A public-private pathology provider part owned by two London trusts increased its revenues last year, but a substantial restructure prompted by changes to tax rules resulted in a small drop in profits.

Viapath, co-owned by Guy’s and St Thomas’ Hospital and King’s College Hospital foundation trusts and outsourcing giant Serco, which own a third each, published its 2014 annual accounts earlier this month.

The joint venture has posted multimillion pound profits for two years running, which was a robust upturn in fortunes after making substantial losses in its early years, including a £5.9m loss in 2011.

It increased revenues by 5 per cent to £97.1m in 2014 compared to the previous year. Profit however dipped very slightly from £3.8m to £3.7m over the same period.

The company attributed the profit dip to restructuring costs of around £1.6m, but said its operating profit “before the restructure” had increased 34 per cent, from £4.2m to £5.6m. It said this was due to a cost improvement programme that had seen a reduction in overall operating costs.

The “one off” restructuring costs were incurred due to changes in the VAT rules introduced by the HM Revenues and Customs last year.

The company said the reclassification of laboratory services by HMRC from a support technical service to a healthcare service meant it could no longer recover its VAT costs from its NHS customers.

Under the previous arrangement, the company applied VAT on invoices to NHS trusts, and could then reclaim it under contracting out services regulations.

Viapath chief executive Richard Jones told HSJ the new structure, which was signed off by HMRC in advance, was “necessary to minimise a liability for trapped VAT” of around £13m a year and to allow the company to grow further and recruit more customers.

The most visible change resulting from the restructure is that around 500 NHS staff previously seconded to Viapath have become full time company staff after they were moved under transfer of undertakings (protection of employment) regulations, he said.

Mr Jones added: “[The company] needs to pay off all its shareholder loans first [worth around £14m and to be fully repaid by 2016] and then we will be in a position to pay dividend payments from 2017 onwards.”

The company was established in 2009 as a joint venture between Guy’s and St Thomas’ and Serco. King’s College Hospital joined them in 2010.

It initially struggled in terms of performance and financially but has since recovered following ownership restructures and a change in management in 2011. Its main clients are the two member trusts and Bedford Hospital Trust.