The short answer: there is no single right group structure for a children's home operator. A common pattern is a holding company at the top, a separate company running each home (or a small cluster of homes), and a property company that owns the buildings and charges rent. It gives you some protection and clearer numbers, but it also adds cost, admin and tax rules that catch people out. The right setup depends on how many homes you plan to open, who owns the property, and how you want to fund growth.
Why this matters more once you have a second home
With one home, one company is usually fine. Everything runs through one set of books, one bank account and one Ofsted registered provider.
The trouble starts when you grow. Suddenly there are two homes, maybe three, with different occupancy, different local authority payers and different staffing costs. If it is all one company, you cannot easily see which home is making money and which is carrying the others. If you have set up lots of companies in a hurry, you can end up with money moving between them with nothing written down, and a set of accounts nobody can explain.
Knowing which homes make money is just as important, and I cover that in my guide to cash flow and per-placement profit.
Structure is not just a tax question. It decides who owns what, where the risk sits, how clean your numbers are, and how easy it is to bring in a lender or an investor later.
The three building blocks
1. A holding company
A company that owns the shares in the companies that run your homes. Profits can be passed up to it as dividends and kept there, rather than sitting in the same company that employs your staff and carries the operating risk. As far as I know, dividends between UK companies are usually exempt from corporation tax, but the detail matters, so I check each case.
2. An operating company for each home (or cluster)
Each company holds the Ofsted registration, employs the team and invoices the local authority for its home. The big advantage is clarity: you can see the profit and cash position of each home on its own, which is exactly what you need to make good decisions about the next one.
3. A property company
If you own the buildings, many operators keep them in a separate company that charges the operating company rent. It keeps the property apart from the day to day risk of running a regulated home. It does need a proper, written rent arrangement, and the tax on property is not the same as the tax on trading, so this is a piece to plan carefully.
The catch nobody tells you about: associated companies
This is the one I would want you to know before you set up a string of companies. In the UK, corporation tax is 19% on profits below £50,000 and 25% on profits above £250,000, with marginal relief in between. Those two limits are reduced in proportion to the number of associated companies you have.
HMRC's own example is a company with three other associated companies: the limits are divided by four, so the lower limit becomes £12,500 and the upper limit £62,500. In practice, a group of several companies can hit the full 25% rate on far smaller profits per company than you might expect. Splitting a business into lots of companies does not automatically save tax, and it can cost you.
Whether companies count as associated depends on control, not just on whether you call it a group, so it is worth getting this checked before you set anything up.
Moving money around the group
Once you have several companies, cash will move between them: the holding company lending to a new home while it fills up, one home helping another through a slow payment, rent going to the property company. All of that is fine as long as it is recorded properly.
- Loans between companies should be written down, with the balances shown in each company's books.
- Rent and management charges need an agreement and a sensible amount behind them, not a round number moved when someone remembers.
- Directors' loan accounts need watching. Money you take out of or put into any company personally has its own tax rules.
- Group relief can let one company use another's losses, broadly where there is a 75% group relationship, but it is not automatic and each company stays a separate legal entity.
Mistakes that are expensive to unpick
- Setting up several companies before anyone has worked out the corporation tax effect of having them.
- Buying a property personally, or in the operating company, and then wanting it somewhere else later. Moving property between companies can trigger Stamp Duty Land Tax and sometimes capital gains, so it is much easier to decide at the start.
- Mixing the homes in one set of books, so you cannot see per home profitability.
- Letting intercompany balances build up with no paperwork, then trying to explain them to a lender or at year end.
- Forgetting that Ofsted registration sits with the legal entity that runs the home, so changing which company operates a home is a registration question as well as a tax one.
When one company is still the right answer
I will tell you straight if you do not need a group yet. If you have one home and no plans for a second in the next couple of years, a single company with good bookkeeping is often better than paying for extra companies you do not need. The aim is a structure that fits where you are going, not the most complicated one on the page.
What I would look at before you restructure
- How many homes you plan to open, and roughly when.
- Who owns the properties today, and whether any are mortgaged.
- The profit each home is likely to make, so we can see how the corporation tax limits would apply.
- How you want to take money out of the business, now and later.
- Whether a lender or investor is likely to be involved.
I run this through with children's home operators as part of my work in the sector. If you want to see how I help care providers day to day, have a look at the care home accounting page, or at my wider accounting services if you also have other businesses or income. And if you are about to set something up, a free call before you pay a solicitor or file anything at Companies House could save you a lot of unpicking.
This is general information, not personal tax or legal advice. Structures involving property transfers, Ofsted registration and lending usually need your solicitor involved too. Corporation tax rates and limits are those published on GOV.UK at the time of writing; check the current figures before you act.