Should each care service be its own limited company?
Only once the second service carries a risk, a commissioner or an exit plan that the first one does not. That is the whole test, and most owners who ask us about a group structure are asking because one of those three things has just changed: a domiciliary agency has won a supported living contract with a different council, a care home is buying a second home, or a mixed provider wants to sell the complex care arm in a few years without selling everything else.
A separate company does three useful things. It stops a bad contract or a claim in one service reaching the cash and the CQC registration of the other, it lets you sell or close one service on its own, and it gives a lender or a buyer a clean set of accounts for exactly the thing they are financing. Those are real benefits and we would not talk anyone out of them.
What a separate company also does is create a second regulated entity, a second payroll, a second set of statutory accounts, a corporation tax position that now has to be looked at across the group, and a VAT problem on every pound that moves between the two companies. Below roughly £1 million of combined turnover the running cost of all that usually outweighs the protection, and the better answer is often a single company with a clear cost-centre split in the management accounts. Above that, and certainly once a third setting is on the horizon, the group structure starts to earn its keep. Our care agency accountants page sets out how we run the finance function for providers at that stage.
There is one more reason people restructure that is worth naming, because it is the one that goes wrong: the belief that a holding company can charge the care company a management fee and recover VAT on the group's overheads. It cannot, and the section on the VAT trap below explains why with the numbers.
What happens to CQC registration when you move a service into a new company?
Nothing transfers. The Care Quality Commission registers the person who carries on the regulated activity, and a limited company is a person in law, so a new company is a new provider from CQC's point of view even when it is taking over your own locations, your own staff and your own clients. Under section 10 of the Health and Social Care Act 2008 a company that carries on a regulated activity without being registered commits an offence, so the new company cannot start delivering care on the day it is incorporated. It has to apply and be granted first.
CQC's own process recognises the situation. Its new provider application guidance has a specific route for a provider that is registering and taking over locations from an existing registered provider where the registered managers want to continue, which is exactly what a restructure looks like. Your registered manager carries across, the location carries across, but the provider registration is fresh, with the fit person interviews, the statement of purpose and the financial viability evidence that go with it. If you need a reminder of what that evidence looks like, our guide to the CQC cashflow forecast for a care home registration covers the same Regulation 13 test the new company will face.
The practical consequence is a gap. Between incorporating the new company and CQC granting its registration, the old company must keep carrying on the activity, keep employing the staff and keep invoicing the commissioner. Owners who transfer everything on incorporation day, on the assumption that the registration will catch up, are trading unregistered for the whole of that gap. We have never seen CQC be relaxed about it. Allow months rather than weeks for the application, check CQC's current published timescales when you plan, and do not give a commissioner a go-live date until the certificate is in hand.
What order should a care group restructure happen in?
Registration first, contracts second, staff third, money last. Every restructure that has gone badly in our experience went badly because the money moved before the registration did, or the staff moved before the contracts did. The sequencing checklist below is the one we hand to a client on the first call, and the flowchart under it shows where each step waits on the one before.
- Decide the shape on paper. Single company with cost centres, sister companies owned personally, or a holding company with subsidiaries. The choice decides whether group relief, a VAT group and a clean future sale are even available, so it comes before anything is incorporated.
- Incorporate the new company and apply to CQC. Use the continuing managers route so the registered manager's registration carries across. Prepare the financial viability evidence for the new entity, which has no trading history of its own, so the forecast and the funding letter carry the weight.
- Agree novation with every commissioner. Council and ICB (integrated care board) contracts sit with the old company and do not follow the service automatically. Each one needs a novation agreement, or an assignment if the contract allows it, and most commissioners will not sign until the new company's CQC registration is granted. Private clients need a fresh care agreement with the new company.
