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Tax and Accountancy Services

Taxation of Foster Carers 

As a Foster Carer, HM Revenue & Customs (HMRC) treats you as though you are running a business.

This means that:

  • You are treated as being self-employed
  • You will be required to prepare a self-assessment tax return and file it with HMRC
  • You may be liable to pay income tax, and Class 4 and 2 National Insurance

There are a number of things that can affect a Foster Carer’s tax liability:

  1. The number of placements
  2. The type of placement (i.e. if you receive an enhanced fee for one of your placements)
  3. Whether you foster with a partner
  4. Whether you receive any other income in addition to your fostering income

As a Foster Carer you’re in a unique tax position. You have a choice of methods to calculate your taxable fostering income:

  • The simple method
  • The profit method

Simple Method

In 2003 HMRC set up a tax scheme for foster carers to simplify the calculation of their taxable income by comparing a ‘Qualifying Amount’ to their total fostering income.  The Qualifying Amount is made up of two elements:

  1. The first element is a fixed rate of £10,000
    a. This amount is available if you have been a foster carer for the entire tax year.
    b. If you have been a foster carer for part of the tax year, the amount is calculated on a pro-rata basis from the date you were appointed in the year
  2. The second element is a weekly rate of:
    a. £200 per week per placement under the age of 11
    b. £250 per week per placement over the age of 11

In order to qualify for this tax relief you will need to group together the total income you received for your fostering duties. For example, reimbursed mileage and/or expenses with your fostering income.

If your total fostering income is less than your ‘Qualifying Amount’ then your taxable income is deemed as NIL and therefore you have no tax to pay. If your income is over the qualifying amount, the excess is treated as your taxable income.

If you have any fostering income in excess of your qualifying amount, you also have your personal allowance to use as well (providing you have no other income e.g. employment income).

Profit Method

The profit method rules state that, in calculating your taxable fostering income, you simply deduct your actual expense from your fostering income for the tax year.

In practice, you would need to keep track of your expenses throughout the tax year and retain any receipts that you are given.  This is in case HMRC request evidence to support any entries you have made in your self-assessment tax return.

To reduce the administrative burden of this, HMRC may agree that you simply keep detailed records of your actual expenditure over a shorter period and take an ‘average’.  The expenditure should be fairly typical of the type and amount of expenditure that you usually incur however.

For any ‘Profit’ made on your fostering income, the same rules apply whereby you still have your personal allowance to take advantage of before tax is calculated.

FosterTalk Limited, Registered Company in England and Wales
10 The Courtyard, Buntsford Gate, Bromsgrove, Worcestershire, B60 3DJ
Registered Company Number: 06318354