Do foster carers need to pay tax?

For the most part, the allowance you receive from fostering will tax-free. This is known as Qualifying Care Relief and is available for different types of foster care. However, there are some factors that may impact this and will require you to pay some tax, including:

• How many children you have in your care, e.g. if you care for siblings
  
  
• If you have a part-time job or receive any other income that is higher than your personal tax allowance and qualifying care relief
  
  
• Whether you receive an enhanced fee for any child in your care
  
  
• If you function as a partnership for the purpose of tax, meaning yourself and another party trade as a business

Qualifying Care Relief (QCR)

Qualifying Care Relief is a scheme set up by HMRC that allows foster carers to receive payments from fostering without being liable to pay any tax, depending on their tax threshold.

The scheme includes staying put care (where a young person who was fostered remains past their 18th birthday), respite and parent & child care.

How does Qualifying Care Relief work?

The scheme offers relief to foster carers from paying little to no tax at all. The amount of tax foster carers will pay is determined on the amount they earn that is over the tax threshold.

The calculation to find out how much tax you owe is as follows:

1. Work out your total yearly income from fostering (e.g. respite payments, fostering allowance, clothing and holiday allowance).
   
   
2. Calculate your fostering tax relief based on the latest tax year for April 24-25 (each fostering household receives £18,140 of qualifying care relief each year, in addition to a weekly tax allowance for every child in your care that depend on their age. Under 11 = £375 per child and Over 11 = £450 per child).
   
   Simply multiply the amount of weeks that a child has been in your care by the relevant weekly tax allowance, then add £18,140.
   
   
3. Determine your taxable income by subtracting your total yearly income from your fostering tax relief
   
   

Do I need to keep receipts of expenses?

There is no need to keep a note of daily expenses as the Qualifying Care Relief covers standard costs that are associated with fostering. Such as clothing, food, mortgage payments and heating etc.

Though, we encourage you to keep record of any additional tax-deductible costs that are dependent on the child in your care and their specific needs. As there is no set list of what is considered as deductible tax, since each case is handled differently, keeping a tab of any additional costs will act as evidence of costs if required.

Am I considered as self-employed?

Foster carers are considered as self-employed by HMRC as of 2003. Be sure to register as self-employed as soon as you start your foster care placement. This will require you to complete a tax return annually.

Do I need to complete a tax return?

For each year that you are an approved foster carer, you are considered as self-employed. This requires you to complete a tax return every year you are fostering, even if you qualify for the Qualifying Care Relief scheme.

The end of each tax year is the 5^th April, so you will have until the 31^st of January to sort and submit your tax return. If this deadline is missed, you will be eligible to pay a penalty of £100 – so we encourage you to get your self-assessment tax return in early.

Remember, you can only submit this form once that year. Ensure you disclose any other sources of income you receive within that tax return to avoid any complications.

How can I pay any tax owed?

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

• Online
• Over the phone
• Direct Debit
• At your bank or building society (with your annual statement attached to the statement you receive from HMRC)

Learn more about who can foster and the fostering allowances available here. Are you interested in finding out more about the fostering process? Simply get in touch with a member of our team on 0800 012 4004 to help answer any questions you may have.