Summary

NHS organisations continue to look at different ways of delivering savings through improving efficiency and reducing waste. Subsidiaries have played an important role in supporting NHS services for some time, by opening up new revenue streams for investment in NHS services to help sustain them. These transactions can also support innovation that drives improvements in a more efficient, cost-effective way.

This guidance sets out the required approval process before NHS trusts and foundation trusts can implement plans for subsidiaries, either to form or materially change them. It is effective from 29 February 2024.

It does not affect trusts’ ability to develop plans for subsidiaries. Rather it seeks to strike a balance between assuring us that trusts have considered and mitigated key risks, respecting their freedom to innovate, and supporting them to develop proposals that will succeed. We will keep the implementation of the guidance under review to ensure we have struck the right balance.

This guidance replaces the subsidiaries transactions guidance published in November 2018, when all subsidiary proposals from NHS trusts and foundation trusts became reportable to NHS Improvement (now NHS England).

Reporting thresholds

This guidance introduces thresholds for reporting based on size (assets or income) and the number of affected staff, to allow lower risk schemes to proceed without going through the NHS England classification panel or review. These thresholds do not apply to schemes that are novel, contentious or repercussive; they are all reportable regardless of size (see Section 3.1). All NHS trust income generation schemes are also reportable to the Department of Health and Social Care (DHSC) for the purpose of facilitating Secretary of State consent.

The introduction of thresholds supports innovation by reducing regulatory burden for lower risk cases. Basing thresholds on number of affected staff and assets or income recognises the pivotal role NHS staff play in the delivery of services and the need to protect NHS capital assets.

We strongly encourage all NHS trusts and foundation trusts to apply the good practice and principles set out in this guidance, even when their transaction is not reportable, or a review process does not apply.

Additional review requirements for NHS trusts

For all NHS trust subsidiary proposals, the business case must demonstrate to the Secretary of State that the subsidiary is income generating. We will co-ordinate our review process (if triggered) with that for obtaining Secretary of State consent on a case-by-case basis, considering the inherent risks of each proposal. This includes determining whether we should complete our review before the trust obtains the required consent from Secretary of State. Trusts should inform NHS England of proposals at the earliest opportunity so that we can align the review processes.

Risk classification process

An NHS England panel of subject matter experts will review each reportable business case to determine its inherent risks. This process will stay in place for subsidiary transactions.

Appendix 1 sets out the risk factors for subsidiary transactions that in our experience are drivers of risk. None of these inherently determines whether a subsidiary transaction is ‘material’ or ‘significant’ but collectively they help the panel decide the overall transaction classification based on the nature and level of risks in the round.

Risk ratings alignment

We will align the definition of ‘green’, ‘amber’ and ‘red’ for subsidiary transactions with our transactions guidance (see Section 4.3).

Definition of material change

Business cases that in our opinion materially change an existing subsidiary will also be subject to the process outlined in this guidance. We will consider such proposals as if the trust were making a new investment.

Based on our experience of reviewing subsidiaries, we have expanded the list of example changes that could be classed as material (see Section 3.2). However, the list is not exhaustive, and we have not set thresholds against each example. We encourage trusts to engage with regional teams at an early stage of planning to get an indication of whether their proposal represents a material change.

Early engagement and support

There is a greater emphasis on early engagement to ensure trusts are supported to develop proposals that align with and support the delivery of their integrated care system’s (ICS’s) integrated care strategy and five-year joint forward plan, and that they will deliver the planned benefits to the trust and the ICS, while ensuring that risks are identified and mitigated.

Other changes

Based on learning from subsidiary transaction reviews undertaken since 2018, we have revised the board certification and our review scope for subsidiary transactions.

1. Introduction

This guidance sets out the required approval process before trusts can implement plans for subsidiaries, either to form or materially change them. It does not affect their ability to develop such plans; rather it seeks to strike a balance between assuring us that trusts have considered and mitigated key risks, and respecting their freedom to innovate and supporting them to develop proposals that will succeed.

All NHS trusts and foundation trusts considering a transaction to create a subsidiary or to materially change an existing subsidiary (referred to in this document as a ‘subsidiary transaction’) should follow this guidance.

It recognises that NHS trusts and foundation trusts do not have the same powers to form subsidiary companies. NHS foundation trusts can do so for both core NHS healthcare provision and income generation purposes, while NHS trusts can only form or participate in ownership of a subsidiary company for income generation purposes and with Secretary of State consent (see Section 2.1).

