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PCN costs could rise by 20% as HMRC update guidance 

| | Duncan & Toplis | 22 June 2022

The changes within the primary care sector in relation to the delivery of health services are coming under scrutiny from HM Revenue and Customs (HMRC), and it could create a costly precedent.

If you are providing services to the NHS, then we understand that HMRC is likely to be asking whether you should be charging VAT. Should you?

Most healthcare providers believe their services to be exempt from VAT. With a rising demand for services nationwide and the more creative models for increasing capacity comes much more contractual complexity, which could create confusion. This brings with it more risks for the provider to examine what services they are actually providing in this fast-moving arena. Do you know where you stand?

As VAT is a charge on the supply of goods and services, it is worth examining whether your supplies fall within the VAT exemption. You may be surprised to learn that the exemption is very narrowly defined and therefore you may find you are providing services on which VAT should be charged - which could substantially reduce your available budget. 

Next-level complexity 

Primary care networks (PCNs) present a whole new level of VAT complexity. 

The matter to consider here is that the network is not in fact an entity in its own right but is a collaboration of several primary care providers receiving funding under their GMS contract to provide services to the NHS across their entire patient population.

The funding is received by one allocated entity for various functions carried out by these networks. The networks receive funding for additional roles including clinical pharmacists, pharmacy technicians, social prescribers, health and wellbeing coaches, podiatrists, occupational therapists, and mental health practitioners to name but a few. 

Some of these services may be exempt from VAT and some are not. Exemption will be dependent in some cases on the supervision structures in place in relation to registered health professionals that are recognised as qualifying for exemption. It is also important to determine if it is services that are being provided or resources (i.e. a supply of healthcare services or a supply of a person to fulfil a healthcare service carried out by the recipient of that resource). The latter is subject to VAT at 20%.

Inconsistent guidelines

The role of the clinical director (CD) leading the network should also be considered in relation to what services are being provided. In our experience, HMRC guidance on this matter has not been consistent.

Generally, services delivered under a GMS contract are considered to be exempt from VAT and this is confirmed in HMRC guidance. However, HMRC will always look at the actual contractual arrangements and consider what services are being provided and to whom.

A CD supports practices with strategic direction, planning, and general governance to ensure that services are delivered efficiently and within budget rather than direct provision of patient care. In this case, the provision of management services are subject to VAT at 20%.

As primary care networks are handling much larger budgets as the contractual responsibilities grow and become more complex, we encourage all PCNs to revisit their business model immediately.

Subcontracting of service provision or sharing of costs through a corporate entity can provide a neat solution to many of the VAT difficulties encountered by unincorporated business models. The requirement to charge VAT creates “trapped” VAT in the supply chain and an extra 20% cost to the network.

If you would like us to review your primary care network structure, then please contact us.


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