Care Home Accounting: Occupancy, Fee Income and the Agency Staff Problem

Introduction

A 64-bed nursing home’s September management accounts show occupancy at 91% and the best month of the year. Then the reviewer reconciles the council remittance. Two residents who died in August are still being accrued at the full weekly fee.

It gets worse. A resident who moved from residential to nursing care in July is still billed at the residential rate, and nobody has claimed her funded nursing care. Agency invoices for September have not arrived, so the month carries almost no agency cost. And the lender’s covenant test next month is built on EBITDARM, a figure the accounts no longer show the way the facility agreement expects.

None of that is unusual. Care homes run on weekly fees, several funders paying on different cycles, and a staffing model that changed shape when overseas recruitment of care workers closed in July 2025. Monthly accounts built from the bank feed miss most of it.

Care homes are one of the most deadline-heavy corners of healthcare business accounting. This guide is for UK accountancy practices with care home clients, and for operators who want numbers a lender will accept without a rebuild.

It covers fee income and its timing, occupancy and the weekly fee model, top-ups and funded nursing care, agency staff, cost per occupied bed, EBITDARM, and the monthly pack. It is written for England, where most of the rules quoted apply; Scotland, Wales and Northern Ireland fund nursing and personal care differently.

Fee income sources and timing

A care home is paid by up to five different funders for the same bed, each on its own cycle and its own paperwork. Income has to be accrued from the occupancy register, resident by resident, and then reconciled to what each funder actually paid.

Funder	Who pays	Usual timing	What goes wrong
Council-funded placements	The local authority, sometimes net of the resident’s assessed contribution	Often four-weekly in arrears, against a payment schedule rather than an invoice	Schedules lag admissions, deaths and room moves; contributions the home is meant to collect are never chased
Self-funders	The resident, family or an attorney	Usually monthly in advance under the contract	Funds running down; delays while attorneys or deputies are appointed; estates after death
Third-party top-ups	A relative or friend, under an agreement with the council	Usually monthly	Payments stop and nobody notices for months
NHS-funded Nursing Care (FNC)	The ICB, paid direct to the home	Four-weekly or monthly, depending on the ICB	Assessments never claimed, or not backdated to the right date
NHS Continuing Healthcare (CHC)	The ICB, at a contract rate	Usually in arrears	Eligibility reviews ending funding part-way through a period

Council arrangements are the ones to read closely. Under a gross arrangement the council pays the full fee and collects the resident’s contribution itself. Under a net arrangement the home collects the contribution directly, so the client ledger carries debts from residents whose fees look council-funded.

The timing mismatch causes the most trouble at month end. Councils and ICBs often pay in four-weekly periods, while management accounts run on calendar months, so income must be accrued day by day from the register, not taken from remittances.

Every difference between the register and a remittance belongs in a schedule query log with a named owner. A difference left for the year end is usually a death, a move or a rate change, and it is far harder to evidence by then.

One more structural point: care home fees are VAT exempt as welfare services. That means no VAT on fees, but also no recovery of VAT on costs, which matters for agency staff and refurbishment budgets.

Occupancy and the weekly fee model

Care home income is occupied bed weeks multiplied by the weekly fee for each funder. Both halves of that sum need defining before anyone compares one month with the next, or one home with another.

Registered, available and occupied beds

Registered beds are what the home is registered for. Available beds exclude rooms out of use for refurbishment, and double rooms let as singles. Report occupancy on both bases: available occupancy shows how well the home is selling, and registered occupancy shows how much of the asset is earning.

Track admissions, discharges, deaths and enquiries alongside the headline rate. A home at 90% with falling enquiries is in a worse position than one at 86% with a waiting list.

Fee mix and the average weekly fee

The average weekly fee only means something when it is shown by funder. A home can raise occupancy and lose margin if the new residents are council-funded at a lower rate than the self-funders they replaced.

The cost side is lumpy. Staffing is set by rota and dependency, so an empty bed saves very little, and an extra resident adds almost the whole fee to margin until the next staffing step. That is why occupancy and margin should always be read together.

Deaths, absences and prepaid fees

The CMA’s consumer law advice on fees after death treats only a short period as fair: a fixed period of up to three days, or until the room is cleared, capped at ten days. Nothing should be charged once the room is reoccupied, and a shortfall in funded nursing care cannot be passed to the family.