This guidance updates and replaces the subsidiaries transactions guidance we published in November 2018, to reflect our better understanding of the inherent risks associated with such transactions.

The prevailing frameworks for the reporting and review of all other types of provider transactions can be found in the transactions guidance.

This updated guidance is effective from 29 February 2024. For subsidiary transactions reported to us before this date but for which a business case has yet to be submitted for review, or for which a transaction classification and/or a risk rating has yet to be determined, we will decide our review approach on a case-by-case basis in discussion with the relevant trusts.

Trust boards should assure themselves that their existing subsidiaries (including any in existence prior to the publication of the original subsidiaries transaction guidance in November 2018) meet the requirements set out in this updated guidance (including the appendices).

Where all or part of the proposal for a subsidiary transaction relates to a national programme, trusts should continue to engage with national leads to discuss and develop their plans.

Definition of a subsidiary

The term ‘subsidiary’ means a separate, distinct legal entity for the purposes of taxation, regulation and liability that is owned or partly owned by a provider. ‘Subsidiaries’ include companies limited by shares or by guarantee, limited liability partnerships (for NHS foundation trusts only) and community interest companies. This definition is not limited to wholly owned subsidiaries as some joint ventures will also fall within it. This is different to the definition of ‘subsidiary’ used for accounting purposes.

For the avoidance of doubt, the term ‘subsidiary’ as used in this guidance includes entities that are owned or partly owned by another ‘subsidiary’ of a provider.

2. Existing legal and regulatory arrangements

2.1 Legal powers – disparity between NHS trusts and foundation trusts

NHS foundation trusts have power under section 46 of the NHS Act 2006 to form subsidiary companies for the purposes of, or in connection with, the exercise of their functions – that is, for core NHS healthcare provision purposes. They may also form subsidiary companies for income generation purposes.

NHS trusts have a more limited power under paragraphs 20(1) and (2) of Schedule 4 of the NHS Act 2006 and sections 7(2) and 7(7A) of the Health and Medicines Act 1988 to form or participate in ownership of a company for income generation purposes only – that is, making additional income available by performing non-NHS services. An NHS trust planning to set up a subsidiary for the purposes of income generation can only do so:

“(a) to the extent that it does not, to any significant extent, interfere with the performance of its functions or its obligations under NHS contracts;

(b)  in circumstances specified in directions under section 8, with the consent of the Secretary of State, and

(c) in circumstances specified in directions under section 27B, with the consent of NHS England (at the time of publishing this guidance, no NHS England directions have been issued).

At the time of publishing this guidance, proposals for income-generating NHS trust subsidiaries must have Secretary of State consent pursuant to Directions relating to the exercise of powers under section 7(2) and 7(7A) of the Health and Medicines Act 1988 (Department of Health, 9 September 2002). The directions can be found at Appendix 5 of The NHS as an innovative organisation. A framework and guidance on the management of intellectual property in the NHS. NHS trust subsidiary proposals are reportable to NHS England and DHSC in accordance with section 3.1.

The agreed national view is that the general legal power of NHS trusts to do anything that appears necessary or expedient in connection with their functions does not allow them to form or participate in companies for the purposes of core NHS healthcare provision. Trusts should not seek legal advice at the public expense on this issue.

2.2 Considerations

VAT position

All providers, be they NHS or private sector, must operate within the existing VAT legislation that applies to their particular entity.

DHSC reminded all NHS provider finance directors in September 2017 of their responsibilities around tax, advising that tax avoidance arrangements should not be entered into under any circumstances. We expect all NHS providers to follow this guidance when considering any new arrangements or different ways of working.

Its letter also stated that trusts should not spend money on private sector consultancy support in the development of tax avoidance arrangements as this represents active leakage from the healthcare system. This message is consistent with advice provided in section 5.6 of HM Treasury’s Managing public money guidance (May 2023).

HM Treasury has consulted on reforms to VAT refund rules under section 41 of the UK VAT Act (1994). At the time of publishing this guidance, HM Treasury’s preferred option is to introduce a Full Refund Model. HM Treasury is continuing to work with key stakeholders before making a final decision on implementation. We will update our approach if needed once we know its decision. In practice, we expect that the majority of savings from the creation of subsidiaries should be from non-tax savings, except in exceptional circumstances. We will base our consideration of individual circumstances, eg material non-financial benefits, on the nature of a proposal.

