How a UK Care Home Budget Is Actually Built

A care home budget is not a mystery, and you do not need paid sector data to build one. The published benchmarks are free, and they give you the shape of the whole profit and loss account: staff costs just over half of income, a handful of named non-staff lines, and a margin in the high twenties to low thirties.

What follows is the structure, with the current figures and where each comes from.

Start with the only number that really matters

Staff costs. Knight Frank's Care Homes Trading Performance Review for the year to 31 March 2025 puts them at 55.3% of income, down from 56.7% the year before.

Everything else in a care home budget is a rounding adjustment by comparison. If your staff cost percentage is wrong, your budget is wrong, and no amount of care over food or utilities will rescue it.

Inside that figure, agency is the volatile component. The same review reports agency falling to 3.3% of staff costs in personal care, from 7.0% the previous year, and to 2.9% in nursing care from 6.8%. That is a halving in twelve months, and it is the single biggest controllable swing in the model.

Then the two numbers that set your revenue line

Occupancy: 88.7%, up from 88.3%. Average weekly fee: £1,298, up 9.8% from £1,182.

Multiply beds by occupancy by fee by 52 and you have a revenue line. The reason to treat occupancy as a driver rather than an assumption is that it moves your fixed staffing cost per occupied bed without moving the rota: a home at 85% occupancy and a home at 92% occupancy may run the same roster.

That sensitivity — rota cost held constant against occupancy varying — is the single most useful thing to model, and it is the question a lender or a commissioner will ask first.

The non-staff lines you can actually benchmark

Two are published per bed, and they behave very differently:

• Property costs: £4,427 per bed, an 18% increase on the previous year
• Food costs: £2,230 per bed, flat year on year

An 18% property increase against flat food is a reminder that "inflation" is not a single number in a care budget. Budgeting both at a blended CPI figure would have understated property and overstated food.

What margin to expect

Knight Frank reports average EBITDARM margins growing to 30.1%, four percentage points higher than the previous year.

Note the acronym carefully: earnings before interest, tax, depreciation, amortisation, rent and management. It is a property-neutral operating measure, which is why the sector uses it — and why it is not the number you take to the bank as profit. Rent or finance costs and central management sit below it.

The official costing method, if you are negotiating a fee

If the purpose of the budget is a fee negotiation with a local authority, there is a government-published method to build it the way a commissioner will accept.

The Department of Health and Social Care's Fair Cost of Care guidance measures operating costs excluding interest, tax, depreciation, amortisation and rent, and requires that "Costs should be calculated per resident per week, which takes account of average occupancy". It defines a fair cost as "the median actual operating costs for providing care in the local area", and requires providers to "include and evidence values for return on capital and return on operations".

Two details are easy to miss. The method uses four care-home categories — standard residential, residential enhanced, standard nursing, nursing enhanced — so a single blended cost is not what is being asked for. And for domiciliary care, cost is measured per contact hour and must include travel time.

Returns on capital and on operations being explicitly required is the part most providers under-evidence. The guidance does not treat them as profit to be justified; it treats them as cost lines to be valued.

A fully worked public example

If you want to see an hourly rate built from the bottom up, the Department of Health in Northern Ireland publishes its home care tariff calculation in full. For 2026/27 it runs:

• Base salary at the National Living Wage: £12.71
• Additional pay: £0.39
• Employer National Insurance: £1.61
• Pension at 3%: £0.39
• Additional employer NI from 1 April 2026: £0.05
• Direct pay costs: £15.15
• Contribution to operating costs: £6.98
• Total hourly rate: £22.13 (2025/26: £21.35)

Direct care staff costs are around 68% of the provider rate on that build. It is a free, official, line-by-line template you can rebuild in a spreadsheet and adapt — and it makes visible how much of an hourly rate is statutory on-costs rather than wages.

The April problem

Every care budget breaks in April, and the mechanism is worth understanding rather than just absorbing.

Skills for Care's pay data as at December 2025 puts the median care worker rate in the independent sector at £12.60 an hour. The National Living Wage rose to £12.71 from 1 April 2026 — meaning 55% of care workers were paid below the incoming floor at the point of measurement.

The second-order effect is the one that catches budgets. Differentials compress. A senior care worker's median of £13.33 is just 6% above a care worker's, down from an 11% premium in March 2017. And experience has almost stopped paying: five or more years' service earns just 10 pence an hour more than under one year.

So a wage floor increase does not raise one line. It raises the floor, squeezes the band above it, and then creates pressure to restore differentials that the fee uplift has not funded.

Caveats, and where the numbers expire

The Knight Frank figures cover the year to 31 March 2025 and are a market average — useful as a shape, not as a target for a specific home. The Skills for Care pay report contains an internal inconsistency, giving the Real Living Wage as both £12.60 and £13.45 for outside London, so check that figure with the Living Wage Foundation rather than quoting it from there.

We also could not obtain the Homecare Association's minimum price for 2026/27, which sits behind a paywall. The Northern Ireland tariff above is the free equivalent and is why we used it.

And note which numbers reset annually: the National Living Wage, fee rates and cost benchmarks all move every spring. The costing method and the regulatory framework do not.

For the regulatory side of financial viability, including what the regulator expects to see in a budget at registration and under market oversight, see our CQC financial viability and market oversight checklist. For the Irish cost base, where staff costs run higher at 59.1% of turnover and occupancy at 92.3%, see the true cost of care staff turnover in Ireland. And for the underlying technique, costing and budgeting covers the mechanics independent of sector.