VAT – Holding Funds on Trust

With the relatively recent introduction of Primary Care Networks (PCNs) we now have the circumstance where one practice frequently holds funds on behalf of other practices. This brief article considers the possible VAT issues arising from both holding the funds, and distributing and utilising the funds within the PCN.

The holding of funds and distribution of such funds is not in itself subject to VAT. It therefore follows that a holding/lead practice can freely distribute or release the funds to the allocated practice without there being a VAT issue.

A VAT issue potentially arises, however, when the funds are distributed or used in order to cover or settle a supply of goods or services. In primary care this is most likely to be in respect of a supply of services.

An example of such a supply would be if the lead/fund holding practice (A) employs Social Prescribers and Clinical Pharmacists who undertake work for other practices within the PCN, with the Social Prescribers or Clinical Pharmacists being under the control of the individual practices. When “A” utilises the funds belonging to the other practices in order to meet the costs of employing the Social Prescribers or Clinical Pharmacists, there is a supply subject to VAT. With the consideration (value) for the supply being the funds which have been taken from the general funding pot to cover the cost.

Likewise, there is a potentially vatable supply when another non-lead practice (B) employs staff, and those staff perform duties for others. When “B” receives monies from the centrally allocated funds, to the extent that the funds received are in respect of the supply of staff to other practices, there is potentially a supply for VAT purposes.

The charging of VAT can be mitigated, for example by joint contracts of employment etc. However, this article covers a basic principle. When funds are allocated or distributed the following question should be asked.

Is this a mere movement/allocation of funds? Or is, in the alternative, the payment/settlement in respect of a supply that has been made by one member of the PCN to other members within the PCN?

For specialist VAT advice relating to your specific circumstances, please contact Peter Perry of Davies Mayers Tax Advisers LLP at Peter.Perry@dmtaxadvisers.co.uk.