What a cost of care model actually is
A cost of care model is a costed breakdown of exactly what one hour of care costs you to deliver, from the carer's wage all the way through to a small surplus for staying solvent. It is the document you put in front of a council when you ask for a higher fee. Without it, a fee request is just an opinion, and councils receive dozens of those every year.
Here is the awkward truth of the sector. Councils and the NHS buy roughly 80 percent of home care in England and they fix the price, so you cannot simply raise your rate the way a shop raises a price. Your only real lever is evidence. A cost of care model turns "we need more" into "here is the arithmetic, and at your current rate we lose money on every visit". That shift is what moves a commissioner.
This guide is written by LOYALS, a King's Cross firm of chartered accountants that runs weekly payroll, council invoicing and cost of care modelling for home care agencies across London and the UK. We build these models from the same payroll data we file, so the number an owner takes to the council matches the number in the accounts. For the wider service that sits behind this work, see our care agency accountants page.
The model matters more now than it did two years ago. The National Living Wage rose to £12.71 an hour from 6 April 2026, employer National Insurance sits at 15 percent above a £5,000 secondary threshold, and the Care Quality Commission (CQC) increasingly expects providers to show financial viability, not just quality. Costs that used to be absorbed quietly now have to be evidenced out loud.
The true cost of an hour of home care in 2026/27
The true cost of an hour of home care in 2026/27 is close to £34.42 in England once every real cost is counted, which is the Homecare Association minimum price for the year. The carer's wage is only the base. Stack on holiday pay, employer National Insurance, pension, paid travel time, training, back office and a small surplus, and the number roughly triples the headline you might expect.
Most agencies underprice because they cost the contracted hour, not the delivered hour. A carer paid for a 30-minute call may spend 15 minutes travelling to it, and that travel time counts towards the National Minimum Wage under HMRC's guidance on calculating the minimum wage. Miss it and your model is wrong before you start. We cover the mechanics of that in our guide on travel time, mileage and the minimum wage in domiciliary care, and the averaging rules in minimum wage averaging for domiciliary carers.
The chart below shows how the number builds. It is an illustrative split, because every agency's rota, geography and overhead differ, but the destination is the same benchmark a council will recognise.
Notice how large the management and running block is. Registered manager time, care coordinators, CQC compliance, insurance, DBS checks, rostering software and rent do not disappear because a council pays a low rate. They just eat into the surplus, and then into solvency. A model that shows this honestly is far more persuasive than one that hides overhead to look lean.
One more cost sits quietly in the background: irrecoverable VAT. Regulated personal care is exempt from VAT under welfare rules, which sounds helpful until you realise it means you cannot reclaim the VAT on your own purchases. That VAT lands in your cost of sales and belongs in the model. We explain the mechanism in is domiciliary care VAT exempt.
The gap between what a council pays and what care costs
The gap between the average council rate and the true cost of care runs to around £9 an hour in 2026/27, which is why the sector reports a national funding shortfall of at least £1.6 billion in England. The Homecare Association puts the sustainable minimum price at £34.42 an hour for 2026/27, while its own survey found councils paying an average of about £25.05. That is not a rounding error. It is the difference between a stable agency and one quietly subsidising the state.
London makes the squeeze sharper. On the London Living Wage band the sustainable minimum price rises to £38.69 an hour, because carer pay, travel and premises all cost more, yet many London boroughs still commission close to the national average. An agency that accepts those rates without evidence is signing up to run at a loss on council work and hoping private clients cover the difference.
Councils do not enjoy underfunding care, and most know the gap exists. What they respond to is a provider who can prove it agency by agency, contract by contract. A generic complaint about "sector underfunding" changes nothing. A model that says "at £25.05 you are funding 73 pence in the pound of my real cost, here is the working" is a document a commissioner can take to a finance director. That is the whole game.
Building the model a council will actually accept
A model councils accept ties every line to a source they cannot dismiss: statutory rates, your real payroll, and a recognised template. Councils see hundreds of fee requests, so anything that looks like a wish list gets filed. What survives scrutiny is arithmetic they can trace back to legislation and to your own accounts.
Start with the direct carer cost. The wage sits at or above the £12.71 National Living Wage. On top go holiday pay at 12.07 percent for irregular-hours workers, employer National Insurance at 15 percent above the £5,000 secondary threshold, and pension contributions. Then add the costs that separate delivered hours from paid hours: travel time between calls, mileage, and downtime the rota cannot avoid.
