Care Homes: A Post COVID-19 Picture

In some good news for the Care sector, the government has extended the provision of free PPE to March 2022. The sector has been through a time of intense adversity, but continues to show resilience, and where businesses have weathered the storm, they look to strengthen in the future.

Following the headlines over the Crown Office’s recent release of the schedule of COVID-19 mortality rate in Scottish Homes, it is worth considering that without context, these figures do not supply a full picture. Whilst certain individual homes were hit badly, as a rough calculation based upon publically available information sources, the percentage of deaths per number of registered beds for the top 12 providers impacted in the country ranged from 4-17%[i]. It is also possible that Care Home mortality rates may remain below the 2019 equivalent for this time of year thanks to less exposure to other infections

Decline in Infection

Larger chains of homes had a lower percentage of mortality[ii] than for some smaller operators, and as the rates of infection have come down across the UK, care home COVID-19 deaths have declined. Although this figure may rise once restrictions are reduced.

Vaccine Success

Vaccination of care home staff has been extremely successful, with the programme being promoted by education and in some cases bonuses, with around 80% vaccination rate in most regions. Some operators would like vaccination to be compulsory, while others are concerned that such a measure will cause staff dissatisfaction and attrition.

Occupancy & Domestic Demand

Occupancy levels have been impacted, remaining flat for several months, at around 80% according to several sources. This is the result of multiple factors. Visiting restrictions and quarantine measures have led to a reluctance to place loved ones in care homes and as people work from home, they are more likely to be able to take care of relatives. Moves to larger properties outside cities have also allowed an increase in intergenerational living. However, it’s uncertain if these changes are permanent or to what degree.

The specialist and domiciliary care sectors remain generally buoyant, and it looks like demand for such services will remain strong.

Occupancy levels may also be impacted by actions of local authorities, some of which are still paying for unused, commissioned beds, although the majority of block bed contracts have fallen away now. We anticipate that there will be further discussion of streamlining social and hospital care in order to ease the flow of patients from hospitals to care homes, when specialist nursing isn’t required. This would free up hospital beds and make use of spare care home capacity.

Insurance, Sleep-In & April Fees

The sector is preparing for claims due to COVID-19 deaths. Lawyers are likely to start no win no fee actions shortly, and some claims may be linked to the early discharge process. General insurance premiums have seen significant rises[iii].

There is similar uncertainty regarding the ‘sleep-in’ situation. Following the Supreme Court’s verdict that staff are not entitled for the national minimum wage for shifts sleeping overnight, this has freed up provisions in accounts. However, some operators feel they wish to do the right thing and pay the minimum wage for night-time shifts, but pass the cost onto local authorities, so the future treatment remains inconclusive.

Finally, it remains too early to fully understand what fee uplifts may be available from local authorities for the new financial year, but indications are that these may vary significantly depending on area, ranging between 1-7%. This may see some operators review portfolios and hand contracts back if the uplift is too low.

The road ahead

M & A activity remains buoyant, especially for specialist care facilities, and for this, as ever, good CQC ratings remain key. Despite the challenges and the turbulence of the past year, the care sector remains resilient. With an ageing population, the demand for care is unlikely to reduce, despite post-pandemic lifestyle and demographic changes, and businesses that have weathered this storm have proved their resilience in times of the greatest adversity.

Key tax developments for the sector

Spring Budget – super news on capital allowances	The Spring Budget was one of the most anticipated in recent times. After a year of unique and significant fiscal policies that have supported the economy throughout COVID-19, there was pressure to see how the government would pay back the large amount of debt incurred during the pandemic, while maintaining an economic platform for growth. The Chancellor’s ‘Budget for recovery’ had a clear focus on continuing and enhancing the economic support for COVID-19 and the rebuilding of public finances to ensure a post-COVID-19 financial recovery and a stable economic future. As part of this package the Chancellor announced two new temporary enhanced capital allowance measures which give the opportunity for much greater tax relief in the year of purchase than would otherwise normally occur a 130% “super deduction” for qualifying new plant and machinery that ordinarily qualifies for the 18% main pool writing down allowances and   a 50% “SR allowance” for qualifying new special rate plant and machinery such as the integral features in a building that normally qualify for the lower 6% writing down allowances. In good news for the healthcare sector the Finance Bill was amended on 18 May to enable businesses acquiring assets for leasing to benefit from these allowances. This gives property investors an opportunity to claim on qualifying expenditure in their care home portfolios as well as care groups operating an Opco/Propco structure the opportunity to claim on qualifying capex incurred by the Propco.    We would recommend that specialist advice is taken, as the rules are complex as well as being generous. Further details on how your business may be able to benefit from the new allowances can be found by in our recent article and our wider budget analysis can be found here.
Balhousie Holdings Limited – Supreme Court decision provides welcome clarity to care businesses undertaking sale and leasebacks	VAT for care businesses is complex and given the quantum of expenditure associated with a care home it is an area that needs to be carefully navigated with specialist VAT advice. A recent tax case had raised questions on whether sale and leasebacks of care home assets could trigger a VAT cost under the change of use provisions that apply to relevant residential property (RRP) where the original construction or purchase was zero rated under the relevant zero rating certificate. In a decision that will be welcomed by taxpayers with a similar fact pattern, the Supreme Court has ruled that the sale and leaseback did not constitute the disposal of Balhousie’s entire interest and therefore the change of use provisions do not apply.
Domestic reverse charge for VAT on construction services – are you ready for the new rules?	Following two previously announced delays the new domestic reverse charge for VAT on building and construction services (DRC) came into force on 1 March 2021. The aim of the new regime is to combat missing trader fraud in the construction sector; the DRC will require the recipient rather than the supplier to account for the VAT due on certain construction services. These rules present 2 key issues to businesses in the care sector a need to ensure compliance with the legislation   significant potential cashflow changes for users of construction services and construction businesses which need to be understood and factored in to working capital forecasts  Please see our article on the DRC for an overview of how this may impact your business

 

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