For the accounts, that means stopping accruals at the date of death plus the contractual period, and recognising refunds of prepaid fees as a liability straight away. Retainer fees during hospital stays follow the contract or the council’s rules, and should be accrued only to the extent they are payable.

Self-funders usually pay monthly in advance, so part of each receipt is deferred income at month end. Deposits are a liability until refunded or applied, never income on receipt.

Top-ups and funded nursing care

Top-ups and funded nursing care are small lines on a resident’s bill and large lines in a nursing home’s debtor ledger. Both need their own codes, their own reconciliation and their own owner.

Funded nursing care in 2026/27

From 1 April 2026, the standard FNC rate rose to £267.68 a week, up from £254.06. The higher rate, for residents still on the pre-October 2007 high band, rose to £368.24. The ICB pays it direct to the home as a contribution towards the nursing element of the fee.

Record FNC by resident, from the assessment date, and reconcile each ICB remittance line by line. Unclaimed or unbackdated FNC is one of the most common income leaks we see in nursing home files, because it falls between the care team and the finance team.

For self-funders, the contract and the invoice should show how FNC is treated, and what happens when the rate changes. The CMA’s advice treats contracts that are silent on FNC changes as a consumer law risk.

Top-ups and who carries the risk

When a council-funded resident chooses a home that costs more than the council will pay, a relative or friend can pay the difference as a third-party top-up. In England, a resident can only top up their own fees in limited cases, such as during the 12-week property disregard or under a deferred payment agreement.

When a top-up stops, the contract decides who carries the loss, so each top-up needs its own debtor account and a monthly check that it was paid. A top-up ledger left to drift for a year is very hard to collect.

When a self-funder’s money runs out

In England, a resident with capital above £23,250 pays the full fee. As savings approach that limit the council steps in, often at its own rate, and the home’s fee for that bed can drop.

With appropriate consent, keep a list of self-funders likely to reach the limit in the next six to twelve months. It turns a surprise fee cut into a forecast, and it gives the home time to agree the funding position before arrears build up.

Agency staff as a percentage of payroll

Agency spend is where care home margins are now won or lost. Measure it monthly as a share of total staff cost, by role and by home, because the annual figure arrives too late to change anything.

Why the pressure has grown

The National Living Wage rose to £12.71 an hour from April 2026, on top of the employer National Insurance rise to 15% in April 2025. New overseas recruitment of care workers and senior care workers closed on 22 July 2025, with in-country switching allowed until July 2028.

Homes that relied on sponsored workers now fill more gaps with agency hours. Further ahead, the government has set aside £500 million for the first fair pay agreement for care workers, so pay floors will keep rising.

The true agency premium

Compare like with like: an agency hour against the full cost of an employed hour actually worked. Here is an illustrative full-time carer on £13.00 an hour, against an agency charge of £24.00.

Cost per hour worked	Employed carer	Agency carer
Base pay or agency charge	£13.00	£24.00
Paid holiday (5.6 weeks)	£1.57	Included
Employer NIC at 15% above £5,000	£1.75	Included
Workplace pension at 3%	£0.33	Included
VAT at 20%, if charged and irrecoverable	None	£4.80
Total	£16.65	£28.80

Illustrative only, and before the Employment Allowance, training and recruitment costs. On these figures an agency hour costs 73% more than an employed one. Before VAT the gap is £7.35 an hour, which pays for the agency’s overheads, its margin and any higher rate it pays the worker.

VAT on agency invoices

Supplies of staff are standard-rated by default. HMRC’s nursing agency concession lets an agency exempt some supplies of nurses and nursing auxiliaries, but the conditions are narrow, and as Crowe notes, VAT charged to an exempt care provider is a straight cost.

Check which treatment each agency applies and why. Carers placed in a residential home without nursing will rarely qualify, and a supplier that has wrongly exempted its invoices can issue VAT-only invoices later.

Accounting for agency cost on time

Accrue agency cost weekly from the rota or booking system, not from invoices, which can lag by a month or more. Match invoices to signed timesheets, and code temp-to-perm fees separately so they do not hide in the hourly cost.

