.png)
Should every primary care network be producing year-end accounts?
Updated: Oct 23
At THC, we provide resources for PCN leaders and pride ourselves on having built a fantastic network of primary care network experts. These experts include HR, first-contact physiotherapists, pharmacists, data and analysts, practice managers, and PCN leaders and managers.
We are now excited to welcome MHA ( MacIntyre Hudson LLP), which is an independent UK member of Baker Tilly International and provider of audit, tax, consulting, and advisory services and Natasha Payce, their Healthcare Assistant Manager, as our accounting expert.
In her first blog, for THC, Natasha will be walking us through why primary care networks should be producing end of year accounts.
Let's jump in!
What is a Primary Care Network (PCN)?
Whilst this is a seemingly simple question that comes up regularly, though the answer is not as straightforward as it may seem.
One could explain why accounting standards classify a PCN as a contractual joint venture or get lost in the details of its tax treatment, it’s better to focus on a few fundamental points for a clearer understanding.
A PCN is a contractual joint venture. Although this sounds complex, the key point to remember is that a PCN is not a legal entity in its own right.
Networks generally aren’t required to register as a partnership as they aren’t trading with the ‘intention of generating profits’. If this intent changes, a PCN could find itself in an ‘accidental partnership’. An example could be entering into contracts outside of the Network DES for profit-making purposes. If you have any questions about this, please speak to your accountant.
The formation of PCN Ltd Companies adds an additional layer of complexity and often confusion; the most important point to remember is that a Ltd Company is a separate legal entity that has no bearing on the status of the PCN.
Produce year-end accounts
So, we PCNs are not a legal entity. Do networks have to produce year-end accounts?
Producing accounts can be mandated for legal or contractual reasons, but surprisingly, PCNs aren’t obligated to do so.
Legal obligation
Income flowing through your PCN is subject to tax via member’s practice accounts. However, this does not create an obligation to produce year-end accounts for the PCN; you just have to get the figures correct.
If you also have a Ltd Company, that entity would be bound by The Companies Act 2006 to file statutory accounts with Companies House; the PCN remains outside the scope of this legislation.
Contractual obligation
Among all the obligations, criteria, and specifications in the Network DES, there is a notable absence of any requirement for financial statements to be produced. The exception could be when stipulated in the accompanying schedules by member agreement.
So, if there is no legal or contractual obligation, then why, as PCN Lead at MHA, do we advise all PCNs that they absolutely must produce year-end accounts?
Four key benefits of producing PCN accounts
1. Supports member compliance with tax obligations
PCN income is becoming a more significant element of partnership accounts due to funding increasingly being allocated at the network level.
It is each individual’s responsibility to submit an accurate tax return…without PCN accounts, how can they do this?
2. Increased ability to manage finances effectively
Undeniably, the DES has grown in every way over the years. The maximum contract value has almost doubled from £950k to £1.86m for the ‘average’ PCN (I work with PCNs that are nearing £5m!), and the service specifications are increasingly complex.
A client who kept immaculate spreadsheets tracking PCN finances still ended up with a difference of approximately £50k owing to the PCN. The following year, producing the balance sheet enabled me to work with the client and get back on a level footing.
This financial growth commands focused attention to ensure funding is spent in line with the contract, agreed network goals and objectives.
How will your PCN do this without a reconciled financial position?
Calculated based on a PCN with 48,000 patients and 250 care home beds using NHSE PCN income ready reckoner 2021/22 and 2023/24
3. Improved governance across the network
Governance is a phrase largely associated with the corporate world, however far from just being a buzzword, governance is about culture, processes and more importantly, trust. Forced collaborations inherently carry a higher risk of incompatibility and dysfunction; annual accounts strengthen governance in a range of ways, which consequently contributes to mitigating these risks:
Transparency
Lack of transparency is undoubtedly the number one reason I am told causes disagreement between members. Accounts presented with comparable member breakdowns, increases confidence in network management and breeds trust.
Decision making
Many PCNs I speak with find it challenging when all parties involved agree on a business decision. Differing opinions on direction, priorities, and risk tolerance often lead to disagreements.
Annual accounts provide the members with confidence over the network's financial health and enable evidence-based analysis rather than varying opinions to be debated when making joint decisions.
Identify fraud
PCNs are arguably at a higher risk of fraud due to bank accounts held by members, lack of visibility and money received with little or no narrative.
Recommended safeguarding measures include engaging an accountant to produce accounts.
The comparable nature of accounts can allow the identification of patterns, trends and anomalies (though I must remind all of you that it remains the members’ job to prevent/detect fraud, not the accountant’s).
4. Monitoring ARRS funding
Clunky platforms, late claims, and moving deadlines all contribute to the untold headaches that ARRS funding causes for PCN managers. There are two key considerations, and annual accounts can help with both:
Ensuring all claims are accurate
Recently, I identified a client who had underclaimed over £45k of ARRS funding. They kept spreadsheets, but the shortfall wasn’t apparent. How did year-end accounts make this possible?
Annual accounts recognise income and expenditure in the period to which it relates rather than date of receipt; this annual oversight allowed identification of the otherwise undetected deficit.
Ensuring the network is aware of the funding available to them
This is an area of huge disparity across networks. In one network, their ARRS claims were only £136 away from their annual ARRS allocation, yet another had left £450k of their allocation unclaimed.
A multitude of factors restrict PCNs' claims of ARRS funding. Annual oversight won’t fix these issues; however, it will highlight unclaimed allocation and assist in maximising future access to funding entitlement.
In summary…
A PCN is not obligated to produce year-end accounts, but in my professional opinion, every PCN should do so.
If you would like to get in touch with Natasha to discuss accounting support, please contact Natasha.Payce@mha.co.uk
Access More Support
Join the members club today and access five common financial management mistakes PCNs make and how to fix them.
The Primary Care Network Members' Club is THC's exclusive club. Once a member, you will be granted 12 months or 6 months of access (depending on your subscription) to all our exclusive content, features, masterclasses, and other benefits. It’s designed to enhance your experience, provide you with additional value, and enhance the leadership and management of your primary care network.
Never miss a blog again | We promise not to spam you
.png)
Comments