Engagement with staff

We expect trusts to engage with their staff and provide appropriate transparency about the key decisions and options being considered. This is unlikely to involve sharing the full business case for the proposed subsidiary. Trusts considering a subsidiary should engage with regional teams to seek advice on good engagement practice and on terms and conditions.

Further regulatory considerations and guidance

Trusts should ensure that proposals are consistent with the principles and requirements set out in HM Treasury’s Managing public money guidance (May 2023) in relation to any subsidiary proposals.

Section 5.6.1 of that guidance states that “Public sector organisations shall not engage in, or connive at, tax evasion, tax avoidance or tax planning. If a public sector organisation were to obtain financial advantage by moderating the tax paid by a contractor, supplier or other counterparty, it would usually mean that the Exchequer as a whole would be worse off – thus conflicting with the accounting officer’s duties (section 3.3). Thus artificial tax avoidance schemes shall normally be rejected. It shall be standard practice to consult HMRC31 about transactions involving non-standard approaches to tax before going ahead.”

And section 5.6.2 “There is of course no problem with using tax advisers to help meet normal legitimate requirements of carrying on public business. These include administration of VAT, PAYE and NICs, where expert help can be useful and efficient.”

NHS foundation trust subsidiaries providing healthcare services may be required to hold an NHS-controlled provider licence. For more information on this requirement, see Licensing application guidance for NHS-controlled providers.

NHS foundation trust subsidiary transaction proposals that would increase the amount of non-NHS income by 5% or more of total income are subject to a governor approval process.

We and DHSC have published subject matter-specific policy and good practice guidance on due diligence, set-up, operational and governance arrangements for trusts considering alternative commercial models (see below). We may also publish further good practice guidance on the FutureNHS collaboration platform. Trusts should consider the following where relevant to their proposals.

• Pathology networks toolkit
• Workforce guidance
• The efficient management of healthcare estates and facilities (HBN 00-08)
• Joint ventures: a guidance note for public sector bodies forming joint ventures with the private sector
• Creating the right framework to realise the benefits for patients and the NHS where data underpins innovation

3. Reporting requirements

3.1 Reporting thresholds for subsidiary transactions

NHS trust and foundation trust proposals for subsidiary transactions that meet any of the reporting and review thresholds below are reportable to NHS England.

Novel, contentious or repercussive schemes: Whether a scheme is novel, contentious or repercussive will be determined on a case-by-case basis. This will allow the determination of ‘novel, contentious or repercussive’ to evolve as appropriate. For example, specific types of arrangements may potentially become less novel and contentious over time in line with the ability of trusts to mitigate the risks associated with these arrangements. Repercussive arrangements may include transaction proposals that, when considered together with a trust’s existing subsidiary activity, materially changes the risk profile of the trust.

Trusts are encouraged to engage with NHS England as early as possible to discuss proposals, including whether they meet the reporting and review thresholds using the process set out in Section 3.3.

Cumulative impact: Implementation of the business plan for a subsidiary transaction may take several years and stepped changes may be a good risk reduction strategy. Trusts should therefore consider the requirements against the cumulative effect of changes made to the subsidiary in question over the previous 24 months when assessing whether a proposal meets the requirements for reporting.

3.2 Definition of material change for subsidiary transactions

The review process also applies to any ‘material’ changes to an existing subsidiary to ensure that all risks are fully considered – that is, we will consider such proposals as if the trust were making a new investment.

Determining whether a proposal represents a ‘material change’ involves an element of judgement and we apply this on a case-by-case basis by considering the effect of the change on the risk profile of the subsidiary and the impact of this on the trust.

Examples of changes that may be material for subsidiary transactions are:

• asset sales or transfers, eg property (into or out of the subsidiary)
• changes to the terms and conditions of the employment of staff
• changes (increases or decreases (including wholesale exit from the subsidiary) to the ownership share of the subsidiary
• changes (increases or decreases) to the scale or scope of the activities of the subsidiary
• significant financial support to the subsidiary or creation of contingent liabilities (eg guarantees)
• other changes to the subsidiary’s risk profile.

We assess risk on a holistic basis and as such have not set thresholds against each of these examples.

Trusts considering making changes to existing subsidiaries are encouraged to engage with NHS England as soon as possible using the process set out in Section 3.3 so that we can determine whether these are ‘material’.

