The Association of Independent Specialist Medical Accountants has confirmed that management work carried out by primary care network (PCN) clinical directors could be subject to VAT. AISMA has been seeking clarification from HMRC on this issue since 2019 when PCNs were first established.
The clarification was confirmed in updated PCN tax guidance, presented in a technical briefing to AISMA accountants today (Friday 20 May) at the Association’s 25th annual conference by Jonathan Main, VAT and Indirect Taxes Partner at MHA Moore and Smalley, and AISMA’s specialist VAT lead.
Mr Main 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.”
This means that the work carried out by PCN clinical directors on behalf of the practices in the network would now be a standard rated service. Any individual or business organisation providing services exceeding the VAT-rated services threshold of £85,000 in any 12-month period must register for VAT.
Andrew Pow, AISMA board member, said: “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.
“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%.
Mr Pow added that the clarification means that there is now an urgent need for PCNs to look at how they are structured to mitigate the risk to practices employing staff and supplying them to other practices in the network.
“It’s not simply a question of buying an off-the-shelf company and getting on with it. 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.”