- Set the TUPE date to match go-live. The carers assigned to the service transfer under the Transfer of Undertakings (Protection of Employment) Regulations with their existing terms and continuity intact. Regulation 11 of TUPE requires the old company to give the new one the employee liability information at least 28 days before the transfer, and the consultation with staff representatives has to happen long enough before it to be meaningful. A payroll transition inside a group is easier than a transfer to a stranger, but the paperwork is the same.
- Move the bank, the pension scheme and the PAYE reference. The new company needs its own PAYE scheme, its own auto-enrolment pension employer record with the same scheme provider, and its own bank account with the commissioners' remittances redirected. Do this in the week before go-live, not the week after, or the first pay run lands in the wrong company.
- Only then move the money. Stock, equipment and any property go across at market value with the VAT treatment checked (a transfer of a going concern is usually outside the scope of VAT, but the conditions have to be met), and the intercompany balance that results is documented as a loan with terms.
Why does a management charge from a holding company cost a care company VAT?
Because a management charge is a standard-rated supply of services, and a care company that only makes exempt welfare supplies has no right to recover the VAT on its costs. Under VAT Notice 701/2, updated 14 August 2026, care provided by a state-regulated provider, which for our purposes means a CQC-registered company, is exempt from VAT. Exempt income is the reason your agency does not charge VAT to the council, and it is also the reason it cannot reclaim VAT on rent, software, insurance, and anything a sister company charges it.
Here is what that does in practice. Say the holding company employs the owner, the registered manager for the group, the finance person and the compliance lead, and recharges those costs to the care company as a £120,000 management charge each year. That charge must carry VAT of £24,000, so the care company pays £144,000 to the holding company and can recover none of the £24,000. The holding company pays the £24,000 to HMRC. Nothing has been saved and £24,000 a year has left the group for ever. At £60,000 the leak is £12,000; at £180,000 it is £36,000. The chart below sets those figures against the position inside a valid VAT group, where the same charges are disregarded.
The fix is rarely a VAT group, for the reasons in the next section. The fix is usually to stop the charge existing. If the people who run the group are employed by the care company that makes the exempt supplies, their cost sits where the income is and no supply between companies is needed. Where a cost genuinely has to be shared, a documented apportionment of a third-party invoice is not the same as a management charge, and the treatment of each recharge has to be looked at on its own facts. What you cannot do is bolt on a holding company, route the overheads through it and expect the VAT to wash. It does not.
Does a VAT group fix the intercompany VAT problem for a care group?
Sometimes, and less often than it used to. A VAT group treats its members as one taxable person, so supplies between members are disregarded and the group files one return through a representative member. VAT Notice 700/2, updated 22 July 2026, sets the conditions: the companies must be under common control, each must be established in the UK, and every member becomes jointly and severally liable for the whole group's VAT debts. Two things in that notice matter enormously for care.
The first is that a group cannot be formed by wholly exempt businesses. At least one member has to make taxable supplies outside the group, and the partial exemption de minimis limits are applied to the group as a whole rather than company by company. A domiciliary agency and its supported living sister, both exempt, cannot simply group to make the management charge disappear.
The second is Revenue and Customs Brief 2 (2025), published 24 April 2025. HMRC now treats the structure where an unregulated company sits between the regulated care provider and the council or ICB, invoicing the commissioner at the standard rate so the group can recover input tax on welfare costs, as tax avoidance. It refuses new VAT group applications built to do that and is reviewing existing groups, with the power to remove members. If your restructure has been sold to you on the promise of VAT recovery on care costs, that promise is now the thing HMRC is looking for.
Where a VAT group still makes sense is a mixed group with a genuine taxable arm, a training business or a domiciliary agency that also supplies staff to other providers for example, where the intercompany charges are real and the taxable supplies to the outside world are real. Even then the joint and several liability means a VAT problem in the training company is now a problem for the care company too, which is exactly the risk the second company was meant to fence off. Our guide to care agency VAT and partial exemption works through what happens once taxable income sits alongside exempt care.
How do associated companies change the corporation tax a care group pays?
