Accountants for Care Homes UK

Accountancy and financial compliance for UK care home operators.

A care home P&L is unlike any other business. Fee income flows from self-funders, local authorities, NHS-funded nursing care and NHS continuing healthcare, each accounted separately and each subject to different funding rules. Input VAT on consumables, equipment and building work is a permanent overhead because CQC-registered providers are VAT-exempt. Occupancy, staffing percentage and the building's tax treatment are the three levers that move margin. We work with residential and nursing home operators on all of it.

What makes care homes finance different.

VAT exemption is a cost, not a benefit

<a href="https://www.gov.uk/guidance/welfare-services-and-goods-notice-7012">HMRC Notice 701/2</a> confirms that CQC-registered providers supply VAT-exempt welfare services. That sounds helpful until you realise exemption means you cannot recover input VAT on the consumables, equipment, building works and professional fees used to make those exempt supplies. The VAT on a new clinical-wash machine, a lift refurbishment or an accountant's invoice is a real, unrecoverable cost. Most care homes cannot register for VAT even if they wanted to, because <a href="https://www.gov.uk/vat-registration/when-to-register">the £90,000 registration threshold is measured on <strong>taxable</strong> turnover only</a>, and exempt care fees do not count.

Four fee-payers, four accounting treatments

Self-funder income, local authority income, <a href="https://www.gov.uk/government/news/better-community-care-thanks-to-nursing-funding-boost">NHS-funded nursing care (FNC)</a> and NHS continuing healthcare (CHC) all land in different ledger buckets. FNC is a direct NHS payment to the nursing home at a standard or higher weekly rate; it is not a top-up to the self-funder fee. CHC funds the full care package and changes who the supply is made to. Mixing these in the accounts creates a garbled P&L and makes fee negotiation with the local authority much harder.

Local authority rates and the fair-cost-of-care evidence

<a href="https://www.gov.uk/government/publications/care-act-statutory-guidance/care-and-support-statutory-guidance">Care Act statutory guidance</a> places a duty on local authorities to pay a fee that reflects the actual cost of care. The <a href="https://www.gov.uk/government/publications/market-sustainability-and-improvement-fund-2024-to-2025">market sustainability framework</a> gives providers a formal basis for challenging below-cost rates, but only if they can produce a properly costed fee model. Management accounts structured around bed-type, staffing hours and occupancy generate exactly that evidence.

Capital allowances on a care-home building are often missed

Many operators leave significant tax relief unclaimed on fit-out. The sequencing is: <a href="https://www.gov.uk/capital-allowances/annual-investment-allowance">Annual Investment Allowance up to £1,000,000</a> absorbs qualifying plant and machinery first; any residual main-pool additions then attract the <a href="https://www.legislation.gov.uk/ukpga/2026/11/section/29">40% first-year allowance introduced by Finance Act 2026</a> before the remaining pool writes down at <a href="https://www.legislation.gov.uk/ukpga/2026/11/section/28">14% from April 2026</a>. New-build or extension costs attract <a href="https://www.gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings">Structures and Buildings Allowance at 3% per year</a> over 33 and a third years.

How we help care homes.

Fee-mix accounts and management reporting

We structure care-home accounts around the four fee-payer categories so FNC, CHC, LA and self-funder income are separated from the start. Monthly management reports track occupied beds by fee type, staffing cost as a proportion of occupied-bed revenue, and the margin contribution each fee stream produces. That gives operators the evidence base for local authority rate negotiations and for CQC <a href="https://www.cqc.org.uk/guidance-providers/market-oversight-corporate-providers/market-oversight-adult-social-care">market-oversight disclosures</a> where they apply.

VAT review and capital-allowances planning

We review the full input-VAT position so partial-exemption calculations are correct where a home has any taxable income. For building projects, we walk through the capital-allowances sequencing: AIA on qualifying plant, then the 40% first-year allowance on residual main-pool additions, then WDA at 14% on the pool balance, and SBA at 3% on structural construction costs. See our <a href="/services/care-vat-review">care VAT review</a> and <a href="/services/buying-a-care-home">buying a care home</a> service pages.

Payroll, corporation tax and owner extraction

Care-home staffing is the dominant cost line. We run payroll with Employment Allowance applied correctly, employer NIC modelled per head rather than as a blanket percentage, and holiday pay calculated on the right reference period for variable-hours workers. For owner-directors, we structure salary and dividends against the <a href="https://www.gov.uk/corporation-tax-rates">19%/25% corporation tax bands</a> and the <a href="https://www.gov.uk/tax-on-dividends">dividend rates from 6 April 2026</a>. See our <a href="/services/care-payroll">care payroll service</a>.

Common questions

Are care home fees VAT exempt, and can we reclaim VAT on our costs?

Yes, care home fees supplied by a CQC-registered provider are VAT-exempt under Group 7 of Schedule 9 VATA 1994 (<a href="https://www.gov.uk/guidance/welfare-services-and-goods-notice-7012">HMRC Notice 701/2</a>). VAT exemption means you cannot reclaim input VAT on costs used to make those exempt supplies. The VAT on consumables, equipment and building works is a permanent overhead, not a recoverable amount.

How is NHS funded nursing care accounted for separately from LA and self-funder fees?

<a href="https://www.gov.uk/government/news/better-community-care-thanks-to-nursing-funding-boost">FNC</a> is a direct NHS payment to the nursing home at a fixed weekly rate (£267.68 standard, £368.24 higher from 1 April 2026 in England). It is not the resident's money and it is not a component of the self-funder fee. Full NHS continuing healthcare funds the entire package and changes the counterparty to the NHS. These must sit in separate nominal codes from LA and self-funder income.

Do care homes pay business rates?

Yes. Residential care homes are rateable properties. <a href="https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief">Small Business Rate Relief</a> applies below a rateable value of £15,000 (100% below £12,000), but most care homes are assessed well above that threshold and pay rates in full. Business rates are separate from CQC registration fees.

How much corporation tax does a care home company pay?

The <a href="https://www.gov.uk/corporation-tax-rates">small profits rate is 19% up to £50,000 of profit; the main rate is 25% above £250,000</a>, with marginal relief between the two. In a propco/opco structure where one company owns the building and another operates the home, associated-company rules halve both thresholds, meaning the group reaches the 25% rate sooner.

Can you help us challenge a below-cost local authority fee rate?

Yes. <a href="https://www.gov.uk/government/publications/care-act-statutory-guidance/care-and-support-statutory-guidance">Care Act statutory guidance</a> requires local authorities to pay fees that reflect the actual cost of care. The <a href="https://www.gov.uk/government/publications/market-sustainability-and-improvement-fund-2024-to-2025">market sustainability framework</a> gives providers a formal basis for negotiation. A properly structured fee model derived from your management accounts is the foundation for that challenge.

What capital allowances can a care home claim on a fit-out?

Claim <a href="https://www.gov.uk/capital-allowances/annual-investment-allowance">Annual Investment Allowance first (up to £1,000,000)</a> on qualifying plant and machinery. Residual main-pool additions then attract the <a href="https://www.legislation.gov.uk/ukpga/2026/11/section/29">40% first-year allowance under Finance Act 2026</a>. The pool balance writes down at <a href="https://www.legislation.gov.uk/ukpga/2026/11/section/28">14% WDA from April 2026</a>. Construction costs on new builds or extensions attract <a href="https://www.gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings">SBA at 3% per year</a>.