• NHS leaders yet to agree VAT exemption with HMRC and Treasury
  • Senior sources pessimistic about a deal being reached
  • VAT charges would inflate the cost of a new company being set up to run accountable care organisations
  • South Somerset vanguard plans may need redesigning

National health leaders’ struggle to agree a tax exemption for a new type of NHS provider is casting doubt over the viability of one of the most advanced plans to establish an accountable care organisation, HSJ has learned.

Despite months of lobbying by NHS England, no agreement has been reached to stop any new company running a primary and acute care system or multispecialty community provider from having to charge VAT. Several senior sources have told HSJ it is now widely accepted that it is not likely such an exemption will be granted.

Yeovil District Hospital

Yeovil District Hospital

The PACS would be run by companies owned by the Yeovil trust and local GPs

If the Treasury and HM Revenue and Customs do refuse, the South Somerset vanguard – one of the most advanced in terms of designing an organisational form for a new care model – will probably have to redesign its proposed ACO governance model.

Leaders in South Somerset have said they intend to form a PACS by setting up a joint venture company, to be co-owned by a subsidiary of Yeovil District Hospital Foundation Trust and another company jointly owned by local GPs. The company would hold a contract to provide primary, secondary, acute and mental health services for the local population for around 10 years.

The model was suggested as a way of bringing GPs in as equal partners to the trust, to avoid a situation where the acute provider is seen as “taking over” general practice – an idea that is unappealing to many GPs.

However, the implications will be felt beyond South Somerset, and will affect any area where providers are planning to set up a new company to hold a contract integrating primary, secondary and community care.

In Northumbria, which is also developing a PACS, recent CCG board papers reveal that GPs have voted to form a federation to represent them within an ACO. “Ultimately this could then progress to a form of joint venture,” the papers said.

In December, NHS England set out a range of organisational form options for an MCP: to be “hosted” by a trust; a foundation trust or NHS trust, potentially with GPs in key decision making roles; a corporate joint venture; or a GP owned company.

If new companies have to charge VAT, the latter two options will be more expensive than giving the contract to a local trust.

A spokesman for the South Somerset vanguard said: “Partners in Somerset, including primary care, are continuing to look at which organisational model is the most suitable for an accountable care provider.” He added that this work will take into consideration “the potential impact of external as well as local factors” such as the VAT exemption.

An HMRC spokesperson said: “We are still in discussions with the relevant parties on this matter.” The Treasury and NHS England both said they had nothing to add to the HMRC statement.