Next comes the layer most spreadsheets forget. Training, supervision and shadowing. Sickness and cover. DBS checks and recruitment. Then the back office: the registered manager, care coordinators, out-of-hours on-call, insurance, rostering and call-monitoring software, rent and utilities. Finish with a modest surplus, usually costed around 7 percent, because an agency with no surplus cannot reinvest, cannot weather a bad month, and cannot pass a CQC financial viability check.
Then map the whole thing to a template the council already trusts. Most use the Homecare Association's minimum price methodology or the ADASS and county council cost of care templates from the earlier fair cost of care exercises. Presenting your numbers in their format removes the excuse that they cannot compare your figures to anyone else's. It also signals that you understand their world, which matters more than owners expect.
The single most common mistake is costing the contracted hour instead of the delivered hour. If your carers are paid for travel and your rota carries unavoidable gaps, your cost per delivered hour is higher than your cost per contracted hour, and the council needs to fund the delivered hour. Show both numbers and the bridge between them. That one move is often the difference between a 3 percent uplift and a rate that actually covers the work.
When to submit and how the negotiation runs
Submit your cost of care model before the council sets its adult social care budget, which in practice means December to February for an uplift starting in April. This is the part owners get wrong most often. A brilliant model that lands in May is arguing over money that was allocated in February. Timing beats polish.
The cycle is predictable once you have been through it. Councils build their budgets over the autumn and winter, elected members approve them in February or March, and provider fees flow from that settlement. Your evidence needs to reach both the commissioning team, who understand care, and the finance team, who hold the purse, while the numbers are still soft.
Watch the two traps at the end of the cycle. First, backdating. Some councils apply an agreed uplift from 1 April, others from the decision date, and a July decision applied from July rather than April can quietly cost a mid-sized agency thousands of pounds. Ask, in writing, before you accept. Second, framework re-tenders. If your rate sits under a framework agreement, a re-tender can reset it entirely, so a hard-won uplift can vanish if the framework is retendered the following year.
Section 5 of the Care Act 2014 gives you a lever here. Councils have a duty to promote a sustainable, diverse care market and to have regard to the actual cost of care when they set fees. That is a duty to consider, not a duty to pay a set rate, but a costed model that a council ignores creates a record. Providers who document their evidence and the council's response are in a far stronger position if the market later shows signs of failing.
Here is how the three common ways of building a fee case actually compare for a home care agency:
| What the council will test | DIY spreadsheet | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Costs the delivered hour, not the contracted hour | ✗ Usually contracted | ● If prompted | ✓ Built from your rota |
| Treats travel time, holiday and NMW correctly | ✗ | ● | ✓ From your live payroll |
| Maps to the Homecare Association or ADASS template | ✗ | ✗ | ✓ Council-ready format |
| Reaches the council before the budget is set | ● If you remember | ✗ Year-end focus | ✓ Timed to the cycle |
| Reconciles the agreed uplift back to your pay run | ✗ | ● | ✓ Monthly management accounts |
| Understands welfare VAT and CQC financial viability | ✗ | ✗ | ✓ Core specialism |
This is why home care owners heading into a fee round tend to move from a generic accountant to a care specialist.
What to do before the 2027/28 budget is set
If you want a better rate from April 2027, the work starts now, in the autumn, not next spring. The councils that fund you are already drafting the budgets that will decide your fee. Here is the practical sequence.
- Pull your real cost per delivered hour. Take last quarter's actual payroll, travel time, mileage and overhead, and divide by delivered hours, not contracted hours. This is your foundation number.
- Benchmark it. Compare your cost to the £34.42 England minimum price, or £38.69 on the London Living Wage band, and to your current council rate. The gap is your headline.
- Format it their way. Rebuild the model in the Homecare Association or ADASS cost of care template so the council can compare it to their own numbers without friction.
- Submit before February. Send it to the commissioning and finance teams while the budget is still being set, with a short covering note that leads with the funding gap, not with a plea.
- Nail down the terms. When an uplift is offered, confirm the effective date and whether it is backdated to April, and check any framework re-tender dates before you sign.
- Reconcile it afterwards. Once the new rate lands, check it flows through correctly against your actual pay run, so next year's model starts from clean data.
None of this is exotic. It is arithmetic done honestly and delivered on time. LOYALS builds the cost of care model and rate submission for home care agencies, then runs the payroll and council invoicing behind it, so the numbers you take to the council match the numbers in your accounts. For the advisory side of that work, see our tax planning and advisory service.
Want this handled for you? Our care agency accountants build your cost of care model, run weekly payroll and council invoicing, and keep the evidence current, with an outsourced care finance function from £995 a month and a one-off local authority rate submission from £750 per contract.