Director Accounts Action (SE) Ltd
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Tax traps for networks of family doctors

Philip Redhead explains how GP practices could be taxed on unspent funds held by their primary care network (PCN), and how VAT issues may arise on transactions with their PCN.

30th Oct 2020
Director Accounts Action (SE) Ltd
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What is a PCN?

From July 2019, all GP surgeries in the UK have been obliged to organise themselves into primary care networks (PCNs) that are made up of several surgeries with combined patient list sizes of between 30,000 to 50,000 patients. These groups would then be able to obtain funding for group wide services. It is expected that more and more of the GP funding will be directed through these networks over time.

The NHS introduced PCNs as a means of providing funding for additional staffing and services to patients, that would be uneconomic for individual GP surgeries to provide on a local basis. The additional staff include: community prescribers, first contact physiotherapists, clinical pharmacists and community paramedics. The additional services include: medications reviews, enhanced healthcare for care homes, anticipatory care, personalised care and tracking neighbourhood inequalities, among others.

What is the problem?

In April 2020 it came to light that many PCNs were holding large sums of unspent cash that would be treated as income of the member surgeries if it had not been spent, or if a legally binding arrangement to spend it had not been entered into by 31 March 2020.

As this is a professional profit it would also need to be disclosed on the surgery website as part of partners’ net earnings in accordance with the GP contracts.

These profits will also be NHS pensionable income for 2019/20, and therefore may result in higher than expected superannuation bills and have a knock-on effect with pension annual and lifetime charges for higher paid doctors.

The good news is that recruitment funding will not be included in these profits however all other funding streams will be included such as the network participation payments.

What should the accountant do?

If your GP client’s PCN holds such reserves you should speak to your clients to ensure that at their accounting year end they are looking at areas within their networks where spending is required. They may need to accelerate this spending and look to enter binding contracts as soon as possible to avoid any unnecessary and unexpected tax and superannuation bills.

HMRC has commented that "you need to have committed legally or constructively to spending the funds, so for example putting in an order for something and getting an invoice".

Where is the money?

The issue is that these funds are held outside the GP practices which are members of PCNs. As such any unspent funds are not necessarily identifiable when the surgery accounts, financial statement and partnership tax return are prepared.

If you are acting for a lead practice that holds the PCN funds you need to be very careful to account for the PCN funding, expenditure and any amounts accruing to other member surgeries to avoid overstating their income.


Most medical practitioners don’t give a second thought to VAT, as 'medically necessary' work is exempt from VAT. However, this medical exemption from VAT may not apply to transactions between the PCN and the member practices.

For example, where staff are employed by a GP practice which is a member of a PCN, or staff are employed directly by a corporate body operated by the PCN, the employing practice or body will be supplying staff rather than medical services. VAT would then be chargeable to the member practice utilising the staff as an additional non-recoverable cost, that is not included in the funding provided by the NHS.

Also, not all of the services that a PCN can offer to its member surgeries are covered by the medical exemption, and these include back office support and community prescribers.

VAT registration

PCN member surgeries should be aware that they will be paying VAT on some of the non-medical services supplied by the PCN, and this VAT cannot be recovered unless the GP surgery is VAT registered.

Where the VATable supplies (such as cosmetic procedures and certain medico-legal work) provided by the surgery and all of its partners exceed the VAT registration threshold (£85,000), then the surgery should register for VAT, usually as a partially exempt business. 


Check whether the PCN that your GP clients belong to has spent all the funds it has received from the NHS on providing services to patients.

If it hasn’t, then your clients and their fellow PCN members may receive additional unexpected tax and superannuation bills on those unspent amounts, as HMRC will view such cash reserves as income.


Replies (1)

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By Scott Hallesy
04th Nov 2020 09:54

Does this apply to the UK or just E&W?

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