Care funding and care home fees: invoicing local authorities and the NHS without errors

Care home fees in England are paid by a mix of funders: the local authority, the NHS through continuing healthcare or funded nursing care, the resident through an assessed contribution or as a self-funder, and sometimes a family member through a third-party top-up. Most local authorities pay four-weekly or monthly in arrears, and most invoicing disputes come from getting the split, the rate or the dates wrong. This guide explains how care funding works for a residential, nursing, learning disability or mental health home, how each funder invoices and pays, and how to run a monthly invoice cycle that gets paid on time.

The short answer

Know who funds each resident and in what proportion, hold every fee rate with its start and end date, and invoice each funder for its share on the cycle the contract sets, usually four-weekly or calendar-monthly in arrears. Invoice the council its net share after the resident's assessed contribution, or the gross amount if the contract says the council collects the contribution, but never both. Invoice the ICB separately for continuing healthcare or funded nursing care. Invoice third-party top-ups to the person who signed the agreement, not to the council. Prorate admissions, discharges and deaths by the day using the method in the contract. Reconcile every remittance against every invoice within a week, and chase anything unpaid at 30 days in writing. Do that every month and the cash arrives.

Who pays: the funding streams

Social care funding for a care home placement comes from up to five sources, and most homes have residents in every category. The local authority funds people whose needs meet the Care Act eligibility criteria and whose capital is below the upper limit, after a means test that sets the resident's own contribution. NHS continuing healthcare, or CHC, is full NHS funding for people whose primary need is a health need, assessed under the National Framework, paid by the integrated care board. Funded nursing care, or FNC, is an NHS payment towards the nursing element for residents in nursing homes who do not qualify for CHC. Section 117 of the Mental Health Act funds aftercare for people who have been detained under certain sections, jointly by the council and the ICB and free to the person. Self-funders pay the whole fee themselves, and a third party, usually family, may pay a top-up where the person has chosen accommodation costing more than the council's rate.

Adult social care funding also reaches some residents through direct payments or individual service funds, where the person or a broker holds the budget and pays the home directly. Treat those as self-funder contracts with a different payer.

At a glance: funders, cycles and the errors that stop payment

Care funding basics: the means test and the contribution

When the council funds a placement it assesses the resident's income and capital under the Care and Support (Charging and Assessment of Resources) Regulations 2014. People with capital above the upper limit, which has been £23,250 for many years, pay the full cost until their capital falls below it. Between the upper and lower limits, capital is treated as producing a tariff income. Most income, including pensions and benefits, is taken into account, less a personal expenses allowance the person keeps. The result is a weekly contribution the resident pays towards the council's rate. The council pays the rest.

The home does not do the means test and should not try to. What the home needs from the council is the placement agreement stating the weekly rate, the resident's contribution, who collects it, and the start date. If the contribution changes, usually in April when benefits change, the council should issue a revised figure. Chase it if they do not, because invoicing at the old split for six months creates a reconciliation problem that takes longer to fix than it took to create.

Read the contract before you invoice anything

Every council placement sits under a contract or framework agreement and an individual placement agreement or purchase order. The contract sets the payment cycle, whether payment is in arrears or in advance, whether the council pays gross and collects the contribution or pays net and the home collects, the invoicing address and format, the rules for absences and hospital stays, the notice period, the prorating method, and the fee uplift process. Read it. Then read the placement agreement for the rate, the contribution and the reference numbers.

The single most useful document in a care home finance office is a one-page summary per council of these terms. Homes that take placements from several councils, which is most learning disability and mental health services, find that each one is different. The summary stops the finance administrator applying one council's rules to another council's invoice.

Four-weekly or monthly in arrears: the cycles

Most councils pay in arrears, either every four weeks, which gives thirteen payments a year, or calendar-monthly, which gives twelve. A few pay four-weekly in advance. The cycle determines when you raise the invoice and what period it covers. A four-weekly council expects an invoice for exactly 28 days at the weekly rate times four. A calendar-monthly council expects an invoice for the days in the month, calculated as the weekly rate divided by seven times the number of days, or by an annualised method where the weekly rate times 52 is divided by 12. The contract says which. Using the wrong one produces small differences every month that add up and generate queries.