Report agency hours as a share of total care hours alongside the cost share. If the hours share falls but the cost share does not, rates are rising, which is a negotiation point rather than a rota one. Payroll data is the other half of that comparison, which is why we run home care payroll services alongside the monthly accounts rather than separately.

Cost per occupied bed

Cost per occupied bed per week is the single figure that lets an owner, a lender and an accountant compare homes of different sizes. Set it beside the average weekly fee and the margin per resident is visible in one line.

Here is an illustrative week for one occupied bed in a mid-sized home.

Per occupied bed, per week	Amount	Share of fee
Average weekly fee, all funders	£1,150	100%
Staff cost, including agency	£690	60%
Food, utilities and consumables	£120	10%
Repairs, insurance, regulatory and other costs	£90	8%
EBITDARM	£250	22%
Rent	£125	11%

On those numbers rent cover is 2.0 times, which is the kind of headroom a landlord or lender will look at first. Every cost line includes irrecoverable VAT, because the fees are exempt.

Two companion measures keep the figure honest. Care hours per occupied bed show whether staffing follows dependency or habit. Staff cost per occupied bed, split between employed and agency, shows where the pressure on the 60% line is coming from.

Calculate every per-bed figure on occupied beds, not registered ones. Dividing by registered beds flatters a half-empty home and hides the cost of the empty rooms it is still heating and insuring.

EBITDARM for lenders

Lenders and landlords judge a care home on EBITDARM: earnings before interest, tax, depreciation, amortisation, rent and management charges. It strips out how the home is financed and owned, so a leased home can be compared with a freehold one and a single home with one in a group.

What lenders do with it

They look at EBITDARM per bed per year, at rent cover (EBITDARM divided by rent) and at the trend over twelve months. They also read it beside occupancy, fee mix, agency share and the home’s CQC rating, because an Inadequate rating can bring council embargoes on new admissions.

The management charge is the line most often argued about. Group recharges for head office, training or quality teams are added back, but the lender will expect to see what the home would cost to run without them, so document what each charge pays for.

Normalise owner pay, one-off costs and any pre-opening losses in a schedule, not in the ledger. A lender will rebuild the figure regardless, and a clear bridge from statutory profit to EBITDARM shortens that conversation considerably.

The FRS 102 lease change

For accounting periods beginning on or after 1 January 2026, FRS 102 brings most leases onto the balance sheet as a right-of-use asset and a lease liability, as the ICAEW explains. For a leased care home, rent disappears from the profit and loss account and comes back as depreciation and interest.

That makes reported EBITDA jump while the cash rent stays the same, and it changes what the R in EBITDARM points to. Check whether the facility agreement fixes the accounting basis at signing, often called frozen GAAP, and agree with the lender how rent will be measured for covenant tests.

The practical answer is to report EBITDARM on cash rent, with a reconciliation to the new statutory figures. Index-linked rent reviews, common in care home leases, also mean the lease liability is remeasured when payments change, so expect movements that have nothing to do with trading. Homes reporting under FRS 105 keep the old lease treatment.

Monthly reporting pack

A care home’s monthly pack should tell the owner, the registered manager and the lender the same story from the same numbers. Built in this order, it also turns the year end into a formality.

•  Occupancy: registered, available and occupied beds, with admissions, discharges, deaths and enquiries for the month.

•  Fee income by funder: income and average weekly fee for council, self-funder, top-up, FNC and CHC residents, accrued from the register.

• Remittance reconciliation: each council and ICB payment matched to the register, with the schedule query log and its owners.

• Debtors by funder: councils, ICBs, self-funders, top-up payers and deceased residents’ estates, each aged separately.

• Staffing: care hours per occupied bed, agency share of cost and hours by role, overtime, vacancies and staff turnover.

•  Margin: cost per occupied bed, EBITDARM, rent cover and the bridge from statutory profit.

•  Cash and covenants: cash flow, the next covenant test and its headroom, and capital spend against budget.

•  Compliance calendar: payroll and pension deadlines, CQC notifications and fees, and the April pay and FNC changes.

The pack works when the register is the source of truth. If occupancy comes from one spreadsheet, billing from another and the accounts from the bank, every month starts with an argument about which number is right.

We build packs like this as part of our healthcare management accounts UK service, and the same register drives the year-end healthcare accounts preparation, so the two never disagree.

Frequently asked questions

Are care home fees subject to VAT?

