Specialist medical accountants Jenny Stone and Kate Perry provide an update on the potential VAT liabilities for primary care networks and outline the options to avoid charges on the supply of staff
A critical issue that PCNs can easily overlook is whether the practices employing PCN staff have a VAT liability on the supply of staff to the other member practices.
The majority of PCNs have been set up under the flat practice or lead practice model where one member practice is the nominated payee and receives PCN funding on behalf of all member practices. It then also employs the PCN staff.
Where a practice employs PCN staff who work in other member practices too, this constitutes the supply of staff that is standard rated for VAT. If the cost of staff supplied (plus any other standard rated supply) exceeds the VAT threshold of £85,000, the practice would need to register for VAT, charge 20% VAT on those supplies, complete a VAT return and pay this over to HMRC.
When PCNs were introduced, the small number of PCN staff employed by a practice in the first year meant the value of the supply was usually lower than the VAT threshold.
However, as staff numbers have grown and will continue to do so, it is really important that practices employing PCN staff make sure they are reviewing the VAT implications with other member practices.
To avoid the VAT issue of supplying staff, PCNs have the following options:
1. Employ staff on joint employment contracts. This means that even if one practice pays the staff via their payroll, the joint employment contract means they are shared staff, so one practice is not supplying to another and there is no VAT issue.
Pros
Cons
2. Share staff among member practices. In this case the PCN nominated payee practice reimburses any practice that has a PCN member of staff on their payroll. As long as the total cost for PCN staff employed via each member practice’s payroll plus any other standard rated supply is below the VAT threshold of £85,000, then, although there is a supply of staff, there would be no requirement to register for VAT. Other standard rated supplies would include, for example, invoicing a pharmacy for service charges.
This is really only a short-term option, however, as with staff numbers increasing, the amounts involved will almost certainly exceed the VAT threshold in the future.
Pros
Cons
3. Set up a cost sharing group company. This means that a limited company would be set up with each member practice holding shares. The staff would be employed on the company’s payroll. All members of staff will be able to join the NHS Pension Scheme as although the company is not an existing Employing Authority, it can apply for temporary access to the Scheme until 31 March 2023. The PCN company would invoice each practice for the supply of staff and the nominated payee practice, holding the funds, would make the payment to the PCN company. As long as the cost sharing group meets the relevant conditions (see below), the supply of staff would be exempt from VAT.
Pros
Cons
4. Employ staff through your local Federation. Many PCNs are already employing staff via their federations, particularly those federations that hold contracts, as they will already be registered as an NHS body for superannuation purposes. The federation is then in control of all staff and can administer them accordingly.
Pros
Cons
Cost Sharing Group (CSG) Conditions
There is no definitive solution to this VAT problem. However, it is important for practices employing PCN staff to review their VAT position.
Jenny Stone and Kate Perry are partners at RBP Chartered Accountants
Or, please register for a free trial to access all of the guides and unlock all features.