Some councils have moved to self-billing or to portal-based payment where the council generates the payment schedule and the home confirms it. If you are on that system, the home's job is to check the schedule against its own records for rate, dates and residents, and to raise queries before the payment run, not after. Keep a copy of every schedule.

Fee rates, uplifts and versions

A fee rate is not a number. It is a number with a start date and an end date. When the council uplifts rates in April, or agrees a higher rate for a resident whose needs have increased, the old rate ends and the new one starts, and invoices for periods straddling the change must apply each rate to its own days. Keep every rate version for every resident and every funder, with the date the change was agreed and the document that agreed it. Round to whole pence and apply the same rounding rule every time, because a rate of £912.86 a week divided by seven and multiplied by 30 days produces a figure that will differ by a penny depending on where you round, and a penny difference is enough for a council's system to reject an invoice.

Uplifts are often agreed late and backdated. When that happens, raise a separate backdated invoice for the difference for each period affected, referencing the original invoice numbers, rather than adjusting the current month. Councils' finance systems match invoices to periods, and a lump sum in month seven for months one to six will sit in a query queue. The negotiation itself is covered in local authority fee negotiation for care homes.

Client contributions: gross or net

Where the contract says the council pays gross, the council pays the home the full weekly rate and collects the resident's contribution itself. The home invoices the council for the full rate and does not invoice the resident. Where the contract says net, the council pays the home the rate less the contribution, and the home invoices and collects the contribution from the resident, their attorney or deputy. The home invoices the council for the net amount and the resident for the contribution. Getting this wrong in either direction means someone is paying twice or nobody is paying at all, and it is the most common cause of a large reconciliation difference at year end.

When the home collects, set up a monthly invoice to the resident's representative, offer direct debit, and record the contribution against the resident's account so that the total of council plus resident equals the rate. When a resident's contribution changes, update both invoices from the same date.

Third-party top-ups

Under the Care Act and the choice of accommodation regulations, a person who is entitled to council funding can choose accommodation that costs more than the council would usually pay, provided someone is willing and able to pay the difference. That someone is usually a family member, and the arrangement is a third-party top-up. The rules matter. The council must be party to the arrangement, there must be a written agreement setting out the amount and how it is reviewed, and the council remains responsible for the full fee to the home if the third party stops paying. In practice most councils require the home to collect the top-up directly from the third party, and the home invoices the third party monthly.

The pitfalls are top-ups with no signed agreement, top-ups that the resident is paying from their own capital when they should not be, top-ups that are never reviewed when the council rate goes up, and top-ups that are really the council's rate being too low for the care the person needs. If a resident needs the care, the council should pay for it. A top-up is for a choice of a nicer room or a preferred location, not for essential care. Keep the signed agreement on file and review it annually.

NHS continuing healthcare

CHC is assessed under the National Framework for NHS Continuing Healthcare and NHS-funded Nursing Care, using a checklist, a decision support tool and a multidisciplinary team. When a resident is eligible, the ICB funds the whole package, including accommodation, and the resident pays nothing. The ICB contracts with the home, often at a different rate from the council, and pays monthly in arrears against its own invoicing requirements. Some residents have joint packages where the ICB funds a health element and the council funds the rest; the split is agreed in writing and each body is invoiced for its share.

CHC eligibility is reviewed, usually at three months and then annually, and can be withdrawn. When it is, funding moves back to the council and the resident from the date of the decision, and the home must switch its invoicing on that date, not when the paperwork arrives. Keep the CHC reference, the decision letter, the agreed rate and the review dates on the resident's finance record. Continuing to invoice the ICB after eligibility has ended produces a clawback that lands months later.

Funded nursing care

In a nursing home, residents who need care from a registered nurse but are not eligible for CHC receive funded nursing care: a flat weekly rate set by the Department of Health and Social Care each April and paid by the ICB directly to the home. FNC is invoiced to the ICB, usually monthly, for each eligible resident, and it is paid on top of the council or self-funder fee. Contracts and private fee agreements need to say clearly whether the quoted fee is inclusive or exclusive of FNC, and self-funders' invoices need to show it separately if the home has agreed to pass it on. FNC eligibility is reviewed annually and the ICB should be told promptly when a resident is admitted, discharged or dies.

