Key takeaways
Subsidiaries return as cost-saving strategy
Trusts revisit WOS models to reduce corporate spend.
Multi-trust models offer shared efficiencies
Collaborative WOS structures enable broader service delivery.
Governance and tax remain key considerations
Trusts must balance benefits with legal and operational risks.
As NHS providers seek to reduce their corporate cost growth, we explore how establishing and operating wholly owned subsidiary companies can help trusts, groups and integrated care boards find efficiencies and highlight commercial opportunities.
Spinning out services to subsidiary companies
Recent communications from the Transition CEO of NHS England, Sir Jim Mackey, to NHS trusts have underlined the urgent need for trusts to make significant savings in their corporate support functions. With a requirement on all NHS providers to reduce their corporate cost growth since 2017/18 by 50% during quarter 3 of 2025/26, many trusts are now looking at either establishing a wholly owned subsidiary company (WOS) or expanding the scope of their existing WOS as a potential route to achieve these savings.
The original surge in numbers of WOS established by NHS trusts in 2017/18 was halted by the introduction of revised reporting and approvals guidance. Together with nervousness from trade unions around staffing implications and accusations of ‘privatisation by the back door’, this led to a downturn in trusts looking to establish their own WOS or seeking to expand and grow the WOS as a delivery mechanism.
The landscape of the NHS has shifted significantly in recent weeks and there are clear indications that, given the urgent need to make savings, and the signal from Jim Mackey that the approvals process (particularly welcome for NHS trusts who have to date required a business case and Secretary of State approval) will be streamlined, many trusts will be looking again at the option of forming or how they can use their existing WOS both individually and also in conjunction with neighbouring trusts.
New approaches emerging to offer wider group and ICS WOS models
Several regions are considering the use of the WOS model to set up a structure which collaborates across trusts. Some of these are across new group structures or even look across ICS regions.
This expanded WOS multi-trust model offers greater scale and real potential to embed shared services across areas such as estates and facilities, procurement and IT. Although there are some complications in terms of governance and the consolidation of assets at a multi-trust level which may cause ownership and accounting concerns, these can be managed through a clear operating structure with enabling governance between member trusts to create a jointly controlled WOS structure able to operate at a much broader scale.
Arguments for setting up a WOS structure
In summary:
Tax – a major benefit driving the creation of NHS WOS in recent years was the potential tax advantage to trusts (e.g. savings on VAT treatment). By using a subsidiary, savings can be re-invested back into the trust potentially making a substantial impact on cost improvement programmes and services. The models traditionally utilised rely upon the transfer of assets and staff into the WOS with the operation of a healthcare facility contract to maximise tax-efficiency and savings.
Staff – as the subsidiary is a separate legal entity, it has greater flexibility in the remuneration packages it can offer compared with NHS trusts. It is not restricted to certain pay scales and can offer different balances of remuneration to its employees. This means it can attract staff with the necessary experience required to provide services in a commercial, profitable manner. Flexibility in remuneration can also allow a subsidiary to incentivise innovation within its workforce. Note however that any staff subject to a ‘relevant transfer’ of business into a WOS will benefit from the protection of TUPE legislation, which will mean that their employment rights remain intact and they will arrive at the WOS with employment terms that are at least as favourable as those they are currently subject to.
Alternative to outsourcing – outsourcing can be expensive and controversial for NHS trusts who would need to go through a procurement process to appoint the outsourcer. In addition, sometimes NHS trusts can find that outsourced services are not performed to the required standards; by using a WOS the trust can maintain a greater degree of control on services. Further savings and efficiencies generated can be paid to the parent trust by way of dividend (or other distribution).
Improving service delivery – some WOS have argued that using a new service-specific vehicle has given a more concentrated focus on the delivery of the services (such as estates and facilities) to the trust customer and in turn a greater ability to innovate. In their rationale for the WOS, trusts should consider where some of these changes could be delivered without the use of a WOS and where the new structure can deliver benefit over and above this.
Expanding service delivery – if a service is established and experienced then it could offer its services to other organisations (e.g. other trusts, local authorities or educational establishments) looking to achieve similar aims, whether that is by way of consultancy-type services or delivery of services such as facilities management and become more income generating. Trusts should be careful to keep the scale of this activity under review as it can impact on the treatment of the contracts the trust awards to the WOS under the vertical exemption in procurement law.
Governance – a WOS can have a different board composition to its parent trust, allowing it to be managed in a more commercial, sector-specific manner – for example with a focus on estates and facilities which may not have been possible to deliver within wider trust structures.
There are a number of governance risks for trust boards to consider in the operation of a WOS which include conflicts of interest, insolvency legislation, shadow directors and directors’ disqualification. The governance model for the WOS should be reviewed carefully to ensure it fits within the trust’s current operations and internal governance processes.
Key areas to consider if you are thinking about setting up a WOS include:
Legal powers to form a company:
NHS foundation trusts have clear statutory powers to form or participate in forming companies.
For NHS trusts there are currently very clear restrictions on the use of their income generation powers, however we do expect these to be streamlined in line with recent announcements, which will be very much welcomed if it helps to remove the two tier approach.
If there is a large-scale transfer of staff proposed to the WOS there will be consultation and TUPE issues to deal with.
Careful consideration must be given to the rationale around the formation of the WOS:
what is the business case for the activity moving to a new separate company?
what services should be included (or excluded)?
there should be due diligence around the staff, contracts and assets/estate which will be impacted by the formation of the WOS and which may need to be transferred into it.
Whilst there will likely be significant accounting and tax considerations in moving to a WOS these should not be the only factors taken into account by trusts as tax legislation/treatments can be subject to change over time. It would be a high-risk strategy to base a business case for a WOS (and move large numbers of staff and NHS estate) solely on the basis of the current tax position.
The trust should consider its communications approach with staff (both the formal requirement under TUPE and in general around the WOS) and the public given previous vocal opposition in some areas to the development of the model. Practically, the trust should review the board approvals which will be required for the WOS as well as, for foundation trusts, how the Council of Governors is communicated with (even if they have no formal role it would be sensible to engage with them in terms of the benefits to the trust in setting up the WOS).
The trust should consider how the corporate governance structure and directors of the WOS link back in with the trust as its sole shareholder.
NHS trusts should be clear that their wider business case for a WOS considering all of the factors above would still ‘stack up’ without the tax and employment changes.
The trust may want to factor in wider participation across a bigger footprint of providers – e.g. provider collaborative. There are various models available which could allow for such participation and further at-scale savings.
We are currently advising numerous NHS trusts on the establishment and operation of their WOS both for single and multi-trust models. If you would like to discuss this further please contact us.
