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What taxes do foster carers pay?

  • 3 min read
  • Last updated 17 May 2022

Taxes can be a pain, especially when you’re self employed. Here, we’ll discuss how taxes work for foster carers and give you some tips.

How do foster carers pay tax?

So, you’ve been approved as a foster carer – what’s next? When you start to foster, you’ll need to register as self-employed – even as a family and friends foster carer. 

To register as self employed, you’ll need what’s called a UTR number (Unique Taxpayer Reference). 

This step is super-important! HMRC will charge you if you don’t register as self-employed within 6 months after the end of the tax year in which you begin fostering.

Confusing, we know. But we’ll explain what we mean!

When is the tax deadline?

Basically, the tax year runs from 6th April to the following 5th April. 

This means you’ll need to file your tax return by the deadline of 31st January. If you miss this deadline, you will be subject to HMRC’s penalty fees 😱 

What are these, you ask? Check out our Late Filing Penalty Calculator below to find out more.

Which tax year is this for?

Worried about filing on time?

Don’t worry! Follow these tips and you’ll be sure to file on time:

  • Keep a clear record of your fostering income and expenses, and know what you can claim
  • Give yourself plenty of time
  • Or use TaxScouts – we’ll sort it for you for £119, all in

What can you claim as a foster carer?

The government will send you payments every week to help with the costs of fostering. How much you’ll receive depends on a few factors:

  • The type of foster care
  • Your skills and experience
  • The number of children you’re fostering
  • The needs of the children

The base rate of this payment is called the Minimum Weekly Allowance. 

How does the Minimum Weekly Allowance work?

As you can see, it’s based on where you live:

Figures for 6th April 2021 to 5th April 2022

Claiming benefits as a foster carer

If you’re claiming any benefits, being a foster carer can affect them. Make sure that you let your employer know that you’re also receiving a foster care allowance.

You might be able to claim:

To learn more about how your benefits might be affected, contact your agency or Fosterline.

What is Qualifying Care Relief?

Qualifying Care Relief, also known as Foster Care Relief, is the way the government deals with tax exemptions for foster carers. What this means is you will be able to receive certain payments without having to pay any tax.

You can use it if the children or adults in your care were placed by:

  • Local authorities
  • Fostering service providers
  • Shared lives service providers
  • Health and social care trusts in Northern Ireland

The qualifying amount (the amount you can claim tax-free) is made up of 2 parts:

1.

A weekly amount for each cared for child or adult:

Age of child Tax relief
Under 11 £200 per child
11 or over £250 per child

2.

A fixed amount of £10,000 for each household for a full year.

Be aware that if you use Qualifying Care Relief, you can’t claim expenses or capital allowances. 

What if there are multiple carers in one household?

If there are multiple carers in one household, you share the fixed sum.

Therefore, to work out the share of the fixed amount you’ll need to:

  1. Count the number of days you’ve been an approved carer
  2. Multiply the number of days by £10,000
  3. Divide the total by 365 (or 366 for a leap year)

Example: Mark is a foster carer. He takes care of one 7 year old for the entire year (52 weeks) and one 12 year old for 8 weeks in the year. The qualifying amount is calculated by adding:

  • Fixed amount of £10,000
  • First child: £10,400 (£200 x 52 weeks)
  • Second child: £2,000 (£250 x 8 weeks)
  • Total: £22,400

Do carers declare 0 income?

As previously mentioned, you’ll have to let HMRC know about any payments you’ve received because they’re seen as income. Some types of payments you’ll need to include are:

  • Fostering allowances
  • Retainer payments
  • Fee or reward payments
  • Holiday or birthday allowances
  • Mileage or any other expenses

There are a few of different scenarios you might encounter, depending on the payments you’ve received. Here are two for you to look through 👇

If the total payments you’ve received are lower than the qualifying amount:

  • HMRC will treat you as not making a profit or loss for the year, so you don’t pay Income Tax or National Insurance on your caring income
  • Of course, you should still fill in a tax return. Make sure you claim Qualifying Care Relief

If you have other income, you will either pay that as normal either through PAYE or Self Assessment

If the total payments you’ve received are higher than the qualifying amount?

There are two methods to tackle this:

  1. The simplified method – you pay tax on the difference between your qualifying care receipts and qualifying amount
  2. The profit method – you pay tax on your total care receipts less any expenses and capital allowances. For this, you’ll have to keep detailed records of your business income and expenses. If you have a loss from an earlier year, you can use the loss against your profits for the year. This means you’ll have less taxable income.
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