The Association of Independent Specialist Medical Accountants (AISMA) and the healthcare group of the Institute of Chartered Accountants of England and Wales have together issued guidance for primary care networks (PCNs) and their member practices on the tax treatment of PCN income and expenditure.
PCNs are recommended to meet tax requirements by drawing up financial statements that provide a summary of transactions across the network for the relevant accounting period. The financial statements will enable member practices to reflect their share of PCN transactions correctly into their own practice accounts so that they can meet the requirements of tax legislation for the completion of partnership tax returns. The deadline for submitting tax returns for 2019/20 is 31 January 2021.
Deborah Wood, AISMA chairman, said: “This joint guidance has been issued to resolve conflicting views on how to account for PCN surpluses. Many practices are not seeing this income as part of their contract, despite it being commissioned as a Direct Enhanced Service. This means there is potential for practices to under declare their income tax for 2019-20.”
HMRC states that income is earned when services are performed and that the timing of issuing bills, invoicing, or receiving payments does not determine when income should be recognised.
For example, if income is received under the terms of the 2019/20 PCN Directed Enhanced Service, which has no requirement for practices or PCNs to do anything beyond 31 March 2020 to ensure that the core £1.50 per patient income is earned, then that income must be recognised in the year to 31 March 2020, even if it has not been spent on any specific activities at that time. The surplus falls into profit and becomes available working capital to be spent at some future date or to be distributed to the PCN members.
Financial reporting rules specifically prohibit provisions being made for future expenses and losses in the financial statements when no obligation exists at the balance sheet date.
Ms Wood added that this will be a recurring issue in 2020/21 as some PCNs struggle to use their network core payments for the year because of the continuing drain on practice resources as a result of the pandemic.