With big changes to social care funding coming in 2023, organisations have just under two years to prepare.
The government is overhauling the funding of social care in England from October 2023. One of the biggest changes is the fact that total lifetime care costs will be capped at £86,000, with the rest paid for by local authorities, as well as new rules around means testing and local authority contributions.
To pay for these changes, as well as contributing to a £36bn investment package, the Health and Social Care Levy is being introduced from April 2022. It remains to be seen what proportion of this funding will reach adult social care but with an increasing aged population there is an enduring need for extra capacity in this sector. While the sector has been under significant stress for a long time, those who weather the storm should be planning to lead the market and get on the front foot.
As with any new investment in an industry, there will be ramifications across a range of other areas, including insurance, tax and law. Even though it is a while before the changes will be implemented, it would be wise to start thinking about it now.
Premises
The UK population is ageing. According to the ONS, by 2050, about a quarter of people in the UK will be over 65. Consequently, companies in the care sector may be thinking about widening the scope of their service provision by expanding their premises or building new premises to allow for additional capacity.
For businesses that choose to construct new premises, there are regulatory and insurance repercussions to consider. Specifically for social care, there are regulations concerning how these must be built. These can govern its design, such as the ratio of hygiene facilities to residents and incorporating communal areas. Other regulations concern the security, space required and location. Another important factor to be considered is the building’s safety, there are various laws that must be followed, such as those governing equipment, fire safety and workplace safety.
In addition to this, care providers need specialised insurance as being both a place of work and a residence for vulnerable people means there are different types of risk. The types of insurance can range from buildings and contents and business interruption as well as public and employers’ liability.
On the tax side, in 2017 the government revised its policy on care home building following a series of legal cases. Care homes are defined as places where people with certain needs, such as disability or old age, reside. Since then, the VAT rate has been set to zero for building supplies or converting a building – and any company that has paid such a levy is entitled to a refund.
New equipment
With new premises and more residents, providers will also have to consider buying new equipment. The UK’s Department of Health has published the national minimum standards that must be adhered to, which will differ depending on care residents’ needs. Its definition of equipment includes machines used for therapies and treatment or daily living and mobility. These must be maintained and kept clean, and there must be enough space for storage. Moreover, in a resident’s contract with the provider, the use of such equipment (beyond what is included in the normal fees) must be set out.
The minimum standards regulations state that providers must have buildings insurance that covers the cost of this equipment. Care home providers’ use of equipment also falls under the Provision and Use of Work Equipment Regulations 1998. This covers the duties of companies that own or operate equipment, requiring that it meets certain safety standards and staff training, among other aspects.
Research & development
Care organisations may be eligible for research and development (R&D) tax relief, however. These credits are designed to reward companies that innovate. The money received here can, in turn, be reinvested in the company. To be eligible, companies must explain how a particular project has advanced technology in their field.
In fact, sometimes companies don’t realise they are even eligible, as Justine Dignam, Director of Tax Incentives & Reliefs at Markel Tax, says: “It’s not uncommon for us to meet with companies who are unknowingly fulfilling all the qualifying criteria for R&D relief – they are continually developing products or processes which meet the demand of an ever-evolving market, or simply responding to a customer request to develop an existing product”
“As a result of new investment going into the care sector, we will undoubtedly see increasing numbers of care organisations looking at ways to innovate – which will in turn lead to more qualifying R&D claims, which Markel is well-placed to identify,” Justine explains.
Innovating building methodologies will be high on the agenda for many in the sector too, in order to improve accommodation standards, energy efficiency and overall sustainability. IT integration will also continue to be pivotal. Justine adds that “the focus on property will create opportunities to look at Capital Allowances reviews and claims for companies and individuals alike. Capital Allowances have always been vital to the care sector, and the relatively recent introduction of Structural Buildings Allowances (SBA) has provided more scope to add value to our clients’ portfolios.”
Processes and intellectual property (IP)
Another aspect which the pandemic highlighted is the need to quickly adapt to new processes – as the industry experienced, regulations can change seemingly overnight. To ensure full compliance with the law in case of future changes, care home providers should seek legal advice and allow time to train staff.