They divide the limits. Corporation tax in 2026/27 is 19 percent on profits up to £50,000, 25 percent above £250,000 and an effective 26.5 percent on the slice between. When two companies are under the control of the same person, HMRC's Company Taxation Manual at CTM03935 says the upper and lower limits are divided by one plus the number of associated companies. Two trading companies each get £25,000 and £125,000. Three get £16,667 and £83,333. A dormant company is ignored, but a company that has traded at all in the period counts, and it does not matter whether it made a profit.
The cost depends on where the profit sits. Take an illustrative agency with £80,000 of profit as one company: £9,500 at 19 percent on the first £50,000 plus £7,950 at 26.5 percent on the next £30,000, £17,450 in all. Now put the same trade into two companies, the original one making £90,000 and a new supported living company running a £10,000 start-up loss. The original company's limits are £25,000 and £125,000, so its bill is £4,750 plus £17,225, which is £21,975. The new company pays nothing and, because the two are owned personally side by side rather than through a holding company, its £10,000 loss cannot be set against the other's profit. The group pays £4,525 more than the single company did on the same £80,000 of combined profit.
A holding company that owns at least 75 percent of both subsidiaries changes that, because group relief lets the loss in one company reduce the profit in the other in the same year. It does not change the associated company count, so the divided limits stay. Our post on what a multi-branch care group pays for its accounts shows why consolidation and the associated companies calculation are part of the monthly work rather than a year-end afterthought.
Here is how the three common approaches actually compare on a care group restructure:
| What you need | DIY / software | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Knows a new company needs a new CQC registration before it trades | ✗ Found out late | ● Often assumes transfer | ✓ Sequenced from day one |
| Tests every intercompany charge for irrecoverable VAT | ✗ | ● If asked | ✓ Welfare exemption is our daily work |
| Checks a proposed VAT group against Brief 2 (2025) | ✗ | ✗ | ✓ Before the application |
| Runs the associated companies count every year end | ✗ | ● Company by company | ✓ Group view, group relief claimed |
| Runs TUPE payroll transition and two PAYE schemes cleanly | ✗ | ● | ✓ Weekly care payroll, both entities |
| Open Mon to Sat for the call before you sign | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
This is why providers who are about to become a group tend to move to a care specialist before they incorporate the second company, not after.
What to do before you incorporate the second company
Model it first and incorporate second. The decision turns on four numbers you can get in a week: the combined profit and where it sits, the value of any charge that would move between the companies, the taxable income if any that could support a VAT group, and the time to CQC registration for a new provider in your area right now.
- Write down why. Risk, sale or lender. If the honest answer is VAT recovery, stop here.
- Choose between sisters and a holding company. Personally owned sister companies are simple and give no group relief. A holding company gives group relief and a cleaner sale but adds a third entity and its own accounts.
- Price the leaks. Irrecoverable VAT on any intercompany charge, the extra corporation tax from divided limits, and the second set of accounts, payroll and CQC fees. Set that against the protection you are buying.
- Plan the CQC application before anything else. New provider, continuing managers, financial viability evidence for an entity with no history.
- Book the novation conversations with commissioners early. They take longer than the paperwork suggests.
- Fix one go-live date that sits after the registration is granted and at least 28 days after the TUPE information has been handed over.
A group is not a one-off project. Once it exists there are two or three sets of statutory accounts, intercompany balances that have to agree at every month end, an associated companies calculation on every corporation tax return, a VAT position that has to be run monthly across exempt and any taxable income, and a lender or a buyer who will one day ask for the group's figures on a single page. That is the point at which owners stop treating accounting as a year-end cost and start treating it as the finance department they do not want to hire. LOYALS Accountants & Business Consultants runs exactly that for care groups from King's Cross, with weekly payroll across both entities, council and ICB invoicing, and the group corporation tax and VAT position handled as one piece of work rather than two.