Section 117 aftercare

People who have been detained under section 3, 37, 45A, 47 or 48 of the Mental Health Act 1983 are entitled to free aftercare under section 117 for as long as they need it. In a mental health residential service, and in some learning disability services, many residents are on section 117. The council and the ICB are jointly responsible and agree a split locally; the home invoices as the lead commissioner directs. The person must not be charged a contribution towards section 117 services, and a home that invoices a section 117 resident for their care has made a serious error.

Under section 117A a person entitled to aftercare may choose more expensive accommodation than the commissioner would usually fund, and a top-up can be paid for that difference, on the same principles as a Care Act top-up and with a written agreement. Record the section 117 status, the date of discharge from detention, the lead commissioner and the split on the finance record, and ask for it in writing at the point of placement. Section 117 status can be ended by the council and ICB jointly, and the home should be told in writing when it is.

Self-funders and private contracts

Self-funders sign a contract with the home, and the Competition and Markets Authority's consumer law advice for care homes sets out what that contract must do: state the fees clearly, explain how and when they can increase, not charge large upfront fees that are not refundable, limit fees after death to a short period, and treat the resident fairly. Fee increases need the notice the contract specifies, and the increase must be justified. Self-funders are usually invoiced monthly in advance, and a direct debit is the most reliable way to collect. Homes searching for direct debit software for care homes or recurring payment systems for care homes are solving a real problem: monthly manual payments from attorneys and deputies are where arrears build.

When a self-funder's capital approaches the upper limit, they or their representative should ask the council for an assessment several months ahead, because the transition from private to council-funded takes time and the council will only backdate so far. The home should prompt this conversation; it is in nobody's interest for a resident to run out of money before the council is ready to fund.

Prorating partial weeks

Admissions, discharges, transfers and deaths rarely fall on the first day of a billing period. The contract sets the method, and the two common ones are daily rate, weekly rate divided by seven times the number of days, and annualised rate, weekly rate times 52 divided by 365 times days. They differ by a small amount and the council will reject an invoice that uses the wrong one. The other question is which days count. Most contracts charge for the day of admission and not the day of discharge, or charge for both, or charge for the day of death. Read the clause, write it on the council summary sheet, and apply it consistently. Round the final figure to whole pence once, at the end.

Hospital stays, absences and retainers

When a resident goes into hospital the room is kept, but many council contracts reduce the fee after a set number of days, often to a retainer of a percentage of the rate, or stop paying after a longer period. Others pay in full for a fixed period. Self-funder contracts usually charge the full fee for hospital stays, and the CMA expects that to be stated clearly. Record the admission and discharge dates for every hospital stay on the finance record, because the invoice for that period has to reflect the contract terms and the council will check against its own notification. Planned absences, such as a holiday with family, follow the same logic. A home that invoices the full rate through a six-week hospital stay under a contract with a two-week full-fee limit will have the excess deducted from a later payment, often without explanation.

Notice periods, deposits and fees after death

Council contracts set a notice period for ending a placement, typically four weeks, and the council pays to the end of notice unless the room is re-let sooner. Self-funder contracts set their own, and the CMA expects fees after death to be limited to a short period, commonly no more than a few days after the room is cleared, and any deposit to be refundable and explained. Charging a family a month's fees after a death is the kind of term that attracts both complaints and regulatory interest. Make sure the finance process knows the date of death the same day, stops or adjusts the invoices, and issues a final statement promptly with any refund.

The monthly invoice run

This is the procedure that has worked in my own homes, and it takes a morning if the records are right.

1. Before the run, update the occupancy record in the care records: every admission, discharge, transfer, death, hospital stay and absence in the period, with dates.
2. Check the funder record for every resident: rate versions, contribution, funder split, references, and any change notified during the period.
3. Generate the invoices funder by funder: each council, each ICB for CHC and FNC, each section 117 commissioner, each self-funder, each third party. One invoice per funder per resident per period unless the council requires a consolidated schedule.
4. Check every invoice against the contract summary: cycle, gross or net, prorating method, absence rules, reference numbers.
5. Check the total for each resident: all funders plus contribution equals the rate for the days occupied.
6. Send by the method each funder requires, the same day, and record the invoice number, date and amount on the resident's finance record.
7. Diary the due date for each funder, usually 30 days, and the chase point.