3.3 Importance of early engagement for subsidiary transactions

Trusts are encouraged to engage with NHS England as early as possible to discuss potential subsidiaries. Trusts should engage with regional teams, copying in central specialist support teams via the dedicated subsidiary inbox england.subsidiaries.incomegeneration@nhs.net. This gives us the opportunity to advise trusts on their specific proposals and respond to any queries. Specialist support teams can advise on the development of proposals to ensure that they follow any national best practice and are set up for success.

We will aim to minimise regulatory burden by following a flexible and proportionate approach to queries and requests for information. Examples of potential queries include whether this guidance is applicable to a particular transaction proposal, whether a change represents a ‘material’ change to an existing transaction or whether a transaction proposal is novel, contentious or repercussive. We will endeavour to balance the need for advice and decisions, to be both robust and timely.

4. Review process

The degree to which we scrutinise any proposed subsidiary depends on whether, from our initial (desktop) review of the transaction’s inherent risk, we classify it as ‘material’ (lower risk) or ‘significant’ (higher risk). This classification in turn determines what level of further detailed review we consider necessary.

As a minimum, any reportable transaction is considered at least ‘material’. All reportable transactions require a business case to be submitted, supported initially by financial projections and then by completion and submission of a trust board certification.

4.1 Panel desktop review –classification for subsidiary transactions

An NHS England panel reviews each business case and financial projections to consider the overall nature and the level of inherent risks associated with the proposal (with regard to the risk factors in Appendix 1), and from this determines the transaction classification. Lower risk transactions are classified as ‘material’ and higher risk transactions as ‘significant’.

The panel includes governance, finance and subject matter experts across areas relevant to the proposal being considered (eg pharmacy, pathology, estates, digital, data partnerships) as well as members of the relevant NHS England regional team and the transactions review team. Experts are under a duty of confidence and we draw on those with no interest in the proposal under consideration: for example, the expert could be from a national team or a different region from that represented by the proposal.

The review considers the specific aims of the business case alongside the overarching governance, financial, quality and operational impacts of the proposal on the trust and its patients, as well as the ICS and, if relevant, the wider NHS patient population.

For proposals to change existing subsidiaries, the panel considers the extent to which these will alter the risk profile of a subsidiary, and in turn present risks for the parent trust. As part of this, the panel considers the extent to which existing trust and subsidiary governance processes consider and mitigate the risks.

The panel review will be scheduled once NHS England is in receipt of a high quality and comprehensive business case and financial projections in accordance with Appendix 3. We will be available to offer support in advance of the business case being submitted to ensure that the documentation is sufficiently detailed to enable an efficient review process. We will inform the trust of the key risks identified and transaction classification once the panel review is complete.

The transaction classification determines the subsequent review and submission requirements.

4.2 Material subsidiary transactions

Where the panel classifies a subsidiary transaction as material, we will request a certification that the parent trust board has satisfied itself in relation to key areas of risk (see Appendix 2 for the certification formats).

We may require trusts to provide additional evidence to support their certifications depending on the key risks identified in the panel review. To reduce the regulatory burden, we will make every attempt to minimise requests for bespoke documentation by looking at existing trust documentation wherever possible.

The certification, in the required format, together with any additional evidence, should be submitted to us for review.

We will confirm that the certification has been accepted and that our review is complete in a letter to the trust.

The trust should not start any formal consultation or enter into any legally binding arrangements in relation to the subsidiary transaction before it receives this letter.

4.3 Significant transactions

Where the panel classifies a transaction as significant, we will undertake a further detailed assurance review in addition to requiring the board certification as outlined above for material transactions.

We will look at up to four domains, depending on the nature and risks of the proposed transaction:

1. strategic rationale
2. quality
3. integration delivery
4. finance

Appendix 3 gives indicative scopes for the review of a subsidiary transaction classified as significant, but each review will be tailored to reflect the risks of the specific proposal.

The timetable for this review will be agreed with the trust’s executives at the time of the transaction classification and will depend on the identified risks.

Interviewing stakeholders

Our detailed assurance review usually includes a series of meetings with relevant parties, including trust and ICS leadership, to understand the proposal in more detail and determine how the trust board has approached the risks involved. We will seek to confirm that the proposal aligns with and supports the delivery of the ICS’s integrated care strategy and five-year joint forward plan.

