Things are moving fast – some would say too fast – in establishing primary care networks. Amidst all the speculation and comment in the rush to get the networks set up, it is essential that practices understand what they are signing up to. Specialist medical accountant Bob Senior explains what to watch out for.
Don’t assume that because NHS England has already done a lot of work on template network agreements, the practice partners can simply sign the contract and carry on regardless.
In its most common form, a PCN will be either a flat network, or a network with a lead practice. Whatever form it takes, it is effectively a legal joint venture. All parties to it have joint and several liability for any unexpected costs that might arise if something goes wrong, for example a large VAT demand because HM Revenue and Customs did not agree with how VAT has been charged.
While the risk of things going wrong in the first year or so is fairly modest, practices need to be aware that such risks exist. Getting lawyers to go through the network agreement with the partners should ensure that they appreciate what they are signing up to.
Here are five things you should encourage your practice partners to bear in mind:
- Keep the structure simple
There are a number of outstanding issues to be resolved that mean the current way that PCNs are being established may only be a short-term solution. These issues include the funding of PCNs through a DES, pension scheme restrictions governing which staff members can become members of the NHS scheme, and potential VAT and employment risks as the scale of activities undertaken increases.The pension issue is currently being looked at by NHS England. Once resolved it is anticipated that PCNs will move into small corporate entities controlled by the practices themselves. This would improve the VAT position and avoid any possibility of partners’ personal tax and superannuation positions being affected by the operation of the PCN.For now, keep things simple and don’t create too complicated a structure until NHS England has sorted out pensions.
- Cover unexpected costs
Make sure that the network agreement covers any unexpected costs and recognises that costs are for the PCN as a whole, not merely the practice which incurred the cost. The most likely thing this would cover is VAT. An example would be the lead practice having to register for VAT with the result that their existing private work would now incur a VAT liability. Another would be a lead practice already registered for VAT finding their partial exemption calculations have been impacted by the PCN and losing out as a result.
- Make finances transparent
The finances of the PCN need to be transparent. A separate bank account and separate accounting records will be required, with an agreement that the lead practice is merely holding the funds on trust.The inability of the Exeter system to make PCN payments into a separate bank account is a nuisance and means that money will need to be transferred into the PCN bank account as it is received by the lead practice.Someone will have to deal with the finances and administration and therefore the PCN is likely to be charged for that work. The network agreement needs to recognise the work that will be charged for and agree a basis for the charge.
- Understand VAT implications for staff
If the PCN is operating with joint contracts of employment for the PCN staff, it shouldn’t be assumed that HMRC will accept a joint contract of employment that allows staff to be effectively controlled by one person but then work across the network as and when necessary.HMRC will, often reluctantly, accept that joint contracts of employment are legitimate and avoid the need to charge VAT. To HMRC, however, the separate roles should ideally be very clear. For example, on Monday and Tuesday Staff Member A works at Surgery B under the direction and control of Dr X and Practice Manager Y. On Wednesday and Thursday, the staff member works at another surgery under the direction and control of another doctor and practice manager. On Friday the staff member works at another surgery, again under the direction and control of another doctor and practice manager.While HMRC will probably accept some flexibility about which days people work at different venues, they will expect separate direction and control to exist. Having a member of staff based in one location and under the direction and control of one person may well be regarded as a supply of staff, with a VAT cost, rather than a joint employment. Get a VAT specialist to look at such arrangements carefully.Don’t forget that the work of the Clinical Director is unlikely to be directly patient related. Any charges for their costs are therefore likely to be liable to VAT.
Make sure the Clinical Pharmacist undertakes work that is directly in relation to specific patients. If they get involved in broader health matters such as practice formularies or public health then a VAT charge could arise.
- Have a valid partnership agreement
Finally, make sure that the lead practice actually has a valid partnership agreement in place. Partners falling out without a partnership agreement in place is bad enough; if they are holding PCN funds it could turn into a nightmare.
Bob Senior is Chairman of the Association of Independent Specialist Medical Accountants.
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