Workforce/HR/Employment law Primary Care Networks Practice Income and Expenses

VAT implications of sharing a workforce under networks

Only one member in a Primary Care Network (PCN) will employ the shared workforce. This lead organisation will therefore, in effect, charge a portion of the cost of that workforce to the other practices in the PCN.

Depending on how the PCN is structured, payments for staffing costs received from member practices may be subject to VAT.

VAT charges on supply of staff

The supply of staff is a standard rated supply subject to VAT, even if the staff are undertaking services that fall into the medical care exemption. This is because the supply of staff is under the control and supervision of the receiving practice which will determine their activities and, in doing so, could change the nature of the supply being made to the final consumer.

The receiving practice or federation will be unable to claim back the 20% VAT charge for the supply of staff, even if they are registered for VAT, as the staff supplied will be providing VAT-exempt health services.

Can joint employment contracts circumvent VAT charges?

Joint contracts of employment are a legitimate way of avoiding the need to charge VAT for the supply of staff. If staff are jointly employed, then only one practice will be a nominated paymaster and each practice will reimburse their portion, which is likely to be a transaction outside the scope of VAT.

Note, though, that HMRC has a history of taking a tough line on joint employment contracts where used to avoid VAT charges. It is therefore important that working arrangements do reflect a joint employment of the individuals.

While a PCN might take great care to structure its arrangements to support joint employment at the outset, the arrangements might not be convenient to work with in reality. Employment arrangements may be altered as time goes on to make things easier to operate. While these changes may appear to the GPs to be comparatively minor, there is a risk the joint employment will no longer apply and VAT will need to be charged.

There are also legal and HR issues relating to joint contracts of employment that need to be taken into consideration.

Supplying medical services and VAT

Where a registered health professional employed by one practice provides medical care services to another practice’s patients, that provision of health services is exempt from VAT.

This includes services provided by the clinical staff that PCNs will receive funding for over the next five years – namely pharmacists, physiotherapists and paramedics.

In addition, medical services directly supervised by a GP, nurse, physiotherapist or paramedic also qualify for exemption from VAT.

However, this extension doesn’t apply to pharmacists – any services they supervise, rather than perform wholly themselves, will be standard rated for VAT. This could include services supervised by a pharmacist that are provided by a health care assistant or a social prescriber.

Consideration will also need to be given to the specific nature of the supply of service being made in each case. Agreements between the members should make reference to medical services being provided. The commercial reality of the service provided would need to support those agreements. The employing member would have control and supervision of the service delivered.

Medical services supplied for the purpose of protecting, maintaining or restoring health and provided by a GP or pharmacist fall within the medical care exemption for VAT.

Social prescribing services – to be delivered by PCNs through Social Prescribing Link Workers – do not fall within the medical care exemption but may qualify as medical care, if directly supervised by a registered health professional. However, they may come under provision of welfare services, which are exempt where provided by a state regulated private welfare institution – such as a GP practice.

The clinical director role does not alone qualify for the exemption as they are unlikely to provide direct medical care. However, they could be considered a component part of a wider supply of delivery of care and thereby benefit from the exemption, although this is not easily distinguished.

The provision of administrative services would be a standard rated supply for VAT.

Could a cost sharing group help?

A cost sharing group (CSG) is a separate entity that can supply services that are directly necessary for its members’ non-business or exempt activities, to members exempt from VAT. This set-up overcomes the issues raised above. All the members benefiting from exemption on supplies from the CSG must also be members of the CSG entity.

For example, a federation could be a CSG, provided all members were shareholders, and then supply its member practices with staff without having to charge them VAT.

However, it is important to consider that staff employed by a CSG may not be able to access the NHS pension scheme, if the CSG does not hold an NHS contract.


VAT case law has also shown that there is often a fine line between the provision of medical care or welfare services qualifying for VAT exemption and the supply of staff which would be standard rated.

Both practices and PCNs should take their own specific VAT advice to consider how VAT fits within their structure and ensure they are benefiting from available exemptions.

Lizzy Lloyd and Rob Skilton are accountants at MHA Larking Gowen, a member of the Association of Independent Specialist Medical Accountants

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