're probably not too worried because they've got the cash to pay it. But if they say we're going to hold that money back, and we haven't evidenced how we are going to spend it, those practices will face tax bills even though they haven’t seen any money come in.'

Primary care networks

The specialist medical accountant also warned money earmarked by PCNs for future costs would have to be properly recorded to avoid unexpected tax bills.

‘If you've earmarked the money for future spending and said, well next year we're thinking about maybe buying some computers, HMRC won't allow that to go in as a cost because you haven't made a legal commitment at the year end date.

‘HMRC says you need to have committed legally or constructively to spending the funds, so for example putting in an order for something and getting an invoice.'

GP leaders will meet next week at a special conference of LMCs that will spell out the profession's view on changes to the GMS contract agreed for 2020.

Despite a positive reaction from many GPs to concessions on PCN requirements for 2020/21 - after controversial draft plans were widely cricticised - LMCs have warned the updated network contract DES could still leave practices thousands of pounds short each year and threaten their independent contractor status.

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