Do foster carers pay tax?

Generally, income from fostering is tax-free if you are caring for one child. While foster carers may pay little to no tax at all, there are some factors that may affect this:

• The number of children you care for
• If you are 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, such as a part-time job

If you receive a high enough income from fostering that is subject to income tax, for example, you care for siblings, the amount of income you will have to pay tax on would be lower compared to other forms of employment. These specialist tax rules, known as Qualifying Care Relief tax scheme covers different types of foster care placement.

What is Qualifying Care Relief (QCR) scheme

Qualifying Care Relief is a scheme that allows foster carers to receive payments from their fostering service up to a certain level, known as your qualifying amount, without being liable for tax. The scheme covers foster care, shared lives care (formerly called adult placement), (where a young person who was fostered remains past their 18th birthday), and parent & child care.

Many foster carers have little or no taxable profit from fostering as the qualifying care relief threshold is fairly generous. Those who do pay tax on the amount they earn over the tax threshold do not have to keep any complicated accounts or receipts, but instead simply work out any tax owed to HMRC at the end of the financial year (5th April) by using this simple calculation:

1. Work out your total annual income from Foster Care UK
2. Work out your Qualifying Care Relief tax threshold
3. Subtract your Qualifying Tax Relief (step 2) from your total annual income (step 1) to work out if any tax is liable

FAQs

Do I need to register as self-employed?

Foster carers are classed as self-employed as of 2003 by HM Revenue and Customs, therefore you need to make sure you are registered as self-employed as soon as you start caring for your first foster child regardless of the type of fostering and level of income you receive from fostering. Once registered, you will be required to complete a tax return every year. With Foster Care UK, you’re not alone, as there is support and guidance available from Foster Talk which is free for Foster Care UK foster parents.

Do I have to complete a Self Assessment tax return?

For every year that you are an approved foster carer, you will need to complete a Self Assessment tax return, even if your income from fostering is covered by the Qualifying Care Relief scheme. You will be contacted by HMRC in April to inform you that you are required to complete a Self Assessment tax return that must be completed by the 31st October by paper or by the 31st January online. This can be done yourself or by an accountant on your behalf.

How do I pay my tax?

Once you have completed and submitted your Self Assessment tax return, you can pay your tax in the following ways:

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

If you’re interested in becoming a foster parent, there are many different types of fostering such as children with disabilities that are in need of care. We provide specialist training to all of our foster parents, to help you provide the very best care for your foster child. For more information contact our friendly and helpful team for more information today.