This is probably the most common question that is asked by GP partners and practice managers during year end accounts meetings.
And the answer is …….. it depends!
It depends on the legal structure of the PCN, and included below are details of the accounting treatment for each potential scenario.
Unincorporated PCN
Where the PCN is unincorporated, the GP practices in the PCN are typically working together under a lead practice model to deliver the services under the contract that is held by them collectively.
Given that the PCN has no separate legal personality, the income received by the PCN is received on behalf of the individual GP practices.
A bank account will be operated for the PCN and monies will be paid to the practices for work performed and to reimburse costs incurred by them. Any surpluses arising within the PCN at the end of an accounting period, which is usually 31 March each year, are held on behalf of the practices. These surpluses should be recognised as income within the individual GP practice accounts for the same year end as monies owed to them. It is therefore vital that accounts are prepared for the PCN in a timely manner so that the surpluses can be reflected in the GP practice accounts.
Incorporated PCN – Network Contract Directed Enhanced Service (DES) not subcontracted
Each practice in the PCN holds shares in the limited company which is shown as an investment in the accounts of the GP practice.
Where the DES is not subcontracted to the limited company, the contract continues to be held by the practices as explained in the unincorporated PCN section above, and alongside this a limited company is operated which employs the staff. This structure is commonly used to ring-fence the risk of staff redundancy costs and also to benefit from VAT Cost Sharing Group treatment (the benefits of which will be the subject of a future newsletter article).
Given that the limited company is used to employ the PCN staff, it receives income via the contract to fund the staff costs and the costs of running the company. The limited company would not normally recognise any profit/surplus as the income will cover the costs only.
Any surpluses arising would be held by the unincorporated PCN and should be recognised in the accounts of the GP practices as income and monies owed to them, as explained above.
Incorporated PCN – Network Contract DES subcontracted
In the situation where the DES has been subcontracted to the limited company, the income belongs to the company as it is the company that is delivering the services under the contract. The GP practices will receive income for any services that they provide to the PCN, but any surpluses arising in the PCN company are profits of that company and are subject to Corporation Tax.
Over time, if the limited company generates excess retained profits, GP practices may receive a return on their investment in the form of a dividend and that would be included in the GP practice accounts and taxed on the individual partners in the year of receipt.
For further information, please get in touch with your usual Healthcare contact.
