Personal health budgets: options for managing the money

This guide explains the difference between the three options for managing personal health budgets: what each one means for the person and the commissioner. Integrated care boards must ensure that the three options for managing a personal health budget are available.


People have three options for how their personal health budget is managed: notional budget; third party budget (also known as an individual service fund [ISF]); and direct payment. These vary in the degree of independence and responsibility required of the person in managing their budget. Each option is distinct, but a person can choose to use a mixture of them or all three if that best suits their circumstances.

Integrated care boards (ICBs) need to ensure that all three options are available.

While personal health budgets increase the choice and control that people have, they do not change the statutory duty of care that ICBs have to all individuals. Whichever option a person chooses, ICBs retain a role in overseeing the care and support arrangements and how the budget is spent. They do this through reviewing a person’s personalised care and support plan (PCSP) and budget and ensuring care and support arrangements meet assessed health and wellbeing needs and agreed outcomes.

Guidance on the legal rights to have personal health budgets or personal wheelchair budgets provides further information on when a personal health budget must be offered.

Role of the personalised care and support plan (PCSP)

The person is fully involved in developing their PCSP – a plan that is responsive to their personal needs and preferences – and care is delivered in line with that plan and reviewed accordingly.

Conversations with the person when developing this plan, and at each review, will cover the most appropriate way to manage a budget, taking into account:

  • the outcomes identified in the PCSP
  • the level and flexibility of support the person requires
  • the nature of services the person wishes to buy to achieve their outcomes and the options for purchasing them
  • how much direct control of the money and budgetary management the person would like
  • which aspects of the PCSP the person wishes to take responsibility for and what level of support they require
  • the impact on any carer or family member.

Whichever option is agreed, it is important that it provides appropriate choice, control and flexibility in achieving the outcomes identified in the PCSP.

If a person lacks capacity, a ‘best interests’ decision-making process should be followed.

Notional budget

The ICB or local authority holds the money, and the person is informed of the amount of money allocated for their care and support.

The person still has choice and flexibility in how services and support are arranged – through their agreed PCSP.

Contractual requirements

The ICB or local authority arranges and pays for the agreed services and support, through its usual contracting processes with providers. Generally, no new or revised contracts are needed.

In practice

Notional budgets are best suited to people who choose services and support that fall within traditional commissioned services, or when the ICB can procure these as a one-off arrangement without the need for a direct payment or third party budget.

Third party budget – also known as an individual service fund (ISF)

An organisation independent of the person, the local authority and ICB – such as a voluntary sector organisation or a trust set up for this purpose – holds some or all of the money on the person’s behalf. This third party supports the person and their family to use the available budget in a tailored and flexible way to achieve the outcomes agreed in the person’s PCSP.


A trust is an independent agency normally set up to support one person. A trust commits to managing the person’s budget by establishing a board of trustees who are responsible for providing the services agreed in the PCSP, ensuring a person’s health outcomes are being met and that contingency arrangements are in place.

The contracting arrangements will need to provide the same flexibility as other forms of third party budget.

A trust can employ staff and make purchases. If the trust employs staff, the trustees become the legal employers.

The arrangement should enable the person and their family to have as much input into the delivery of their PCSP as they choose. This can include being involved in:

  • recruitment and training
  • planning of rotas
  • day-to-day management of a personal assistant team.

Contractual requirements

The third party organisation is contractually and financially responsible for the provision of care and support and will be the employer for any personal assistants supporting the person.

The ICB is not required to commission services and support using the NHS standard contract and instead can use a third party budget agreement. Using a third party budget may incur costs such as management charges, which must be funded by the ICB.

In practice

Third party budgets are best suited to a person who wants more choice over who supports them and how this is done, but:

  • does not want, or is not in a position, to manage their own budget and all their care and support via a direct payment
  • wants the flexibility of support from a bespoke/personalised team of care workers but not employer responsibilities
  • needs specialist or very tailored support that most traditionally commissioned services cannot deliver.

Direct payments

The person, or their representative or nominee, holds the money in a bank account or an equivalent account, and is responsible and accountable for arranging care and support in line with the agreed PCSP, including all contractual and financial aspects.

Specific requirements are set out in the direct payment regulations and explained further in Guidance on direct payments for healthcare: understanding the regulations.

Contractual requirements

When a direct payment is used to purchase goods and services, the person, representative or nominee is the purchaser and holds the contract. There is no contract between the supplier and the ICB or local authority.

It is not appropriate for the ICB or the local authority to limit use of direct payments to those goods and services they normally purchase, impose restrictions such as approved provider lists or require the use of a particular form of contract.

In practice

Direct payments are best suited to people who want more control, independence and responsibility in managing their care and support.

A representative must be appointed where a person who is otherwise eligible to receive a direct payment cannot do so because they do not have capacity to consent to receiving one, or they are a child.

The PCSP process should identify the information, advice and support a person requires to meet all their responsibilities in holding and managing a direct payment, eg to recruit and employ personal assistants.

Direct payments must be paid into a bank account (or equivalent account – see below) used solely for that purpose unless the payment is a one-off direct payment (a single payment to purchase no more than five items in one year). The same account can be used for both direct payments from the local authority and from the ICB.

Managed accounts

A managed account is where a direct payment support service (DPSS), solicitor, accountant or other provider holds the account into which the direct payment is paid on behalf of the person, representative or nominee. This is not the same as the arrangements for a third party budget; the managed account provider solely co-ordinates the financial elements of the budget and takes no responsibility for arranging care and support. The person or their representative signs the direct payment agreement and they or their nominee retain responsibility for spending the budget, and in most instances are also the registered employer for any personal assistants.

Pre-paid cards and e-wallets

A person can use a virtual online account to manage their direct payment, or a pre-paid card to buy goods and services. These options avoid the need for people to set up a separate bank account, simplifying review and monitoring. However, people should always have the choice to receive a direct payment into a separate bank account if this is what they prefer.

Where ICBs implement pre-paid cards or e-wallets to make direct payments, they should ensure these:

Direct payment support services (DPSS)

ICBs must ensure the person, representative or nominee can access information, advice and support to manage a direct payment – usually through a DPSS, including: 

  • holding the direct payment
  • using it to pay for care and support services in line with the person’s PCSP
  • payroll services
  • budgeting
  • recruitment of personal assistants
  • staff management
  • training
  • employment law and advice.

The costs of the DPSS can be paid for directly by the ICB or included in the budget.

DPSS may be provided directly by the ICB or local authority or commissioned via a user-led organisation or other private and voluntary sector organisation. ICBs may find it helpful to work with the local authority to develop joint services.

Publication reference: PRN00331