The short answer: does a care home register for VAT?
For most care homes, no. The care a CQC-registered home provides is an exempt supply of welfare services, and exempt income is not taxable turnover. Because the VAT registration threshold only tests taxable turnover, a home whose income is entirely exempt care never reaches it and has nothing to register. That is the default position, and it is the right one for a straightforward residential or nursing home.
Registration becomes a live question only when a home earns money that is not the care of its residents. Function room hire to an outside group, a salon or shop open to the public, catering sold to a neighbouring organisation, or a management charge to a connected business are all taxable supplies. When those taxable supplies pass the threshold, which is 90,000 pounds as at September 2026, registration is compulsory on that part of the business. The exempt care income stays exempt throughout.
This guide is written by LOYALS, a King's Cross firm of accountants and business consultants that runs VAT, payroll and management accounts for care homes across London and the UK, so it is framed around the registration decision an operator actually faces rather than the textbook. If you want the wider picture of why care is exempt in the first place, our companion guide on whether a care home is VAT exempt and what it costs covers the exemption itself, and the VAT returns and Making Tax Digital service is where we handle registrations only when they actually help. The exemption sits in HMRC's VAT Notice 701/2 on welfare services.
What counts toward the 90,000 pound threshold
Only taxable turnover counts, and it is tested over any rolling 12 months, not the tax year or your accounting year. That rolling test catches operators out, because you can cross the line in the middle of a quiet-looking year if a few months of taxable income stack up together. Exempt welfare care is excluded from the calculation entirely, so the first job is always to separate the two cleanly.
Taxable income at a care home is anything that is not the welfare care of your residents. The usual sources are function or meeting room hire to outside groups, a hairdressing salon or shop that serves the public rather than only residents, catering supplied to another organisation, staff seconded out to a third party, and management or consultancy charges to a connected business. Each of those is standard rated at 20 percent, and each one adds to the running total you test against the threshold.
The chart below shows how a home with a few taxable sidelines sits against the line. Most homes never get close. The ones that need to watch it are larger sites with genuine commercial activity alongside the care.
Compulsory or voluntary: the two ways a care home ends up registered
There are only two routes into VAT registration, and they feel very different in practice. The first is compulsory. You must register when your taxable turnover exceeds 90,000 pounds in any rolling 12 months, or when you expect it to exceed 90,000 pounds in the next 30 days alone, for example because a single large taxable contract is about to land. Once you meet the test, you have 30 days to register, and HMRC sets out the process on its register for VAT guidance.
The second route is voluntary, and it is where care homes need to be careful. You can only register voluntarily if you make some taxable supplies. A wholly exempt home has no taxable turnover, so it cannot register at all, voluntarily or otherwise. Where a home does have a taxable sideline below the threshold, it could register voluntarily to reclaim some input VAT, but because the home is partly exempt, the recoverable amount is usually modest once the calculation is done, and the extra quarterly admin often outweighs it. Voluntary registration for a care home is a decision to model, not a reflex.
Partial exemption: what you can reclaim once registered
Once a care home registers, it becomes partly exempt, and that is the part most owners underestimate. Being registered does not mean you reclaim all your input VAT. You can reclaim the VAT on costs that relate directly to your taxable activities, you cannot reclaim the VAT on costs that support the exempt care, and the VAT on general overheads has to be split between the two on a fair basis. That split is the partial exemption calculation, and it runs every VAT return.
There is a relief that helps smaller cases, called de minimis. If the input VAT that relates to your exempt activities is no more than 625 pounds a month on average, which is 7,500 pounds a year, and it is also less than half of your total input VAT, you can recover all of your input VAT despite the exempt side. Many homes with a modest taxable sideline fall inside de minimis, which keeps things simple, but you have to test it each period, and HMRC sets out the method in its partial exemption guidance, VAT Notice 706.
Here is how the three common approaches handle a care home's registration question:
| What a care home needs | DIY or software | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Separates exempt care from taxable income | ✗ You self-assess | ● If asked | ✓ Built into the books |
| Tracks the rolling 12-month taxable total | ✗ | ● | ✓ Monthly tracker |
| Tells you when to register, not after the fact | ✗ | ● | ✓ Before the deadline |
| Runs the partial exemption calculation each quarter | ✗ | ● | ✓ Calculated and filed |
| Sets up Making Tax Digital cleanly | ● Software only | ● | ✓ Set up and filed |
| Open Mon to Sat for urgent VAT and contract calls | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
This is why care home operators with taxable sidelines tend to move from a generic accountant to a care sector specialist before they register.
Making Tax Digital: what registration commits you to
Registering for VAT is not just a quarterly return. Every VAT-registered business has to keep its VAT records digitally and file through Making Tax Digital compatible software, as set out in HMRC's Making Tax Digital for VAT collection. For a care home that registers because of a taxable sideline, that means the bookkeeping has to be set up properly from the start, with exempt and taxable income coded separately and the partial exemption calculation feeding the return each quarter.
It is manageable, but it is real work, and it is the part that catches homes that register without help. Getting the software, the chart of accounts and the income coding right on day one is far easier than unpicking a year of mixed transactions later. This is the practical reason a home with a growing taxable sideline is better registering deliberately, with the books built for it, than drifting over the line and scrambling to comply.
How to register, and what to do first
If registration is coming, the sequence matters more than the paperwork. The actions below keep it clean and stop you paying VAT you did not need to, or missing a deadline you did.
- Separate your income now. Split exempt care from every taxable stream in the bookkeeping, even if you are nowhere near the threshold. It is the foundation for the rolling test and for partial exemption later.
- Track the rolling 12-month taxable total. Keep a simple monthly figure of taxable turnover so you can see the trend and the point at which you would cross, rather than discovering it at year-end.
- Decide the registration date deliberately. Once you must register, you have 30 days, but you can also plan the date around a contract or a capital purchase so the recoverable VAT works in your favour.
- Set up Making Tax Digital software before you register. Have compatible software and the income coding ready so your first return is straightforward rather than a scramble.
- Model the partial exemption position. Work out whether you fall inside de minimis, and what you can actually reclaim, before you assume registration is worth doing voluntarily.
- Take advice on any group structure. If the taxable income sits in a connected company or you are considering a recovery structure, get it modelled first, because HMRC scrutinises these closely.
LOYALS is a King's Cross firm of accountants and business consultants, and our care team handles VAT registration, the partial exemption method and Making Tax Digital for homes across London and the UK, so the books separate exempt and taxable income from day one and the registration decision is made on the numbers rather than in a rush.
If you would rather hand the whole picture to a team that does this every week, our care home accountants in London run VAT, payroll, management accounts and CQC-ready reporting under one fixed monthly fee, so the registration question, the income split and the quarterly filing are all handled together rather than left to catch you out.