The Incorporation of PCNs has been very topical in recent months and rightly so.
There have been substantial changes in terms of availability of funding, staff and accessing NHS pensions and the governance of how to run your PCN.
As a result, many PCNs are reconsidering their financial models in particular, whether incorporation could be more suitable structure for the foreseeable future.
So why are PCNs deciding to incorporate?
Firstly, looking back at the BMA PCN handbook and the initial five operating models proposed, it advised that networks may choose a structure at first and then have an alternative model later i.e. perhaps suggesting that the corporate model was anticipated from the beginning. Below are the salient points of incorporation:
- VAT. By forming a limited company, the PCN can form a Cost Sharing Group (CSG) which will ensure the supply of staff and other expenditure is exempt from VAT, thus mitigating material financial risk. In general, healthcare services are exempt from VAT, however the exemption does not cover everything in the healthcare sphere. For example, as we see the staffing levels increase in PCNs, the supply of staff between different practices will become a vatable service once the costs exceed £85,000, meaning the network is legally required to charge VAT which is non reimbursable.
- Unlimited liability. With a limited company, there is a corporate veil that protects the members from any of the company actions. All assets and liabilities belong to the company and the company can sue or be sued in its own right. The unincorporated structures do not provide such comfort; the network members are jointly and severally liable in the event of a 3rd party dispute and or any HR issues.
- Consistent employment terms. Having one employer and with one employment contract will avoid any disparity and multiple masters.
- NHS Pensions. A new determination status rolled out until March 2022 (one that is highly likely to extended), has been implemented allowing staff employed by a limited company to access the pension scheme, without the need of holding a qualifying contract. This was not the case at inception of PCNs. The application to register is available online and can be backdated to the date of employing staff via the company.
- Bid for new NHS contracts. As we see networks working closer and realising tangible benefits, a legal entity (similar to the federation model) would allow such bids for new contracts to be put forward. Most PCNs are not a legal entity in their own right which restricts them of such growth.
- Tax. The limited company is subject to a flat rate of 19% corporation tax. The unincorporated models result in the PCN surplus being taxed on the Partners self-assessments at a rate of 40/45% income tax.
What does the Network need to be mindful of before incorporating?
- Extra Governance. The incorporation adds an extra layer of bureaucracy – the directors will have a fiduciary duty the company is ran correctly and annual accounts along with other compliance are required to be filed to different governing bodies.
- Additional Costs. Will be incurred in respect of legal agreements such as shareholders agreements and accountancy in respect of the preparation of accounts and administration of a new payroll scheme.
- New CQC registration. This would be required in the name of the company however it is not felt to be a huge obstacle.
- Records appear on public domain. Limited companies need to file abbreviated annual accounts to companies house.
Our view
PCNs should be reviewing their structure sooner rather later. There are clearly not just financial and legal reasons in doing so, but also the administrative burden it would save in the future i.e. it’s easier to TUPE current staffing levels now than what is expected in years to come. As with most things, there is not a one-size-fits-all solution; this knowledge bite is intended to steer you in the right direction and aid your decision making.