Important Tax Information For Foster Carers
The deadline for paper tax returns in the UK is almost upon us (31st of October), so now is the time to ensure you’re prepared. If you’re new to foster caring, the process of calculating, completing and filing your tax return can seem complicated. Unfortunately, it’s not as straightforward as you may have been used to on the PAYE system as you likely would have been with previous employers, since all foster carers are required to be registered as self employed. The good news is, once you get to grips with how to manage your foster care tax return, you will then qualify to receive payments for your foster caring up to your personal tax threshold without being liable for further tax. In actual fact, when the calculations are done the vast majority of foster carers will find that they have no tax to pay due to the threshold being relatively high. We have written the following article to assist you with some of the important tax information foster carers need to know about your upcoming return, as well as answering some frequently asked questions from our experience with our own foster carers.
Tax Return Guidance
How to register as self employed:
You can register as self employed by visiting the HMRC website here. The type of registration will vary depending on whether you are fostering on your own or as part of a couple, but each of you will still be ultimately responsible for filing your own individual self assessment tax forms at the end of the tax year.
How to calculate your tax ‘qualifying amount’:
The two part calculation used to work out your qualifying amount is as follows for each tax year.
£10,000 per household (please not that this is not per carer, and is worked out on a pro-rata basis for those who have not been a registered foster carer for the full tax year)
£200 to £250 per child per week of their placement with you
This second amount is dependant upon the age of the child you are fostering. Children who are 10 and under qualify for £200 per week, whereas children who are 11 or older qualify for the additional £50 per child per week (meaning a total of £250 per child per week for those 11 and over).
How to calculate if you owe tax:
Add up the total amount you have received in foster caring payments in the tax year (the 6th of April to the following 5th of April). If you don’t have a full record of this information, then you’ll be able to obtain it from your fostering agency in the form of a statement. Take your qualifying amount from the calculation above and deduct it from your total fostering payments for the year. If your income from fostering is below your qualifying amount then you will have no tax to pay.
How to submit your tax return:
You can complete your tax return either online or via a paper form. If using the latter method, it must be received by HMRC by the end of October of the same year (so for year end 5th April 2016, your form is due by the 21st of October 2016), hence the need to begin preparing now. For online submissions, you have an extended time, which is by the end of January the following year (January 2017 for the year ending 5th of April 2016). Both forms of submission will require the same information – your ‘business expenses’ which will be your qualifying amount, as calculated above, your ‘business turnover’ which is your total fostering payments for the year, and your ‘net profit’ which is the difference between the two, if there is any. If you have not reached or exceeded your threshold for the year then enter £0 in the ‘net profit’ box to indicate that you have nothing to pay tax on.
Frequently Asked Tax Questions
I’m a registered foster carer, but I don’t currently have any placements. Do I have to do this?
Yes, being registered as self employed is a legal requirement in the UK, even for those carers who don’t currently have a placement, and whether or not you have any tax to pay. This is in order for you to be eligible for the specialist tax scheme known as the Qualifying Care Relief (QCR) which has been put together especially for carers. We’d recommend that you register as being self employed as soon as you become a registered foster carer to ensure you don’t end up having problems later on.
What is Qualifying Care Relief (QCR)?
QCR is the tax scheme that has been developed specifically for foster carers. The method works out your qualifying amount for tax, which is the amount of income you’re allowed to earn from your caring prior to becoming liable to pay tax on the earnings. Your Qualifying Care Relief amount is dependant upon a number of things that are unique to you and your fostering circumstances, and are substantially more generous than the usual self employment tax payable for other careers, meaning foster carers often benefit substantially from significantly lower tax payments.
Can my fostering agency do this for me?
Unfortunately, your fostering agency isn’t able to either register for self assessment tax on your behalf, or calculate your tax due. They can, however, provide you with assistance in finding the relevant resources and help to make the process as easy as possible for you. If you’re unsure, then speak to your fostering agency to see if they can offer you guidance, but they can’t complete the process on your behalf.
My foster child has just turned 18 but is still living with us. Are we still entitled to use the Qualifying Care Relief tax scheme?
Yes, the QCR tax system can also be used in some other circumstances, and one of the most common is where a child has remained with their foster family after the age of 18, most often referred to as ‘Continuing Care’.
Is the process the same if I foster with a local authority?
Yes, the process of working out your tax and the systems involved are the same whether you’re with a local authority or a private fostering agency.
I’m a foster carer, but I also have a part time job. Will this impact my tax threshold?
No, your qualifying amount for your foster caring income will not be effected by your job. Your personal tax threshold will apply to your regular job, and your qualifying amount for your foster caring will apply to your foster care payments only. If you are under the threshold on both counts, then you will have no tax to pay.
Sarah and John are foster parents to 12-year-old Freddie and his younger sister Lola, 6. Both children have been living with the couple for two years, which includes the full tax year for 2015-16 (April to April). In addition to caring for the children, John has a full time job earning £20,000 per year. Sarah, however, does not work and cares for the children full time, so the couple have chosen to register her as a Sole Trader for the purposes of fostering.
Sarah’s qualifying amount is as follows:
Fixed household amount £10,000
Amount for Freddie 52 x £250 £13,000
Amount for Lola 52 x £200 £10,400
Sarah has received a total of £30,000 in the past year in foster caring payments for both children. As she doesn’t work, her only income is from her fostering services. As such, her taxable profit is calculated as follows:
Total fostering payments: £30,000
Total Qualifying Amount: £33,400
£30,000 – £33,400 = -£3,400
As the amount shown above is a negative, Sarah is under her threshold by £3,400 and, as such, she will not have to pay any tax for this financial year.
If you have any trouble with the calculations above, or are wondering where to go to for help and advice, contact your fostering agency in the first instance, they should be able to give you the guidance that you need.