Remittances, reconciliation and chasing

Councils and ICBs pay by BACS with a remittance advice listing the invoices paid, often with deductions or part-payments and a code. Reconcile every remittance to every invoice within a week of receipt. Anything short-paid, unpaid or paid at a different amount goes on a query list with the reason if given. Chase in writing at 30 days from the invoice date with the invoice number, the resident's reference and the amount. Escalate at 60 days to the commissioning officer. Keep a dated log of every chase.

• Every invoice has an entry with number, date, funder, resident, period and amount
• Every remittance is matched to invoices within a week
• Short payments are queried with the deduction code within a week
• Unpaid invoices are chased at 30 days and escalated at 60
• Rate changes and contribution changes are reflected from the effective date
• Backdated uplifts are invoiced as separate credit or debit notes per period
• The aged debt report is reviewed monthly by funder

Why invoices go unpaid

In my experience almost every unpaid council invoice has one of six causes: the wrong rate after an uplift, the wrong gross or net treatment, a missing or wrong purchase order or placement reference, a period that does not match the council's schedule, a hospital stay invoiced at the full rate against a contract that reduces it, or a resident the council's system thinks has left. None of them are the council refusing to pay. All of them are avoidable by checking the invoice against the contract summary before it goes out. The seventh cause is that the invoice went to the wrong address or the wrong email, and sat in someone's inbox for two months. Confirm the invoicing route for every funder in writing and keep it on the summary.

Out-of-area placements and multiple councils

Learning disability and mental health homes often take placements from councils far from the home, and each comes with its own contract, cycle, portal and rules. Ordinary residence rules decide which council is responsible, and disputes between councils about who pays can leave the home unpaid for months. Get the placing council's written confirmation of responsibility and the rate before admission, and if a dispute arises, invoice the council that placed the person and keep invoicing until told otherwise in writing. The Care Act requires the placing council to continue funding while an ordinary residence dispute is resolved. A home with ten funders needs a finance record per resident that shows exactly which body pays what, and a summary sheet per funder.

Recording the split: what the finance record must hold

For every resident: each funder with its share and reference, each rate version with start and end dates in whole pence, the resident's contribution and who collects it, any top-up agreement and payer, any FNC or CHC status with review dates, section 117 status, hospital and absence dates, the contract terms that apply, and every invoice and payment. A spreadsheet can hold this for a small home. Above twenty residents with mixed funding, care home billing software that holds multi-funder splits and rate versions and generates the invoices from the occupancy record saves the finance administrator days a month and removes the arithmetic errors. Kiwi's finance module is built around exactly this: multi-funder splits per resident, fee versions with dates in whole pence, and invoices generated from the occupancy that the care side already records. Whatever tool is used, the test is whether you can show, for any resident on any date, who was paying what. See finance for the approach, and pricing for what is included.

VAT and the welfare exemption

Residential care provided by a CQC-registered provider is exempt from VAT as a welfare service, which means the home does not charge VAT on fees and cannot recover VAT on most of its costs. Invoices therefore show no VAT. Some services, such as supported living arrangements where accommodation and care are separated, or additional services sold to residents, can have a different treatment, and a home in that position should take advice. The point for invoicing is that a council will reject an invoice showing VAT on care fees, so make sure the finance system's invoice template is set correctly.

