10 top tips for establishing NHS subsidiaries

Creating a wholly owned subsidiary (WOS) in the NHS context involves legal, strategic, operational and stakeholder considerations. These subsidiaries are often formed to manage estates, facilities, procurement or commercial functions more flexibly. The ability to create WOS, and the differences applicable to Foundation Trusts when considered against Trusts, was covered in our earlier article, The (re)-birth of wholly owned subsidiaries in the NHS. 

In this blog, we set out our top tips for creating an NHS wholly owned subsidiary.

1. Clarify strategic objectives

• Define the purpose clearly (eg. cost savings, VAT efficiency, workforce flexibility).
• Ensure alignment with the Trust's long-term strategic goals and the NHS Constitution.

2. Engage stakeholders early

• Involve NHS England, staff, unions, local communities, ICS partners, and regulators early on.
• Transparent consultation helps build trust and can avoid public opposition.

3. Ensure robust business case development

• Include clear financial projections, risk analysis, and legal justifications.
• Highlight expected savings, service improvements, and governance structures.
• Consider NHS guidance and whether it is a reportable proposal by reference to the size of assets, staff and income involved.

4. Understand and mitigate VAT implications

• One key driver is often VAT recovery via the contracted-out service rules.
• Ensure tax advice is obtained early to confirm eligibility for VAT benefits and to ensure compliance recognising that there must be a clear commercial strategy for the proposals which is independent of VAT treatment. 

5. Plan HR and TUPE transfers carefully

• Staff transfer (under TUPE) must be handled sensitively and in accordance with applicable regulations.
• Engage with unions and ensure terms and conditions are protected, or through negotiation, improved.

6. Establish strong governance and oversight frameworks

• Set up a clear governance framework including board, reporting lines, and Trust control.
• Define roles and responsibilities to ensure accountability and transparency, solid financial management, regulatory compliance, effective leadership and decision making.

7. Legal structure and compliance

• Whilst WOS in the NHS is a term covering all types of companies and joint ventures, they are typically formed as a company limited by shares, wholly owned by the Trust.
• Depending on the form of company, ensure compliance with Companies Act 2006 and recognise the need for directors that have codified statutory duties.
• Carefully consider the initial and ongoing procurement position associated with the WOS.

8. Manage public and media perception

• Communicate the benefits (eg. reinvestment in services, local jobs) clearly not least to address the narrative that it's "privatisation by stealth".

9. Long-term viability and flexibility

• Model different scenarios to ensure resilience.
• Build in flexibility for growth, changes in policy, or reintegration if needed.

10. Monitor policy and regulatory shifts

• Stay alert to NHS England guidance and government policy that is likely to change significantly to realise the ambitions under the NHS 10-year plan.
• Be ready to adapt to changes in public sector commercial frameworks or VAT rules.

Planning and setting up a WOS can be daunting. If your Trust is considering a WOS, we can support you through the process. Get in touch with any one of our specialist lawyers for a no obligation discussion on the likely steps involved and how we can help.