The Association of Independent Specialist Medical Accountants (AISMA) has been seeking clarification on VAT liabilities for PCNs since 2019 - and has now confirmed that management work by PCN clinical directors could be subject to 20% VAT.
Updated tax guidance presented at the association's annual conference suggests that work carried out by PCN clinical directors on behalf of member practices is not covered by the VAT exemption that applies to provision of healthcare services.
Accountants have also warned that the problem could extend beyond work by clinical directors - and that in a worst-case scenario VAT charges could strip away tens of millions of pounds in funding under the additional roles reimbursement scheme (ARRS), worth over £1bn nationally in 2022/23 alone.
PCNs face VAT problem
AISMA specialist VAT lead Jonathan Main, VAT and indirect taxes partner at MHA Moore and Smalley, said: 'When PCNs were first set up there was an assumption that the work carried out by PCN clinical directors would be exempt from VAT because they would be involved in healthcare services.
'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.'
Accountants warned that PCNs should immediately consider how they are structured and seek expert advice 'to mitigate the risk to practices employing staff and supplying them to other practices in the network'. GPonline reported this week that as many as 200 PCNs may already have formed companies - but AISMA warned that how these are structured is key.
AISMA board member Andrew Pow told GPonline: 'The crucial part is whether the organisation providing services has income subject to VAT above £85,000 as that’s the threshold which triggers the need to register for VAT.
Network structure
'So in isolation an individual clinical director providing work in their own time would not need to register - but if they were doing other work that was VAT-able then they would. However an organisation, for example a federation or a dispensing VAT practice, may already be VAT-registered and if they were providing the clinical director role then automatically they would need to charge VAT.'
But he added: 'The wider VAT issue though comes in conjunction with the ARRS funding. If funding goes to a lead practice who employs staff on behalf of the PCN then it becomes an issue. That practice will supply those staff to other practices in its PCN - and depending on another variety of reasons that could be deemed as a supply of staff not healthcare services.'
He explained that this supply of staff would be taxable over the £85,000 threshold - and that once the clinical director issue is added in 'you can see it quite quickly escalating'.
Mr Pow added: 'The way PCNs have been commissioned does not work from a VAT perspective, particularly in relation to staff employed to work across practices, as illustrated by this clarification from HMRC.
GP federation
'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%.'
PCNs cannot simply buy an 'off-the-shelf company' and expect to escape the problem with VAT, AISMA warned. Mr Pow said: '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.'