Common mistakes

• Invoicing gross when the contract is net, or collecting a contribution the council is already deducting
• Applying the old rate after an uplift, or lump-sum backdating instead of per-period adjustments
• Using the wrong prorating method or the wrong day-count rule for admissions and deaths
• Continuing to invoice the ICB after CHC has been withdrawn, or the council after CHC has been granted
• Charging a section 117 resident a contribution
• Top-ups with no signed agreement or no annual review
• Reconciling remittances quarterly rather than weekly, so deductions are discovered too late to query
• No per-funder contract summary, so every invoice is a fresh guess

What good looks like on inspection day

CQC does not audit invoices, but it does look at financial viability under Regulation 17 and the Well-led question, and it looks at how residents' money is handled under Regulation 13. Commissioners audit invoices directly, and a council contract monitoring visit will ask for the placement agreements, the invoices for a sample of residents, the hospital stay records and the top-up agreements, and will check them against each other. Inspection-ready evidence on the finance side is a finance record per resident that shows the funder split and rate history, a per-funder contract summary, an invoice log that reconciles to remittances, an aged debt report reviewed monthly, signed top-up agreements, and a procedure for residents' personal money with two signatures and monthly reconciliation.

The home that does well at a commissioner audit is the one that can answer, in five minutes, what it invoiced for a named resident in a named month and why. If you want to see how multi-funder splits, rate versions and invoice generation look when they sit alongside the care records, book a demo. If you are setting up from scratch, the finance arrangements belong in the plan from day one; see starting a learning disability care home.

Final conclusion

Care funding for a care home placement is complicated because it is shared: the council, the NHS, the resident and sometimes a family member each pay a part, on their own cycle, under their own rules. The home's job is to know the split for every resident, hold every rate with its dates, invoice each funder correctly and on time, prorate by the contract's method, and reconcile every payment within a week. None of that is difficult. It is just relentless, and the homes that get paid on time are the ones that treat the monthly invoice run as a procedure rather than a chore, and keep a record that can answer any question about any resident on any date.

Frequently asked

How often do local authorities pay care home fees?

Most pay in arrears, either every four weeks or calendar-monthly, with a few paying four-weekly in advance. The contract sets the cycle and the invoicing format, and some councils now use self-billing schedules the home confirms. Invoices are usually due within 30 days.

Can a care home charge a top-up for a section 117 placement?

The person cannot be charged a contribution towards section 117 aftercare itself. Under section 117A, however, a person may choose more expensive accommodation than the commissioner would usually fund and a top-up can be paid for the difference, with a written agreement. The top-up is invoiced to the payer, not deducted from the aftercare funding.

How should partial weeks be prorated on a care home invoice?

Use the method in the contract: either the weekly rate divided by seven times the days, or the weekly rate times 52 divided by 365 times the days. Check which days count for admission, discharge and death, apply the same rule every time, and round to whole pence once at the end.

What is the difference between gross and net invoicing to a council?

Gross means the council pays the home the full rate and collects the resident's contribution itself, so the home invoices only the council. Net means the council pays the rate less the contribution and the home invoices and collects the contribution from the resident. The contract says which applies, and getting it wrong means someone pays twice or not at all.

Who pays for a care home if the resident qualifies for NHS continuing healthcare?

The integrated care board funds the whole package, including accommodation, and the resident pays nothing. The ICB contracts with the home at its own rate and pays monthly in arrears. Eligibility is reviewed, and if it ends the funding reverts to the council and the resident from the date of the decision.

What is funded nursing care and how is it invoiced?

Funded nursing care is a flat weekly NHS payment towards the nursing element for residents of nursing homes who need registered nurse care but are not eligible for CHC. The rate is set nationally each April and paid by the ICB directly to the home, usually invoiced monthly. Contracts should state whether the fee quoted is inclusive or exclusive of FNC.

Does a care home charge VAT on fees?

No. Residential care provided by a CQC-registered provider is exempt from VAT as a welfare service, so invoices show no VAT and the home cannot recover VAT on most costs. Some arrangements, such as separated accommodation and care in supported living, can be treated differently and need advice.

Sources

• GOV.UK: Care and support statutory guidance (Care Act 2014), Annex A: Choice of accommodation and additional payments
• Care and Support (Charging and Assessment of Resources) Regulations 2014
• Department of Health and Social Care: National Framework for NHS Continuing Healthcare and NHS-funded Nursing Care
• Mental Health Act 1983, sections 117 and 117A
• Competition and Markets Authority: Care homes, consumer law advice for providers
• Health and Social Care Act 2008 (Regulated Activities) Regulations 2014, Regulation 17: Good governance
• HMRC: VAT Notice 701/2, Welfare services and goods