Self-employed foster carer

Being a self-employed foster carer and tax - find out more.

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All foster carers must become registered with HM Customs & Revenue (HMRC) as self-employed.

This has to be done within 6 months of the end of the first tax year that you are approved in. This means that you will be responsible for paying your own taxes (if you make a taxable profit).

The fostering fees and allowances that you receive as a foster carer vary for each child and the number of children that are placed with you. This financial support is considered as an income and, therefore, can be liable to be taxed.

Most foster carers do not reach a taxable profit and do not have to pay tax.

How to register as self-employed

You will need:

  • To know the date you were approved
  • Your National Insurance (NI) number

You can register online, which is usually the simplest way to do it. You will be given your unique tax payer reference and will be enrolled automatically for the online self-assessment tax return service. Your activation code will be sent to you through the post.

You can also register by phone or by post by completing form CWF1. It’s straightforward and as an approved foster carer for Action for Children Fostering, we will give you all the help and advice you may need.

Self-assessments and tax returns

As a self-employed foster carer, you will need to submit self-assessment tax returns and pay National Insurance (NI) contributions. This applies to all foster carers even if you do not make a taxable profit. The Government’s Qualifying Tax Relief scheme for foster carers means that most foster carers do not have to pay any tax but you do still have to complete an annual self-assessment form.

National Insurance contributions

National Insurance (NI) contributions are payable to enable you to claim certain state benefits and the State Pension. There are different types of NI, known as ‘classes’.

Your earnings and employment status determines which class of NI you will have to pay. If you have already reached the state pension age you will most likely have stopped paying NI contributions. Although, if your earnings are above a certain profit threshold, you will be required to pay Class 4 contributions.

As a foster carer you would usually fall into either the class 2, class 3 or class 4 contribution category.

What are the different classes?

This is the default contribution category you will be entered into when you register with HMRC as self-employed. If you do not have any taxable profit from fostering or if your taxable profit is below a certain amount then you will not be required to pay Class 2 contributions. You can decide that you want to pay these contributions voluntarily, even if you are not required to, as they can give you access to certain welfare support such as Maternity/Paternity Pay, Bereavement Payment and the State Retirement Pension. Not paying it may mean that you lose these benefits.

These credits count towards your National Insurance record. At the end of each tax year you can apply for NI credits for each week you are approved as a foster carer. You will need to complete form CF411A and send a letter from Action for Children Fostering to confirm that you were an approved foster carer for the qualifying tax year. Class 3 contributions count towards the basic and additional State Pension.

You will only have to pay class 4 contributions if you go above a certain taxable profit threshold from your foster carer fees. If you go above this threshold you will have to pay both class 2 and class 4 NI contributions.

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