What are the impacts of 2025 policy changes on care businesses?

Regulatory changes to VAT and international recruitment, both introduced in 2025, are now being acutely felt in the corporate social care sector as businesses continue to navigate economic pressures.

In a sector which has been feeling the pain of a complex combination of rising costs, under-funding, growing demand and dwindling recruitment, it’s a considerable blow - and one which has left many calling for support.

Nadra Ahmed, Executive Co-Chairman of the National Care Association, the largest body of individual providers, has been vocal in her demands for increasing funding. She founded the Providers Unite movement and organised a London march of 3500 members from across the country to raise the profile of the sector - and to call for greater investment from central government.

Speaking on Howden’s Fortune Favours The Brave podcast, she said:

“Following new legislation, funding is going to be hit. The deficit for the sector as a whole is already £8-10b – with another £2bn about to take impact. 

“Resilience in the sector has gone, even the people who have a passion for the sector. It’s an enormous problem.” (Nadra Ahmed, 2025)

The latest regulatory updates include:

1.Changes to VAT regulation

A quirk in the VAT system had previously seen providers in the social care sector restructure businesses to recover VAT on costs that would otherwise be exempt. 

HMRC has now described the practice, known as ‘VAT grouping arrangements’ as “a form of tax avoidance,” and has launched a campaign to review and investigate those who used it.

It has put some corporate care businesses in a difficult position – and many facing rising tax bills.

2. Changes to recruitment legislation

Recruitment of staff has long been a major issue for the industry given the low wages on offer and an equally low profile.

It has resulted in a shortage of care workers in the UK – and as a result the sector has traditionally recruited from overseas to meet recruitment targets and demands.

Temporary rules brought in after the pandemic were designed to make it easier for the care sector to do exactly that.

However, the latest legislation, effective from July 2025, closed the social care worker visa route to overseas recruitment, claiming ‘widespread abuse and exploitation of the route and workers.’

Instead, it raised the salary thresholds for skilled worker visa holders, and the set skills thresholds to RQF Level 6, the equivalent of a bachelor’s degree. There are also rising English language requirements in the pipeline.

The government has suggested care providers should recruit from regional care partnerships instead – or train resident workers to carry out new roles.

The response from the care sector was summed up by Professor Martin Green OBE, Chief Executive of Care England, who said: “This is a crushing blow to an already fragile sector. The Government is kicking us while we’re already down.” 

Broker advice

It is clear that insurance cannot solve these issues but specialist brokers can provide advice on risk assessment and help on reducing insurance costs.

Jonathan Taylor, Director, Head of corporate risks Health & Care at Howden said:

“The good news for care providers is that the insurance market for the sector is softening."

“This means prices are going down and cover is rising, as opposed to a hard market when the opposite is happening (for instance, during the pandemic). With so many other cost pressures impacting the sector, this is a good time to talk to your insurance broker to make savings."

“Don’t view those discussions as transactional, think of them more as a negotiation. As a specialist in the sector, we know this is not a templated risk; each business will be different. The key here is open and regular conversation with your broker; they are there to help.”