What is a primary care network?
A primary care network (PCN) provides an expanded range of healthcare services beyond the traditional services of a GP practice.
A PCN is a network of independent GP practices, rather than a legal entity. A PCN receives NHS funding to provide a defined number of additional roles to fulfil its obligation to provide an expanded range of medical care and welfare services to its local patient population.
Funding for a PCN’s activities is based on its patient population. The funding will be pooled and held on behalf of the PCN by one of the following entities:
- a GP federation (GP Fed) or independent provider organisation (IPO)
- a PCN corporate body
- one of the PCN member GP practices
- a single GP practice PCN.
The fund-holding entity is not necessarily the employer of the additional roles required by the PCN.
Effective management of VAT will be one of the most important tax issues to ensure that a PCN operates as smoothly and cost-efficiently as possible.
To provide much-needed clarity for the sector, the Association of Independent Specialist Medical Accountants (AISMA) and the British Medical Association (BMA) presented their preferred solution to the HMRC Policy for the effective management of VAT as it affects PCNs in late 2020.
Clarification was finally provided by HMRC in early 2022. HMRC agreed with the VAT position in all cases apart from the role of the PCN Clinical Director (CD). In HMRC’s view, payment for CD support cannot be exempt from VAT, as the CD provides leadership and management of the PCN, rather than healthcare services direct to a patient.
How VAT operates
If a business sells goods or provides services with turnover exceeding the VAT registration threshold of £85,000 in any 12-month period, it must register the business for VAT. In overview, the goods or services provided by the business will be subject to VAT at 20%, 5% or 0%. Again, in overview, most healthcare services will be exempt from VAT.
The business can offset the VAT paid on its costs against the VAT charge to its customers. If the business makes only VAT-exempt supplies, it will not be entitled to recover any VAT and should not be registered for VAT. If a business is not registered for VAT, it cannot reclaim any VAT.
The VAT risks for PCNs
A PCN will pool resources and provide an expanded range of healthcare services through additional roles such as clinical pharmacists, social prescribing link workers, paramedics, and care coordinators.
Although the healthcare services delivered by each GP practice will remain exempt from VAT, a VAT issue arises on the shared resource which is used across the PCN to support the activities of individual GP practices.
As a PCN is not a legal entity, the additional resource will be employed elsewhere, whether in a PCN employment vehicle established for the purpose, a GP Federation, or one or more of the GP practices.
As the provision of this shared additional resource may not be exempt from VAT, there is a risk that VAT becomes due which cannot be reclaimed. This risks significant amounts of funding within PCN budgets being lost to irrecoverable VAT.
There is a range of solutions available, which may involve a change in the way additional resources are delivered to each GP practice or the use of a VAT easement known as the “cost-sharing exemption”.
A brief overview of the VAT exemption for medical care
Medical care provided in support of a PCN is exempt from VAT if it is provided by or supervised by a suitably qualified healthcare professional employed by the service provider.
The healthcare professional must be listed on:
- the register of medical practitioners or the register of medical practitioners with limited registration;
- the register kept under the Health Professions Order 2001;
- the register of qualified nurses, midwives and nursing associates maintained under article 5 of the Nursing and Midwifery Order 2001.
The medical care must also be provided or supervised by someone qualified for the procedure in question. Medical care provided by a clinical pharmacist must be wholly performed by someone registered as such; supervision of services by a clinical pharmacist does not confer VAT exemption.
HMRC’s view of the exemption for medical care is set out in its VAT Health Manual in the following terms:
“Services provided by registered health professionals qualify for exemption only when both of the following conditions are met:
- The services are within the profession in which the person is registered to practice, and use the knowledge, skills, judgment, and experience acquired in the course of his professional training;
- The primary purpose of the services is the protection, maintenance or restoration of health of the individual concerned.”
It is this last condition which has caused HMRC to limit VAT exemption for CD leadership of a PCN.
What's next?
In our experience, the first step is to map income, expenditure, and the employment of all additional roles across a PCN by reference to each legal entity.
Once that is done, the PCN can start to understand its current and preferred VAT status.
This will also take into account the preferred corporate structure for the employing entities, the fundholding entity for PCN DES funds, and the employment of the CD.
