Accountants for Children's Homes UK

Accountancy for UK children's homes: staffing costs, tax and the business finances.

Children's residential care businesses carry a cost profile that is similar in structure to adult care homes but sits under Ofsted registration rather than CQC. The dominant cost line is staffing, the income line is placing-authority fees, and the building carries its own tax treatment. We work with children's home operators and directors on payroll, capital allowances, corporation tax and the owner-extraction structure, without crossing into the clinical or regulatory detail that belongs to Ofsted.

What makes children's homes finance different.

Staffing costs and employer NIC on high-ratio rotas

Children's homes operate high staff-to-child ratios that place significant pressure on the payroll cost line. From 1 April 2026, the <a href="https://www.gov.uk/national-minimum-wage-rates">National Living Wage is £12.71 per hour</a> for workers aged 21 and over. Add employer NIC at 15% on earnings above the <a href="https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2025-to-2026">£5,000 annual secondary threshold</a>, and holiday pay for staff on variable hours, and the true labour cost per shift is substantially higher than the hourly rate alone. The <a href="https://www.gov.uk/claim-employment-allowance">Employment Allowance of up to £10,500 per year</a> reduces employer NIC for eligible operators.

Capital allowances on the building and fit-out

Children's home properties often require significant adaptation: specialist bedrooms, secure spaces, communal areas and safety equipment. <a href="https://www.gov.uk/capital-allowances/annual-investment-allowance">Annual Investment Allowance of up to £1,000,000</a> covers qualifying plant and machinery. Residual main-pool additions attract the <a href="https://www.legislation.gov.uk/ukpga/2026/11/section/29">40% first-year allowance under Finance Act 2026</a>. The remaining pool writes down at <a href="https://www.legislation.gov.uk/ukpga/2026/11/section/28">14% WDA from April 2026</a>. New builds and qualifying extensions attract <a href="https://www.gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings">Structures and Buildings Allowance at 3% per year</a>. These reliefs are frequently unclaimed on acquisitions and fit-outs.

Corporation tax and owner extraction

For owner-managed children's home companies, <a href="https://www.gov.uk/corporation-tax-rates">corporation tax is 19% on profits up to £50,000 and 25% above £250,000</a>, with marginal relief between. Where the operator holds the building and the care business in separate companies, associated-company rules reduce both thresholds, and the group may reach the 25% rate sooner. Owner extraction through salary to the personal allowance and dividends is taxed at <a href="https://www.gov.uk/tax-on-dividends">10.75%, 35.75% or 39.35%</a> above the £500 dividend allowance from 6 April 2026.

VAT position: welfare exemption applies where the supply fits

<a href="https://www.gov.uk/guidance/welfare-services-and-goods-notice-7012">HMRC Notice 701/2</a> applies the welfare exemption to state-regulated providers supplying welfare services. Whether and how this applies to a specific children's home arrangement depends on the regulatory status of the provider, not the CQC (children's homes are an Ofsted regime). We assess the VAT position carefully and do not apply CQC framing to a children's home; <a href="/for/care-startups">the start-up hub</a> covers CQC registration for adult care providers separately.

How we help children's homes.

Payroll, Employment Allowance and staffing-cost modelling

We run payroll for children's home teams with employer NIC correctly modelled per head at 15% above the <a href="https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2025-to-2026">£5,000 secondary threshold</a>, holiday pay calculated on the correct reference period, and the <a href="https://www.gov.uk/claim-employment-allowance">Employment Allowance</a> applied where eligible. Management reports track staffing cost as a proportion of placing-authority income so operators can see the margin impact of rota changes. See our <a href="/services/care-payroll">care payroll service</a>.

Capital allowances review and tax planning on the building

We identify unclaimed capital allowances on fit-out and building works, following the sequencing: AIA first, then 40% FYA on residual main-pool additions, then 14% WDA on the pool, then SBA at 3% on structural costs. For operators buying a children's home, we review the historic allowances position as part of due diligence. See our <a href="/services/buying-a-care-home">buying a care home service</a>.

Corporation tax, owner extraction and accounts

We prepare statutory accounts and corporate tax returns structured around the <a href="https://www.gov.uk/corporation-tax-rates">19%/25% CT rates</a>. Owner-director extraction is planned around salary to the personal allowance and dividends at the rates effective from <a href="https://www.gov.uk/tax-on-dividends">6 April 2026</a>. For operators with property held in a separate entity, we model the associated-company effect on the CT thresholds and advise on the most efficient extraction route.

Common questions

How is a children's home business taxed?

<a href="https://www.gov.uk/corporation-tax-rates">Corporation tax is 19% on profits up to £50,000 and 25% above £250,000</a>, with marginal relief between. Where the property and operating business sit in separate companies, associated-company rules reduce both thresholds. Owner-directors extract profits as salary to the personal allowance plus dividends, taxed at <a href="https://www.gov.uk/tax-on-dividends">10.75%/35.75%/39.35%</a> above the £500 dividend allowance from 6 April 2026.

What are the main employer costs for a children's home?

The pay floor for workers aged 21 and over is the <a href="https://www.gov.uk/national-minimum-wage-rates">National Living Wage of £12.71 per hour from 1 April 2026</a>. Add employer NIC at 15% on earnings above the <a href="https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2025-to-2026">£5,000 annual secondary threshold</a>, and holiday pay for variable-hours staff. The <a href="https://www.gov.uk/claim-employment-allowance">Employment Allowance of up to £10,500</a> reduces the NIC bill for eligible operators.

Do children's homes pay VAT on their fees?

Children's homes are regulated by Ofsted, not CQC. The welfare VAT exemption under <a href="https://www.gov.uk/guidance/welfare-services-and-goods-notice-7012">HMRC Notice 701/2</a> applies to state-regulated welfare providers; whether a specific children's home arrangement qualifies depends on the regulatory and contractual structure. We assess the position for each operator rather than applying a blanket rule.

Do children's homes pay business rates?

Yes. Children's home properties are rateable. <a href="https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief">Small Business Rate Relief</a> provides 100% relief below a rateable value of £12,000, tapering to zero at £15,000. Most purpose-built or adapted children's home premises are assessed above that threshold.

How do placing-authority fees work in the accounts?

Placing-authority income is the fee a local authority pays per placement per week. It is recognised as revenue in the period the placement is active. Where a placement ends mid-period, income is accrued to the date of departure. The fee level is a commissioner-set rate; management accounts that track cost-per-occupied-place against that rate give the operator a clear picture of margin by placement type.