The Care Quality Commission (CQC), the independent regulator in charge of inspections, ensures that safety standards are adhered to and checks four areas: effectiveness, leadership, standard of care and responsiveness to residents’ needs. Any provider failing these inspections will be given areas to improve upon, and the CQC will follow up on these.
Care providers should also investigate issues surrounding IP. This can include tangible and intangible inventions and branding – for instance, the company name, logo, and other materials such as written and artistic creations. As Adam Grimwood, solicitor at Markel Law, explains: “Any business already in or thinking of entering this sector should be aware of issues relating to intellectual property. Brand names and logos are automatically protected by the law of passing off but may also be registered trademarks. Likewise, any content produced, whether that be written text, photographs, drawings etc. will automatically be protected by the law of copyright.”
Adam advises that “organisations should do all they can to ensure not only that their own branding and content is protected, but also to ensure that they are not treading on anyone else’s toes, for example by using someone else’s photograph or website content, or by using a name or logo that is confusingly similar to someone else’s.”
New staff
Care homes have long experienced unprecedented staff shortages, which have been exacerbated by Brexit driving away migrant workers that the industry depends on, among other issues. “The recruitment of new staff to the care sector is inherently difficult due to unattractive hours, poor pay and many not wanting to undertake personal care. With the increased perception of risk presented by Covid-19, this has perpetuated an already difficult landscape into what seems to be the sectors biggest recruitment challenge. As a result, experienced staff are leaving the sector and vacant positions which require experience prove a challenge to fill”, notes Charlotte Rowe, Care Practice Manager at Markel Care Practitioners. However, the good news is that under its social care reforms the government is committing £500m to training new staff. And with new or increased numbers of staff, care home providers must pay attention to various regulations.
If a company chooses to use contractors, they will need to understand IR35. This governs workers who are off payroll and was designed to ensure that companies avoid tax evasion – as, in theory, they could hire employees registered as limited companies who are disguised as contractors. Companies could be asked by HMRC to prove their relationship with contractors at any point – which could involve looking at up to six years’ worth of contracts.
Training is another consideration – and some forms are liable for tax relief. Companies can apply for tax relief if training is entirely for business purposes, updates an employee’s existing knowledge or maintains their membership of a professional body. In addition to the training itself, the associated travel costs, such as food and accommodation, fall under the tax relief regulations.
New entrants
As with start-ups in any industry, there are a myriad of legal and regulatory aspects a company must adhere to – but what makes this space different is the fact that it governs people’s care and therefore quality of life. Start-ups must first apply to register with the CQC as a provider, which can fall under three categories: sole trader, partnership or organisation. There are also separate categories for applying as a new manager or provider.
As previously discussed, the CQC has set out an extensive set of requirements that care providers must get to grips with. The application involves providing details on the location for the residential services; the regulated activities planned on being carried out; a compliance declaration; and demonstrating the quality and safety standards. If a company is found to be carrying out regulated activities without the correct approval, it can result in fines or even imprisonment.
Mergers and consolidation
As the care sector grows, and government investment with it, there is an opportunity for providers to undertake mergers and acquisitions (M&A) or consolidation. While these terms are sometimes used interchangeably, they are slightly different:
- Consolidation: when different companies join together to create an entirely new venture.
- M&A: when companies enter into a partnership, but ones takes over and remains in existence, absorbing the other company.
While these are slightly different processes, the tax and regulatory landscape remains similar. However, the rules vary depending on whether this happens with public or private companies – with tighter restrictions for the former category.
Tax is another element – and the UK’s tax environment has been complicated by its departure from the EU. Examples of how this could come into play include tax affecting a company’s valuation, whether assets or shares are purchased[11], and taxes on corporate transactions.
Such companies would have to consider the effects on employees, including staff transfer. This is when the employees are maintained on their current contract but transferred over to the new employer. In this instance, staff are protected by the Transfer of Undertakings (Protection of Employment) regulations.
