New tax guidance for Primary Care Networks

New joint guidance from two leading accountancy organisations aims to clarify how Primary Care Network contract income is taxed – warning that member practices could be at risk of under-declaring income

Leading independent medical finance advisors have published guidance for Primary Care Networks to help clarify how income through their Network contracts is taxed.

The Association of Independent Specialist Medical Accountants (AISMA) and Institute of Chartered Accountants of England and Wales said it is important for PCNs to ensure their member practices are declaring their accounts accurately ahead of the deadline for 2019/20 tax returns on 31 January.

Their joint guidance recommends that PCNs draw up statements that provide a summary of transactions across the network, to enable member practices to reflect their share of PCN transactions in their own practice accounts for partnership tax returns.

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.’

The guidance explains that HMRC rules stipulate that income is earned when services are performed – not at the time of billing, invoicing, or payments.

It gives the example of income from the 2019/20 PCN Directed Enhanced Service payment of £1.50 per patient, which must be declared for that financial year, even if it was not spent on any specific activities by end of March 2020.  Any surplus is classed as profit, to be spent at a future date or shared to member practices.

Ms Wood added this issue is likely to persist in 2020/21 as some PCNs struggle to use their network core payments for the year, due to the ongoing drain on practice resources as a result of the pandemic.

You can download the full guidance document here.