Primary Care Networks - Sleepwalking into Problems?

Primary Care Networks (PCNs) have been in place for six years, with total funding now exceeding £15 per patient annually. However, many networks may be unknowingly exposing their member practices to significant tax and compliance risks.

When PCNs were introduced, funding was comparatively small and designed to fund specific healthcare services within communities through third party contracts or additional staff, not to leave year-end surpluses.

Six years on, with extensive roles and funding available under the Additional Roles Reimbursement Scheme (ARRS), many PCNs can deliver required services at effectively zero cost.

As a result, perhaps unexpectedly, a large number of networks find themselves with money left over at the end of each year.

This is where there was perhaps a misunderstanding amongst networks. We have often heard network managers talk of ‘pots’ of money, where the amounts left over have been regarded as available for future projects or to subsidise staff.

As a result of this ‘future earmarking’, networks may retain substantial funds (often in the hundreds of thousands) at the end of each year.

Tax Reality

Due to the networks not being entities in their own right, all income strictly belongs to the member practices. There are tax rules surrounding the deferral of income, which effectively boil down to two questions:

• Was the income received with a stipulation attached stating any unspent monies should be returned?

• Does a contractual, legal or constructive obligation exist?

If the answers to these are no, the income should not be deferred and instead should be shown within the practices’ own accounts. Not doing so exposes practices to real risk of HMRC investigation.

At this point it is worth remembering what a network actually is. Assuming it is not incorporated as a limited company (which the majority are not), the network itself has no tax liability, or any real reporting requirements.

In effect it is a joint venture between several GP practices – and it’s important that the finances and tax implications of this are correctly applied.

This is being consistently treated incorrectly nationwide, leaving practices potentially out of pocket for rightful funding, while exposing them to anti-money laundering issues, as unexplained cash movements between entities trigger compliance concerns.

Some networks have made a conscious decision to pay out all surpluses to their members, and such practices often show significantly better results than those who do not.

We are also seeing larger practices become their own network, with the result that they have full control over, and access to, the relevant funds to utilise as they see fit, to enhance their funding at practice level.

Actions Required

Practices should:

• Review network financial position and retained funds immediately

• Ensure proper allocation of network income in practice accounts

• Document business rationale for any genuine deferrals

• Assess tax implications of current network structure

• Establish clear fund distribution policies

We encourage all practices to review their network arrangements. While these compliance requirements may seem complex, addressing them proactively protects your practice and ensures you’re maximising the funding you’re entitled to.

If you have concerns about your network’s fund management or would like clarity on your compliance position, contact a member of our healthcare team.