Considerations for PCNs and how MHA Moore and Smalley can assist

At initial set up you need to decide upon a structure. Of the 5 outlined by the BMA it appears that 3 of these are the most commonly considered – the flat alliance, lead practice or federation models.

Each one has its own advantages and disadvantages, and these should all be borne in mind before opting for one. It may well be the case that the rules and regulations change over time and so one model becomes the obvious choice or that any of them can be used without complications but for now we need to make some of the issues known so they can be considered.

Bank account

The guidance says that the holder of the funds should also hold a GMS/PMS or APMS contract. If the Federation model is proposed, does the federation hold a GMS, PMS or APMS contract and can therefore receive the money directly?

In all cases a separate bank needs to be set up for the purpose of holding the PCN funds on behalf of the underlying practices as a nominee account. Transactions through this bank account will be outside of the accounting arrangements for the lead practice or federation but will need reporting in the accounts of the underlying practices. There need to be transparency with a full accounting records trail

Holding the funds, providing they have been set up in Trust, does not in itself have any VAT implications

Every care will need to be taken to get the legal framework correct regarding access to the bank account, bank name and authorities, etc.

If the federation does not hold a contract as stated above then one of the member practices will have to be used to hold the bank account – again in a nominee account with no direct impact on their financial position for tax, pensions or VAT – it is just held on account.

If the money from the nominated bank account is drawn down to pay for costs incurred by either the lead practice, one of the PCN practices or a third-party provider such as the Federation consideration will need to be given to the nature of the transaction for VAT purposes


A statement of account will need to be drawn up to show the whole picture for the PCN and the allocations of income and expenses between the different member practices. Each practice will then have to show these figures in their own financial documents and thus account for the relevant superannuation and income tax.

As the Network funding is paid as a DES the income is superannuable in the hands of the underlying practices.

In general, where a practice is drawing down its own share of the PCN funding there should not be an immediate VAT implication although in VAT registered practices there will be an impact on the partial exemption percentage


This is one of the major concerns with the PCN proposals. The vatable supply status of the transactions needs to be considered

Not all supplies under the DES will automatically qualify as VAT exempt medical services. Supplies that are not covered by the exemption will potentially be subject to the standard rate of VAT if the supplier is VAT registered or will add to the vatable turnover calculation to determine if the supplier should become VAT registered, where the current £85000 threshold is breached.

In all the proposed models there is likely to be a supply of staff between entities that does not qualify as a medical exempt activity and would be a standard rated supply.

For instance, would the supply of a pharmacist by covered by exemption as the supply of medical services or is it the standard rated supply of staff? You may then get a different answer for a social prescriber and what about any back-office functions being charged across?

Advice needs to be taken from a VAT specialist to confirm the nature of the transactions for VAT purposes and to consider what can be done to mitigate any potential VAT exposure.

There are a couple of options which may help to mitigate the VAT charge:

The first is the use of joint contracts of employment so that no one practice employs the individuals and each practice declares their share of the employment costs and obligations, but this can cause real issues in terms of legal agreements and from the NHS pension scheme perspective.

Another option is to look at the use of a VAT cost sharing exemption. For this to work there must be a cost sharing group set up correctly with a lead formal business structure of which all practices are members. Charges from the group entity to the member practices must only be at cost.  So, the accounting function has to be robust enough to show that no profit is made from any recharges of costs

In the initial year of the PCN contract it may well be that the value of VATable supplies is low and remains below the VAT threshold, but care will be needed to monitor this.

Employment and the NHS Pension Scheme

Who holds the employment contract and thus employer risk and how can this be equally shared between practices?

Consideration can be given to the use of joint contracts but there are pitfalls as noted above, possibly a federation model could be used to employ the staff and de-risk individual practices from employer liabilities, but the VAT issues above need to be considered.

If using a federation, whether the employee could belong to the NHS Pension scheme will depend upon the employing authority status of the federation and what contracts it holds already.

NHS Pensions recognise this as a problem and are working on a solution to try to ensure there is no disincentive to staff employed by a PCN – effectively giving them the ability to join the NHS pension scheme but this is not known at this point.

Employment by a practice holding a core GMS/PMS/APMS contract enables the employee to be in the NHS Pension scheme. This can also be the case for some other third-party providers/federations

How can we help?

MHA Moore and Smalley can provide a review of your network agreement and arrangements and advise over the pros and cons of this and any alternatives that might need to be considered.

We have expert knowledge, experience and network connections to help with all the issues raised above including VAT advice and structure, advising on the pension scheme position, providing the accounting summary and report for the PCN DES transactions that will be required for each practice.

We will liaise with your chosen legal advisers to ensure all financial considerations have been discussed and included in the network agreement.

For more information contact our healthcare services team or email