Guide: Primary Care Networks

Why primary care networks might opt to become companies

As an update to his article published here in March 2021, specialist medical accountant James Gransby explains why Primary Care Networks might want to consider switching to a limited company business model and what could be the deciding factors

As an update to his article published here in March 2021, specialist medical accountant James Gransby explains why Primary Care Networks might want to consider switching to a limited company business model and what could be the deciding factors

When Primary Care Networks (PCNs) were first established they were free to choose their own business models, depending on how the members of the network intended to operate.

As networks are now required to undertake more activity and have a larger staff base, now may be the time for PCNs to consider whether the legal form adopted at their inception in July 2019 needs to be adapted.

Why might PCNs consider a company business model now?

Most PCNs adopted either a lead practice model to set up their network. However, as many PCNs are finding, these models can be problematic for member practices, particularly in terms of sharing staff.

The growth in workforce is a key reason that PCNs are considering a possible move to a limited company (corporate) business model.

Those PCNs that are operating as a super-partnership or under the auspices of a federation were equipped from the outset to deal with all these legal and employment issues, and generally appear to be robust and fit for purpose.

What key problems can a company model overcome?

The main challenges that lead practice PCNs face, and which they could potential overcome by adopting a limited company model, relate to tax and staff liabilities.


While healthcare services are often classed as VAT exempt, the sharing of staff around the network (including medical staff) is usually subject to 20% VAT (unless a practice is operating below the £85,000 registration threshold). Current indications from HMRC also strongly indicate that this extends to the Clinical Director role too. This is a very complex issue, but essentially a PCN operating a limited company can be structured to benefit from a separate VAT relief, called the cost sharing exemption, by operating a cost sharing group.

2. Liability

A network operating under a lead practice structure is not a separate legal entity in its own right. It is a group of practices that are jointly and severally liable for what happens within the network. This means all practices – and therefore all the partners – are trusting each other to share the network’s legal and financial responsibilities.

The main concern here is that if a PCN needs to make staff redundant in future, the cost will fall on individual member practices. By contrast, if a company is employing the workforce the costs will come out of the assets of the company – lessening the risk of destabilising individual practices.

There’s currently much discussion on the issue of PCN engagement from the BMA and others. So, it’s possible that PCNs may not be a permanent fixture – an issue that should not be ignored. 

3. Legal framework

A PCN operating without a formal framework relies only on the guidelines set out in the network agreement. A limited company is governed by the Companies Act 2006, which sets out strict regulations concerning the company’s obligations. Having this formal framework in place makes the people involved accountable for their actions.

4. Tax on PCN surplus

If a PCN is not a legal entity it has no mechanism to report its taxes, except through its member practices, with each practice needing to report its share of the surplus through their own accounts.

By creating a company there could be options open to the PCN to shelter some of the profits at lower tax rates.

What are the main pros and cons of a corporate model?

The advantages of the corporate route include:

  • It limits the liability for the practices, and therefore GP (and other) partners, involved in the network.
  • Mitigation of the VAT issue relating to shared staff, but only if the very strict VAT cost sharing group rules are adhered to correctly.
  • Staff can be employed on consistent employment terms.
  • The clinical director could be employed by the company, which may solve the VAT issue on that role.
  • Some of the surplus due to unexpended PCN funds at year-end could be subject to lower tax rates (corporation tax rate instead of partners’ marginal tax rates of 40-45%).
  • A company would be the only way that a network could hold an APMS contract.

The disadvantages would include:

  • There is a cost to setting up and running the PCN company as an extra entity for which to prepare and submit accounts and run a payroll.
  • The company may need separate CQC registration as a service provider.
  • Transferring staff, following TUPE procedures (see below), can be onerous.
  • Access to the NHS pension is not automatic (see below).

Why is TUPE important to consider?

When moving the workforce into a corporate vehicle, such as a limited company, companies must follow the Transfer of Undertakings (Protection of Employment) – or TUPE – Regulations. The aim of the regulations is to ensure employees retain the same terms and conditions and keep continuity of employment in the event of a change of employer.

As a consequence of TUPE regulations and despite currently operating below the VAT registration threshold, a number of PCNs have decided to form a company now to avoid needing to transfer a larger number of staff (requiring extra time and resources to consult with each) should the decision be taken later to change the business model.

What about pensions?

At the outset, a huge stumbling block for PCNs using limited companies was that they could not access the NHS pension scheme. However, since fairly early on in their existence, PCNs operating as limited companies have been able to apply for staff to access the NHS pension under a temporary Direction/Determination order, which currently lasts until 31 March 2023 (following a previous extension from the 31 March 2022 date).  

Next steps

If the PCN decides to form a corporate entity then there are a number of practicalities, for which specialist advice will usually need to be sought. These include:

  • Forming the company and ensuring the underlying legal structure and paperwork is correct
  • Transferring over any staff from the PCN (in accordance with TUPE regulations and after necessary consultation)
  • Obtaining access to the NHS pension scheme
  • Other steps such as opening a bank account, arranging contracts of employment, exploring CQC registration and other aspects before it becomes operational.

While all this work means getting past a certain ‘pain barrier’, for many PCNs the long-term benefits of operating in the correct structure may outweigh the short-term effort.

James Gransby is vice-chairman of the Association of Independent Specialist Medical Accountants and a partner at RSM UK Tax and Accounting Limited

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