The local relationship with staff is the responsibility of the trust. Where a subsidiary proposal is classified as significant and staff would move into a subsidiary, we can participate in a meeting between the trust, staff-side representatives including trade unions, and an ICS representative. This will ensure that interested parties have an opportunity to present their views directly to the review team. The trust will continue to be responsible for managing the relationship with staff locally.

Financial projections

Subsidiary proposals should be driven by a robust commercial strategy that delivers clear financial, operational and patient benefits.

Our review of the trust’s long-term financial projections focuses on understanding and evaluating:

• the reasonableness of the key assumptions underlying the forecasts
• the key risks to achieving the forecast financial position
• whether key risks are effectively mitigated by clearly articulated plans and there is demonstrable capability to deliver these plans.

Given the position on VAT outlined in Section 2.2, in practice we expect subsidiaries should largely generate non-VAT savings, except in exceptional circumstances.

Meeting the parent trust’s executives

Once our detailed review is close to completion, we will meet appropriate executives at the parent trust to discuss the key risks identified during the review. We will advise the trust of the key areas for discussion beforehand so that it can prepare its response to our concerns.

Transaction risk rating

After considering the trust’s response to any issues raised at the meeting, our review team will recommend a risk rating (green, amber or red) for the subsidiary transaction. This is then confirmed by the appropriate NHS England committee at a decision meeting.

4.4 Risk rating letter for subsidiary transactions

We will confirm the NHS England committee decision on the risk rating for a subsidiary transaction in a letter to the trust.

A risk rating of ‘green’ or ‘amber’ allows the trust to proceed with its proposals, although this may be subject to additional oversight and monitoring of transaction-specific risks post transaction. The trust should not enter into any legally binding arrangements in relation to the subsidiary transaction until we formally communicate a ‘green’ or ‘amber’ risk rating.

An ‘amber’ rating means we are likely to want to ensure that key implementation risks are addressed; for example, with additional oversight and monitoring to ensure that any staff consultations are completed or to review commercial terms with the parent trust and/or third-party partners as negotiations are finalised.

We expect that any formal consultation requirements with staff will start after the trust receives a subsidiary transaction risk rating of ‘green’ or ‘amber’ unless agreed otherwise with us.

If we consider the business case too high risk to progress, our review team will recommend that the subsidiary transaction is risk rated ‘red’. The trust will need to restructure the proposal to address these risks. If it does not, we can use our regulatory powers to stop the transaction.

5. Submissions

All reportable transaction proposals covered by this guidance require submission to us of a business case, financial projections and a board certification in the required format. We believe that trust boards will require similar information in relation to subsidiary transactions as part of their internal trust governance processes, and as such we do not anticipate that our regulatory reviews will impose any extra burden on the sector.

All information should be submitted to the trust’s NHS England regional trust relationship lead, copied by email to england.subsidiaries.incomegeneration@nhs.net, and be reviewed and approved by the trust board before doing so.

5.1 Business case

The business case should be tailored to the specific proposal and used by the trust board to assure itself that it has considered and mitigated all financial, operational and clinical risks associated with the transaction proposal as appropriate. From the business case it should be clear that the benefits of the proposal outweigh the risks, that all aspects of the proposal are deliverable and that the commercial rationale is not dependent on the subsidiary enabling a VAT treatment that differs from the trust’s current arrangements.

The level of detail in the business case should reflect the complexity of and risk associated with the proposal. At a minimum, the information should be sufficient to answer the questions in Appendix 3.  

5.2 Financial projections

The business case should include financial projections for the subsidiary. These should be for an appropriate period to clarify the forecast recurrent financial position, risks and benefits of the subsidiary. The projections should be in sufficient detail to give reviewers an understanding of the key assumptions driving them.

The business case should also include a comparison of the financial impact of the proposed subsidiary with the trust’s counterfactual position. This should be in sufficient detail for reviewers to understand the revenue, cost (including taxation) and capital impact of the transaction on the trust. As part of this, the business case should outline the impact of the transaction on Capital Departmental Expenditure Limits (CDEL) (if any) and the accounting treatment on which the forecasts are based.

5.3 Due diligence and external opinions

It should also be evident that comprehensive and effective due diligence has been undertaken to provide a clear and accurate baseline for operational performance, governance, risk and financial position (see Section 2.2 for guidance on due diligence).

We expect to see evidence that clear advice and opinions have been received in relevant areas from suitable qualified, independent third parties.