No. Care and accommodation provided by a registered care home are exempt as welfare services, so no VAT is charged on fees. The flip side is that the home cannot recover VAT on its costs, including agency staff, maintenance and refurbishment.

How is care home occupancy calculated?

Occupied beds divided by beds, measured over the period rather than on a single night. Report it on registered beds and on available beds, which exclude rooms out of use, because the two answer different questions about the business.

What is EBITDARM and why do lenders use it?

Earnings before interest, tax, depreciation, amortisation, rent and management charges. Lenders use it because it compares the trading performance of homes regardless of whether they are owned or leased, or part of a group, and it underpins rent cover tests.

What is the NHS-funded nursing care rate for 2026/27?

£267.68 a week from 1 April 2026, up from £254.06, with a higher rate of £368.24 for residents still on the pre-October 2007 high band. The ICB pays it direct to the home towards the nursing element of the fee.

Can a care home charge fees after a resident dies?

Only for a short period. The CMA’s advice treats a fixed period of up to three days, or until the room is cleared up to a maximum of ten days, as fair. Nothing should be charged once the room is reoccupied, and families should not be asked to cover a funded nursing care shortfall.

What happens when a self-funding resident’s money runs out?

In England, once capital falls to £23,250 the council can be asked to assess and take over funding, often at its own rate. The home should forecast which residents are approaching the limit so a fee change does not arrive as a surprise or as arrears.

How do third-party top-ups work?

A relative or friend pays the difference between the council’s rate and the home’s fee, under an agreement involving the council, the home and the payer. Each top-up needs its own debtor account and a monthly check that it was paid, because the contract decides who carries the loss if it stops.

Do care homes pay VAT on agency staff?

Usually, yes. Supplies of staff are standard-rated unless an agency correctly applies HMRC’s narrow nursing agency concession, which rarely covers carers placed in residential homes without nursing. Because care home fees are exempt, that VAT is a real cost.

What is a good agency staff percentage for a care home?

There is no official benchmark, and a single figure hides big differences between nurses and carers. Track agency cost and agency hours as a share of the total, by role and by home, and set a target with the operator based on its own trend.

How do the new FRS 102 lease rules affect care homes?

For accounting periods beginning on or after 1 January 2026, leased homes report a right-of-use asset and a lease liability, and rent is replaced by depreciation and interest in the profit and loss account. EBITDA rises with no change in cash, so covenant and rent cover calculations need agreeing with the lender.

Can care homes still recruit care workers from overseas?

Not for new hires from abroad. Overseas recruitment for care workers and senior care workers closed on 22 July 2025, though workers already in the UK on the route can switch employers or extend until July 2028. Most homes now rely on domestic recruitment, bank staff and agency cover.

How should a care home account for deposits and fees paid in advance?

Deposits are a liability until they are refunded or applied to a bill. Fees paid monthly in advance are deferred income for the part of the month not yet provided, and any refund due after a death or move is a liability from the date it arises.

Making care home numbers lender-ready every month

Most of what goes wrong in care home accounts is decided weekly, not at the year end. A death not reflected in the accrual, an FNC assessment never claimed, a top-up nobody chased, an agency invoice that arrived six weeks late. By the time a lender asks for EBITDARM, those are slow and expensive to unpick.

We work as the back office for UK accountancy practices that offer private healthcare accounting services, from care homes and nursing homes to clinics. That means monthly bookkeeping with fee accruals driven from the occupancy register, council and ICB remittance reconciliations, and VAT returns for the groups that also make taxable supplies.

Alongside that sit care staff payroll through our payroll team, management accounts with per-bed KPIs and EBITDARM, and year-end accounts under the revised FRS 102, delivered ready to review. Standard jobs come back within five working days.

If you would rather test it than take our word for it, send us one real care home file, ideally the one where the council remittances never match the register. We will rebuild the fee reconciliation, quantify the agency premium and hand back a pack your reviewer can sign.

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Related reading: Healthcare accounting outsourcing for UK practices | Outsourced management accounts | Outsourced payroll for care providers

This article is general guidance for UK accountancy practices and care home operators and is not a substitute for advice on a specific client file. Funding rates, pay rates, immigration rules and FRS 102 requirements are those in force in England as at October 2026 and may change.