Tax and foster care

Once you are an approved foster carer and registered with HMRC you will be classed as self-employed and will have to submit an annual self-assessment tax return.

HMRC will charge you a penalty if you don’t let them know you are self-employed within six months of the end of the tax year in which you are approved as a foster carer.

A tax year runs from 6 April to the following 5 April. Each year, HMRC will write or email you to inform you that you are required to complete a self-assessment tax return. The return can be completed by paper (by 31 October) or online (by 31 January).

Make sure you send your tax return in on time or you could receive a fine from HMRC. The Fostering Network has the latest guidance on tax and National Insurance for foster carers.

You will need to keep records of the ages and dates of when you look after a foster child as you will need to submit these in your tax return form.

It’s also advisable to keep receipts for the things you buy and any expenses you have as these may need to be recorded on your tax return if you earn more than your tax threshold. We’re here to help you if you have any difficulties with this.

Special tax arrangements are applied to fostering fees which means that a fostering household can earn £18,140 per year from fostering and not have to pay any income tax (this will be less if you foster for a shorter period of time).

If there is more than one carer in your household, you share this fixed amount.

Foster carers are also entitled to tax relief of up to £450 for each week you care for a foster child, after the initial £18,140.

Each week starts on a Monday and ends on a Sunday. A part of a week counts as a full week. For example, if you cared for a child over the age of 11 for a whole year (52 weeks), an extra £23,400 of your earnings would be tax free.

Any other benefits you are receiving are not affected by this.

As a result of these special exemptions and allowances (known as the Qualifying Care Relief tax scheme), foster carers usually don’t have to pay any income tax at all. Exceptions apply if, at the end of the tax year, you have gone over your tax threshold and earned “taxable profit”. A simple calculation will tell you if this is the case or not. For example, if you were caring for siblings, you would earn a greater amount of fostering fee. This may put you over your tax threshold. Even in a case like this, the amount of income you will have to pay tax on would be lower compared to other types of employment.

The Qualifying Care Relief scheme calculates the tax threshold specifically for the foster carer(s) in one household. It covers foster care, shared lives care, staying put care (for young people who are fostered after their 18th birthday) and parent and child care.

Your tax relief amount will depend on your own fostering circumstances. It looks at the carers’ total fostering payments and then calculates whether a foster carer needs to pay any tax. Foster carers usually benefit greatly from this scheme as, for many, their total fostering payments are below their tax threshold and therefore, they won’t need to pay any tax.

You should also consider your National Insurance contributions (NI).

If your fostering income is above a certain amount (approx. £6,300) but below your tax threshold you will have Class 2 National Insurance contributions added to your tax bill.

If your annual taxable income is over approx. £8,600 then Class 4 National Insurance contributions will be added to your tax bill. Under the generous Qualifying Care Relief rules for foster carers, you may not have to pay any tax or NI contributions at all.

Once you have completed and submitted your self-assessment tax return, you can pay your tax in the following ways:

• Online.
• Telephone banking.
• Direct Debit Card transfer.
• With your annual statement attached to the statement you receive from HMRC that can be paid at a bank or building society, or
• by post with a cheque.

Remember, we’re here to help you every step of the way, if you need us.