5.4 Board certification

The certification should be signed for and on behalf of the trust board and accompanied by the paper to the trust board including detail on the commercial rationale and strategy for the subsidiary transaction. For certain transactions we may require trusts to provide additional evidence to support their certification.

5.5 Additional submissions

We will determine additional submission requirements on a case-by-case basis, based on the nature and risks of the proposal. We will make every effort to minimise regulatory burden and wherever possible will rely on existing trust information and reports rather than requesting bespoke information.

Appendix 1: Subsidiary transaction risk factors

Appendix 2: Board certification

Board certification for subsidiary transactions

The trust board should certify that it is satisfied it has:

In relation to strategic rationale:

• Considered a detailed options appraisal before deciding that the proposed subsidiary transaction aligns with and supports the delivery of the ICS’s integrated care strategy and five-year joint forward plan, is at least financially neutral for the ICS, delivers benefits for patients, the trust and the ICS, and is the best vehicle to deliver these benefits.
• Considered how the commercial rationale for the proposed subsidiary aligns with ICS plans for back-office consolidation and transformation.
• Provided a reasonable level of transparency about plans, eg public articulation of options considered and other engagement with key stakeholders.
• Considered the wider public acceptability and national communications risk of the proposal.

In relation to finance:

• Ensured that a clear case for change exists and the commercial rationale for the proposal does not include the subsidiary enabling a taxation treatment different from current trust arrangements.
• Ensured that the majority of savings result from cash-releasing operational improvements (not tax-related benefits).
• Conducted an appropriate level of financial, clinical, market and any other relevant due diligence relating to the proposed subsidiary, including appropriate financial due diligence covering the financial position and track record of any partner in the proposed subsidiary.
• Conducted an options appraisal of alternative approaches (including consideration of the counterfactual position) and an appropriate level of market testing that demonstrates the proposed subsidiary arrangements accord with best practice guidance and achieve reasonable value for money for the taxpayer.
• Considered the implications of the proposal for the NHS Oversight Framework (or any subsequent NHS England frameworks) segmentation of both the parent trust and the subsidiary where applicable, taking full account of reasonable downside sensitivities.
• Taken into account the implications for access to capital and revenue funding from DHSC as well as commissioner funding in developing the financial plan for the subsidiary, and agreed key assumptions in the business plan with relevant stakeholders, including DHSC where appropriate.
• Taken into account the independence of the subsidiary in relation to the delivery plans for the parent trust’s own efficiency and cost savings targets.
• Ensured that relevant commercial risks are understood and mitigated, including risks to the trust from the subsidiary’s credit arrangements and the relationship between any existing guarantee arrangements and funding arrangements for the subsidiary.
• Ensured that any transactions between the trust and the subsidiary do not pose a risk to existing credit arrangements, such as loan agreements with DHSC.
• Ensured that the risks associated with any transactions between the trust and the subsidiary are understood: for example, those associated with any asset transfers, including the impact of any existing guarantee arrangements on such transactions.
• Received appropriate external advice, and opinions where appropriate, from independent professional advisers with relevant experience and qualifications, including tax advice where the subsidiary enables a taxation treatment different from that of the current trust arrangements*.
• Resolved any issues relating to the proposed subsidiary and its treatment for accounting purposes, and received appropriate professional advice. As part of this, the trust has confirmed the treatment of the subsidiary for accounting purposes, the impact on its NHS accounting and reporting responsibilities, and the implications of any consolidation or non-consolidation into the group position.
• Considered whether the scheme will have any impact on Capital Departmental Expenditure Limits (CDEL) and Resource Departmental Expenditure Limits (RDEL), taking into account the agreed accounting treatment if applicable, and confirmed the CDEL and RDEL treatment assumed in the business case with all key stakeholders (including DHSC if appropriate).

* We expect trusts to obtain appropriate taxation advice where proposals with a clear commercial rationale result in a taxation treatment different from existing trust arrangements. However, trusts should not pay external consultants for taxation advice in relation to tax avoidance schemes – that is, proposals for which there is no clear commercial rationale in the absence of any taxation benefits.

