Accountants for Supported Living Providers UK

Accountancy for supported living providers: the rent and care split.

Supported living finance pivots on a single structural fact: rent income and care income are two separate streams, generated under different contracts, funded by different commissioners, and subject to different VAT and accounting treatments. A provider that treats them as one income line will misstate its VAT position, misread its margins and undermine its case for a care-element fee increase. We work with supported living operators on the split, the VAT, the HMRC grouping risk and the staffing economics that tie the two together.

What makes supported living finance different.

Two income streams that must be accounted separately

In a supported living arrangement the rent element (the tenancy or licence fee for accommodation) and the care/support element (personal care or support delivered by the provider and typically funded by a local authority or NHS commissioner) are legally and financially distinct. The rent element may be funded by housing benefit or the housing cost component of Universal Credit; the care element is a separate commissioner contract. Mixing them in one income line obscures the cost recovery analysis for each stream and makes VAT position analysis unreliable.

The care element is VAT-exempt, and exemption is a cost

<a href="https://www.gov.uk/guidance/welfare-services-and-goods-notice-7012">HMRC Notice 701/2</a> confirms that personal care supplied by a CQC-registered provider is VAT-exempt welfare. That means input VAT on care-delivery costs (equipment, vehicles, professional fees proportionate to the care element) is unrecoverable. <a href="https://www.gov.uk/vat-registration/when-to-register">The £90,000 VAT registration threshold applies to taxable turnover only</a>; exempt care fees do not count. If the rent element generates taxable supplies, a <a href="https://www.gov.uk/guidance/partial-exemption-vat-notice-706">partial exemption calculation</a> is required, and input VAT recovery depends on the de minimis test (exempt input tax must not exceed £625 per month on average).

HMRC is actively challenging VAT-grouping structures

<a href="https://www.gov.uk/government/publications/revenue-and-customs-brief-2-2025-the-use-of-vat-grouping-within-the-care-industry/use-of-vat-grouping-within-the-care-industry">Revenue and Customs Brief 2/2025</a> sets out HMRC's position that VAT-group arrangements designed to route exempt welfare supplies through an unregulated entity, in order to recover input VAT that would otherwise be irrecoverable, constitute avoidance. HMRC will refuse new VAT group registrations on these structures and will remove existing members where the arrangement is present. Any supported living group contemplating VAT planning must start from this brief; pre-2025 scheme advice cannot be relied on.

Evidencing a care-element fee increase with the local authority

<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> is the formal mechanism for providers to challenge below-cost rates. That challenge needs a properly costed support-element cost model built from payroll, NIC, holiday pay and management overhead, expressed per support hour and per tenancy.

How we help supported living.

Rent and care stream separation in accounts

We structure supported living management accounts so rent income and care income appear in separate nominal codes with matching cost allocations. That clean split is the foundation for the VAT analysis, the commissioner reporting and any fee-rate negotiation. It also satisfies the financial-information requirements of CQC registration for the care element. See <a href="/services/care-vat-review">our care VAT review service</a>.

VAT position review and RCB 2/2025 compliance

We review the VAT treatment of each income stream, the partial-exemption position where any taxable supplies exist, and the group structure against <a href="https://www.gov.uk/government/publications/revenue-and-customs-brief-2-2025-the-use-of-vat-grouping-within-the-care-industry/use-of-vat-grouping-within-the-care-industry">RCB 2/2025</a>. For groups that have relied on pre-2025 VAT planning advice, we assess exposure and advise on restructuring options that do not fall within the avoidance challenge.

Payroll, NIC and Employment Allowance

Support-worker payroll is the dominant cost in the care element. We run payroll with <a href="https://www.gov.uk/claim-employment-allowance">Employment Allowance up to £10,500</a> correctly applied, 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> modelled per head, and holiday accrual calculated on the correct reference period for irregular-hours workers. See <a href="/services/care-payroll">our care payroll service</a>.

Common questions

How is rent income accounted separately from care income in supported living?

The rent element (accommodation, funded by housing benefit or Universal Credit housing cost) and the care/support element (funded by the local authority or NHS under a separate commissioner contract) must sit in different nominal codes. The VAT treatment, funding source and cost allocation differ for each stream; mixing them produces an unreliable P&L and an incorrect VAT position.

Is the care element of supported living VAT exempt?

Yes, where the provider is CQC-registered and is supplying personal care. <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. Exemption means input VAT on care-element costs is unrecoverable. The rent element may have a different VAT treatment depending on how it is structured.

Can we recover VAT through a group structure?

<a href="https://www.gov.uk/government/publications/revenue-and-customs-brief-2-2025-the-use-of-vat-grouping-within-the-care-industry/use-of-vat-grouping-within-the-care-industry">HMRC's Revenue and Customs Brief 2/2025</a> makes clear that VAT-group arrangements designed to allow input VAT recovery on exempt welfare supplies constitute avoidance. HMRC is refusing new registrations on this basis and removing existing group members. Pre-2025 scheme advice should not be relied on; any group planning must begin from the Brief.

Who funds the support element and how do we evidence a fee increase?

Local authority and NHS commissioners fund the support element under individual care and support contracts. <a href="https://www.gov.uk/government/publications/care-act-statutory-guidance/care-and-support-statutory-guidance">Care Act statutory guidance</a> requires LAs to pay a fee reflecting the actual cost of care. A properly costed support-hour model, built from management accounts split between the two income streams, is the foundation for any fee-rate challenge using the <a href="https://www.gov.uk/government/publications/market-sustainability-and-improvement-fund-2024-to-2025">market sustainability framework</a>.

Does the Employment Allowance apply to supported living providers?

Most supported living providers are eligible for the <a href="https://www.gov.uk/claim-employment-allowance">Employment Allowance of up to £10,500 per year</a>, which reduces employer NIC. For smaller providers whose total employer NIC bill is below £10,500, the allowance eliminates it entirely. Associated-company rules reduce the benefit for larger groups.