Financial support, tax and benefits

When you become a foster carer and have a young person living with you, you’ll receive a weekly fee and a maintenance allowance. The maintenance allowance is tax free.

All foster carers need to register with HMRC and be classed as self-employed. You will then need to submit annual self-assessment tax returns.

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, in a tax year, a fostering household does not pay tax on the first £19,690 that they earn from fostering. They will still have to pay tax on any money earned from a job or investment. If there is more than one carer in the household, this fixed amount is shared.

In addition to the £19,690 exemption, foster carers also get tax relief for every week (or part week) that a child is in their care. This means that, usually, no tax is paid on earnings from foster care, even if they go over £19,690.

Example

Laura is a foster carer for a 14-year-old for the whole of the year and for an 8-year-old for 10 weeks of the year. She gets:

Tax exemption for the household = £19,690

Tax relief on what she earns for fostering the 14 year old (£495 x 52 weeks) = £25,740

Tax relief on what she earns for fostering the 8 year old (£415 x 10 weeks) = £4,150

Altogether, Laura does not need to pay tax on the first £49,580 she earns from fostering.

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 receive 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.

Help with the cost of fostering

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.

• 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.