In relation to delivery:

• Conducted appropriate enquiry about the probity of any partners involved in the proposed subsidiary that considers the nature of the services provided and the likely reputational risk.
• Conducted appropriate enquiry about the organisational and management capacity and capability of any partners involved in the proposed subsidiary; this considers the nature and scope of services to be provided by the subsidiary and the potential risks to clinical, financial and operational sustainability.
• Conducted an appropriate assessment of the nature of services to be provided by the subsidiary and any implications for reputational risk arising from this.
• Sought legal advice on the transaction, including on transfer of staff and TUPE arrangements, to confirm the transaction can legally proceed.
• Engaged staff in decisions that affect them and the services they provide as pledged in the NHS Constitution, and has plans to comply with any consultation requirements, including staff consultations.
• Undertaken comprehensive staff engagement on the commercial rationale (including options considered) and consequences for staff.
• Appropriately considered the labour market for each category of staff, pension provision and continuity of service implications for staff before determining the approach to terms and conditions, taking into account (where relevant) the trust’s role as a major employer in a locality.
• Ensured that the trust has regarded staff engagement good practice guidance at all stages of the transaction, including reference to terms and conditions and pensions provision.
• Undertaken an equality impact assessment of the proposals.
• Established the organisational and management capacity and skills to deliver the planned benefits of the proposed subsidiary, including where relevant the delivery of services at scale. In particular, the trust should assure itself that the subsidiary will be able to attract and retain staff with the appropriate skills and experience to deliver the service requirements, and that staff will become more engaged and committed over the life of the business plan.
• Considered the financial, operational and clinical implications of contract termination and developed detailed exit plans to address these, including where appropriate to ensure appropriate legal protection for staff and the continued availability of estate. As part of this, the trust has considered and mitigated the risks of exit, eg through dissolution of the subsidiary.
• For estate proposals, demonstrated that the subsidiary supports the provision of services and improvement to the estate.
• For estate proposals, ensured that detailed arrangements are in place for the protection of assets with a level of control that ensures sufficient oversight including, where appropriate, the requirement for parent organisation approval for capital investment and disposals.
• Made provision for the transfer of all relevant assets and liabilities.
• Ensured that the subsidiary will be able to obtain the necessary registrations and insurances, leases or licences required to deliver the goods and services set out in the business case.
• Taken into account the good practice advice in NHS England’s transaction guidance or commented by exception where this is not the case.
• Ensured that regulatory requirements are understood and complied with, including the potential requirement for the subsidiary to hold an NHS controlled provider’s licence.
• Confirmed that all decisions are consistent with HM Treasury’s Managing public money
• For a parent trust that is an NHS trust, complied with paragraph 20(2) of Schedule 4 of the NHS Act 2006, and specifically ensured that the subsidiary proposal has consent pursuant to the Directions issued by the Secretary of State.
• Considered how governance works within the group to ensure that the various dependence, interdependence and independence requirements of the relationship between parent trust and the subsidiary will be met. For example, obtained assurance that the board of the subsidiary will be able to meet its fiduciary duty under the Companies Act and that any conflicts of interest between the boards of the parent trust and the subsidiary can be managed for individual directors who sit on both.
• Ensured that the systems and processes in both the parent trust and the subsidiary interact to assure the parent trust board that it has suitable clinical, financial and operational oversight of the subsidiary. Specifically, these should ensure that the parent trust board is aware on a timely basis of overall clinical, financial and operational performance and significant risks in the subsidiary and can monitor development and implementation of mitigations to address any significant risks. As part of this, the parent trust board is assured that the subsidiary board has sufficient capability and capacity to provide effective organisational leadership, and that systems and processes are in place to provide the board with suitable clinical, financial and operational oversight.
• Ensured that the trust can continue to comply with all legal requirements following completion of the subsidiary transaction.

In relation to quality:

• Involved senior clinicians in the decision-making process and confirmed they have no material clinical concerns about proceeding with the proposed subsidiary, including consideration of the subsequent configuration of clinical services.
• Ensured that sufficient funding is available to maintain assets to the required healthcare standards.

Appendix 3: Indicative scope

For review of subsidiary transactions classified as significant

Business cases for subsidiary transactions should reference the KLOEs set out in the table below, which are mapped to the four transaction review domains: strategic rationale, quality, delivery and finance.

These KLOEs should be regarded as a starting point. Trusts should also consider any other risks and critical success factors relevant to their transaction, and the business case for the proposal should set out how these have been addressed.

In addition to the KLOEs set out below, boards should consider any specific subject matter good practice guidance relevant to the particular subsidiary transaction. Relevant good practice guidance should inform the development of the transaction

Publication reference: PRN1798