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Accountancy for UK domiciliary care agencies: the real cost of a care hour.

The economics of a domiciliary care agency turn on one number: what a delivered care hour actually costs. The pay floor is the <a href="https://www.gov.uk/national-minimum-wage-rates">National Living Wage of £12.71 per hour</a> for workers aged 21 and over from 1 April 2026, but that is just the start. Add employer NIC at 15% above the £5,000 secondary threshold, 12.07% holiday accrual, mileage at <a href="https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027">55p per mile from 6 April 2026</a>, and the inter-call travel time that must also be paid. The gap between that true cost and the charged or LA-commissioned hour is your margin. We help domiciliary agencies model it honestly.

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£12.71
National Living Wage floor for workers aged 21+ from 1 April 2026, the starting point, not the total cost
55p
AMAP mileage rate per mile for the first 10,000 business miles from 6 April 2026
£10,500
Employment Allowance reducing employer NIC for eligible care agencies from 2026-27

What makes domiciliary care finance different.

Inter-call travel time is working time for NMW

<a href="https://www.gov.uk/guidance/calculating-the-minimum-wage/working-hours-for-which-the-minimum-wage-must-be-paid">HMRC's NMW rules</a> are unambiguous: a domiciliary care worker travelling from one client's home to the next is working during that journey and must be paid at or above the applicable minimum wage rate for every minute of it. Paying only for face-to-face contact time and nothing for inter-call travel is unlawful, and it is the single most common source of NMW underpayment enforcement in the sector. Commuting from home to the first call or from the last call home is excluded, but everything in between is not.

Sleep-in shifts: only time actually awake for work attracts NMW

The Supreme Court settled this in <em>Royal Mencap Society v Tomlinson-Blake</em> [2021]. Workers on sleep-in shifts who are permitted to sleep are not entitled to NMW for the sleeping period; they are entitled only for time they are awake and working. <a href="https://www.gov.uk/hmrc-internal-manuals/national-minimum-wage-manual/nmwm08180">HMRC manual NMWM08180</a> confirms the salaried-hours treatment. The position changes where sleeping facilities are not provided or where the worker must remain active throughout. Getting this wrong in either direction creates liability: underpaying awake time is a wage offence; overpaying every sleep-in hour inflates cost unnecessarily.

Self-employed carers are almost always employees in substance

<a href="https://www.gov.uk/employment-status/employee">HMRC's employment-status tests</a> look at how work is performed, not the label on a contract. Care workers on rotas who are told when and where to work, cannot send substitutes, and are subject to the agency's direction are employees for PAYE and NMW purposes regardless of whether they hold a self-employment contract. HMRC's audit activity in care is targeted at exactly this pattern, and back-dated PAYE, NIC and NMW liability can reach years into the past.

Holiday pay for irregular-hours workers requires the right accrual method

Zero-hours and bank-contract care workers accrue holiday <a href="https://www.gov.uk/holiday-entitlement-rights">at 12.07% of hours already worked</a> in each pay period. The calculation must include average inter-call travel payments and overtime in the reference period, not just basic hourly pay. Errors here are a recurring Employment Tribunal category for domiciliary agencies.

How we help domiciliary care.

True-cost-per-hour modelling and payroll

We build the full cost-of-a-care-hour from the NLW floor up: employer NIC 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 accrual at 12.07%, mileage reimbursement at the AMAP rate, and the NMW-paid travel time between calls. That model feeds the fee negotiation with your local authority commissioner and the staffing decisions that protect margin. We then run payroll with the <a href="https://www.gov.uk/claim-employment-allowance">Employment Allowance</a> correctly claimed and sleep-in and travel-time hours treated lawfully. See our <a href="/services/care-payroll">care payroll service</a>.

NMW compliance review and employment-status audit

We review rota systems and pay records to identify inter-call travel gaps, sleep-in miscalculations and self-employed arrangements that do not hold up to HMRC scrutiny. For agencies with sponsored staff, we also review <a href="https://www.gov.uk/uk-visa-sponsorship-employers">sponsor-licence compliance costs</a> against the fee model. Compliance is a cost and a risk: we help agencies price it in rather than absorb it silently.

Accounts, VAT position and structure

Domiciliary agencies supplying personal care to people in their own homes are <a href="https://www.gov.uk/guidance/welfare-services-and-goods-notice-7012">VAT-exempt welfare suppliers</a> once CQC-registered. That means input VAT on equipment, vehicles and professional services is unrecoverable. We review the full VAT position, structure management accounts around cost-per-hour and delivered-hour volume, and advise on owner extraction. For agencies setting up, see <a href="/for/care-startups">our start-up hub</a> and the <a href="/services/start-a-domiciliary-care-agency">start a domiciliary care agency service</a>.

Common questions

Do we have to pay carers for travel time between clients?
Yes. <a href="https://www.gov.uk/guidance/calculating-the-minimum-wage/working-hours-for-which-the-minimum-wage-must-be-paid">Travel between a client's home and the next client's home is working time for NMW purposes</a>. Every minute of inter-call travel must be paid at or above the applicable NMW/NLW rate. Only the commute to the first call of the day and from the last call home is excluded.
Do we pay minimum wage for the whole of a sleep-in shift?
No, following <em>Royal Mencap Society v Tomlinson-Blake</em> [2021] UKSC 8. Workers who are provided with sleeping facilities and are permitted to sleep are not entitled to NMW for the sleeping period. They are entitled only for time they are awake and working. <a href="https://www.gov.uk/hmrc-internal-manuals/national-minimum-wage-manual/nmwm08180">HMRC's NMW manual</a> applies the salaried-hours exclusion to sleeping time. The position is different where sleeping facilities are not provided or the worker must stay active throughout.
Can our carers be self-employed?
Rarely, in practice. <a href="https://www.gov.uk/employment-status/employee">HMRC's employment tests</a> look at control, substitution and mutuality of obligation. Care workers on rotas who cannot send substitutes and are subject to the agency's direction are employees for PAYE and NMW purposes, whatever their contract says. Misclassification creates back-dated PAYE, NIC and NMW exposure.
How is holiday pay worked out for zero-hours care staff?
Zero-hours and irregular-hours workers accrue holiday at <a href="https://www.gov.uk/holiday-entitlement-rights">12.07% of hours already worked</a> in each pay period. The reference pay must include average inter-call travel payments and overtime, not just the basic hourly rate. Getting the reference period wrong is a common Employment Tribunal category for care agencies.
What does one hour of domiciliary care actually cost us to deliver?
Start with the <a href="https://www.gov.uk/national-minimum-wage-rates">NLW of £12.71 per hour</a> (workers aged 21+, from 1 April 2026). Add employer NIC 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 accrual at 12.07% of pay, mileage at <a href="https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027">55p per mile</a>, and NMW-paid inter-call travel time. The <a href="/calculators/true-cost-care-hour-calculator">true-cost-per-hour calculator</a> models the full build-up with your own inputs.
Does the Employment Allowance cover our employer NIC?
Most domiciliary agencies are eligible for the <a href="https://www.gov.uk/claim-employment-allowance">Employment Allowance of up to £10,500 per year</a>. For a small agency whose total employer NIC liability is below that figure, the allowance eliminates the bill entirely. Larger agencies with associated companies may not receive the full benefit.

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