Employee-Owned Trusts - An Option for GP Practices?
The media has recently been reporting on a Somerset-based Medical Centre converting to an employee-owned trust.
But is this an option for other GP practices as well?
It won't be the right option for every practice not least because of the necessary transfer of control from the partners to the wider staff. But it is an option if all of the partners no longer want to own and run the practice themselves, and if the staff as a whole are willing to take on that responsibility instead. The Partners would have to hand over at least 51% of the ownership, with a consequent loss of overall control - but if the partners are willing to step back and become salaried (albeit salaried with some continued role in decision-making, in common with the staff), then the EOT structure may well be an option - and there are certain tax benefits too.
At the same time as becoming an EOT, the Minehead practice incorporated, i.e. changed from a partnership into a limited company. This isn't something GP practices can do 'as of right' and consent from the commissioner is needed. Commissioners will often say that an incorporation like this can't happen without the contract going out to tender. No tender was required in this case, but one suspects that it might have been a different story were the partners not handing over to an EOT at the same time. Our view at the moment remains that under current conditions, incorporation on its own (i.e. without an EOT) still isn't a good option for the majority of normal GP practices. The key problem is that incorporation doesn't usually solve the problem of personal liability in a meaningful way as the partners are usually still going to be on the hook to the bank or the landlord.
One also has to be very careful that shares in the new company are held in such a way as to ensure continued eligibility to hold a GMS/PMS contract and participate in the NHS Pension scheme. The consequences of getting that wrong are very expensive indeed, so advice must be taken from solicitors who understand primary care.
Advice for Other Practises Looking to Become an EOT
For other practices looking at this model some careful thought will be needed about what happens to the premises, particularly if there is a freehold building. If it is to be transferred from the partners into the company, tax charges will arise (notably Stamp Duty Land Tax) and the mortgage may well need to be renegotiated. The premises can be left outside the new EOT and owned by the current owners, but you then tend to see problems emerge over time as ownership diverges from the practice. It also changes the deal for those owners, who effectively become investors (and are taxed as such) rather than people holding business assets. Advice from an expert accountant should therefore be taken on this. It is likely that a lease will be needed between the property owners and the practice not just to ensure rent reimbursement is not jeopardised, but also because the Bank is likely to insist on one. This has a cost attached, and takes a long time as it needs to be firstly negotiated and then approved by the CCG/ICB. And SDLT will also be payable on the Lease, which can sometimes be a considerable expense. The trust will also need to be registered with HMRC, which is not otherwise necessary.
If there are leasehold premises rather than freehold buildings, the landlord's consent will be required - and it may well be that the landlord will require personal guarantees from the partners and/or the new shareholders, before allowing the lease to be held by a limited company. So careful thought needs to be given to the property arrangements either way.
VWV has advised on a number of EOTs since their inception in 2014, including one conversion of a primary healthcare (OOH) business.