Fostering Tax , Allowances and Benefits are the same in England, Scotland, Wales and Northern Ireland.
Foster Carers Tax
- Foster Carers are self employed taxpayers and need to prepare annual self assessment tax returns
- One of the adults in a Fostering home will be a self employed Foster Carer
- If there are two adults registered as Foster Carers, you can choose who is the main carer but both can be Foster Carers for tax purposes
- As self-employed people Carers have to pay tax on their profit from their fostering ‘business’ as described for accountancy purposes
- Unlike other self-employed people a Foster Carer does not have to keep detailed records of expenses incurred in their work, they can rely on the rules set out in HMRC guideline HS236 Qualifying care relief for carers
- The HS236 guidelines tell Foster Carers how to calculate the income and the costs of their fostering.
- A Fostering household gets £10,000 per complete tax year plus a weekly allowance based on the age of the looked after child which is £200 per week/part of a week for a child aged under 11 and £250 per week for a child aged over 11.
- These allowances are the annual costs of the ‘foster carers role.’
For every week, or part week that a child aged 11 years or older is with placed with you, the Foster Carer’s tax relief is £250 per child.
For every week, or part week that a child aged under 11 is placed with you, the tax relief is £200 per child.
(Information is correct at time of writing.)
The Tax Allowances provided by the government mean that many Foster Carers have little or no profit from fostering.
If you have calculated large profits from fostering, this may be incorrect so take advice.
Generally, income from fostering is tax-free. However, there are a number of factors that will decided how much tax you’ll pay, including:
- The number of foster children you have
- If you’re paid an enhanced fee for a child in your care
- If you operate as a partnership for tax purposes
- If you receive any other income – e.g. a part-time job
If you are a Specialist Foster Carer you need to keep receipts for outgoings related to foster caring.
A Foster Carer is seen to be a Special Carer if you are paid more than the “standard” rate per week due to your expertise or the special needs of the foster child.
As a Specialist Carer you can claim costs which are described as “exceptional by nature or degree” along with the standard Allowances.
Find all about Foster Carers Pay and Allowances.
Tax Allowances National Insurance Summary
Qualifying Care Relief
Qualifying Care Relief is the special tax scheme for foster carers that provides a tax free amount of income.
Your personal allowance is the amount of income you can have each year before needing to pay income tax.
Self Assessment tax return
This form enables you to declare all your taxable income to HM Revenue and Customs.
Foster carers can claim exceptional expenses where you have incurred expenses that would not normally be incurred due to the specialist requirements of the child you are caring for. This may include the purchase of medical equipment, sensory equipment, mileage to hospital and therapies.
Total fostering income
Your total income from fostering is the total amount you receive from your fostering service. This includes the fostering allowance for each child, any fee, reward or skill payment, holiday or birthday allowance, respite and reimbursed expenses.
National Insurance contributions build up your entitlement to state benefits. There are four types of national insurance:
- Class 1 – For employees earning more than £166 a week and under State Pension age. These are automatically deducted by your employer.
- Class 2 – For self employed people. You do not have to pay this if you earn less than £6,365 a year, but you can choose to pay voluntary contributions.
- Class 3 – Voluntary contributions are contributions you can make to fill or avoid gaps in your National Insurance record.
- Class 4 – For self employed people earning profits over £8,632 a year.
There are two types of National Insurance for foster carers who are self employed – Class 2 and Class 4.
Class 2 National Insurance Contributions are a flat rate (£3 per week for 2019/20). If your taxable income is below the small profits threshold (£6,635 for 2019/20), there is no requirement to pay these contributions.
Class 4 National Insurance Contributions are paid at a rate of 9 per cent on any taxable profits over the threshold (£8,632 for the 2019/20) and 2 per cent on any taxable profits over £50,000.
In summary, if your taxable profits are over £8,632 for 2019/20, both Class 2 and Class 4 National Insurance will be payable.