Foster Carer Tax
Important First Steps
As soon as you start receiving income as a Foster Carer, it is important that you:
- Register yourself as ‘self-employed’
- Register for Class 2 National Insurance
If you have not completed a Self-Assessment tax return before, you will need to set up a Government Gateway user ID and password to set up a business tax account. Set up an account for self-employment income as a sole trader. Create an account or login to your existing one at:
https://www.gov.uk/log-in-register-hmrc-online-services/register
How to register yourself as self-employed:
You can register yourself as self-employed by visiting:
https://www.gov.uk/set-up-self-employed
The type of registration that you select will vary depending on whether you foster on your own or as part of a couple. Either way, you will still be solely responsible for filing and paying your individual Self Assessment tax returns at the end of each financial year.
How to register for Class 2 National Insurance:
You can register for Class 2 National Insurance through your business tax account on the Government Gateway.
Complete form CWF1 if you can’t use online services. Access it here:
It is important to register for Class 2 National Insurance contributions to qualify for benefits like the State Pension.
Class 2 National Insurance contributions are payable as a lump sum by 31st January following the tax year.
Apply for National Insurance credits via form CF411A:
If you foster (or parent) a child under 12, you can apply for National Insurance credits. These credits count towards your State Pension and are important, especially if your income comes solely from fostering.
You’ll need your Government Gateway user ID and password and will have to submit a letter of confirmation along with the form to apply. See the website below for further guidance and to apply:
https://www.gov.uk/government/publications/national-insurance-credits-for-parents-and-carers-cf411a
TAX & SELF ASSESSMENT GUIDANCE
A tax year runs from 6th April of one year to 5th April of the following year.
Foster Carers are self-employed and therefore need to submit a Self Assessment tax return each financial year from the time they start fostering. It calculates the amount of Income Tax that is due from all payments made from wages, pensions and savings.
The tax return can be submitted and paid in paper form at any time before 31st October following the end of the tax year, or by 31st January if you submit it electronically.
Due to the relatively high threshold and when calculations have been done, the majority of Foster Carers will find that in actual fact, they don’t have any tax to pay.
COMPLETING YOUR TAX RETURN
HMRC have ‘Qualifying Care Relief’ for Foster Carers – a tax exemption which is made up of 2 parts:
- A fixed-rate of up to £10,000 per household per year (less if you foster for a shorter period) that is shared equally between any Foster Carers in the same household. This means that you don’t have to pay tax on the first £10,000 income you receive from fostering.
- On top of the £10,000 exemption, you also get tax relief for every week (or part week) that a child is in your care. This amounts to £200 per week for children under 11 or £250 per week for young people aged 11 or over; this portion is also tax-free.
The tax you pay, if any, will be based on the total amount of income you receive from fostering minus the two elements above. This is your profit from fostering.
If fostering is your only income, your personal tax allowance will also be deducted from the taxable amount on your tax return, which for 2021 – 2022 was £12,570. This is included at the end, so it is important not to include your Personal Allowance deduction as part of your Qualifying Care Relief calculation.
For further guidance, visit the following Tax for Foster Carers course online:
http://www.hmrc.gov.uk/courses/syob3/fc/index.htm
How to calculate your Qualifying Care Relief – an example:
Karen is a Foster Carer for a 12-year-old for the whole period of the financial year (from 6th April to 5th April the following year). She has also provided respite to a 10-year-old for 6 weeks (or part-weeks) over that time.
Her tax exemption =
£10,000
+ Child 1 (52 weeks x £250) = £13,000
+ Child 2 (6 weeks x £200) = £1,200
Total exemption = £24,200
How to calculate the tax due:
At the end of each financial year, we will provide you with a summary of all the payments we have made to you for fostering. This will help you to complete your tax return.
Calculate your Qualifying Care Relief amount (your ‘business expenses’ on your tax return) using the calculation above and deduct it from the total income you’ve received from fostering for the year (‘business turnover’ on your tax return). The result of the calculation is your ‘net profit’ from fostering and is taxable.
If your income from fostering is less than your Qualifying Care Relief amount, then you will have no tax to pay. You will need to enter £0 in the Self Assessment ‘net profit’ box to indicate that you have nothing to pay tax on.
Dealing with tax and financial matters can be very daunting, but help is at hand! We provide all our Foster Carers with membership to FosterTalk, who are always happy to answer your questions about calculating tax and can provide you with lots of free help and guidance to help you complete your tax return yourself or they can do it for you for a fee of around £145.
FosterTalk will also help you with any advice or letters from HMRC or DWP that you don’t understand, and their expertise is not limited to fostering income only. They can answer your questions about PAYE, VAT, rental income, all other areas of tax, limited company matters and Benefit entitlements.
You can contact FosterTalk tax team to ask questions:
Call 0121 758 5013
Email enquiries@fostertalk.org
SUBMITTING YOUR TAX RETURN
Your tax return can be submitted and paid in paper form:
- by post at any time before 31st October following the end of the tax year, or
- by 31st January if you submit it electronically.
We have put together some information about completing your tax return which we hope you will find useful.
For more information about Self Assessment tax returns, visit:
https://www.gov.uk/self-assessment-tax-returns
and for more detailed guidance on completing a tax return, follow the tax e-learning course for Foster Carers at:
http://www.hmrc.gov.uk/courses/syob3/fc/index.htm
If you do not think you need to fill in a tax return at any time, please check the following link to avoid paying a penalty:
https://www.gov.uk/check-if-you-need-tax-return
If you think you have overpaid tax, you can go back up to three financial years to reclaim it. Please contact FosterTalk for further advice.
FREQUENTLY ASKED TAX QUESTIONS
I’m a registered Foster Carer, but I don’t currently have any placements. Do I still 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.
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 depends on several things that are unique to you and your fostering circumstances. They 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 Lorimer Fostering do this for me?
Unfortunately, we are not allowed (by HMRC rules) to register for Self-Assessment tax on your behalf, or calculate your tax due. We will, however, provide you with assistance in finding relevant resources to make the process as easy as possible. If you’re unsure, just let us know.
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. Usually, this is where a child has remained with their foster family after the age of 18, most often referred to as ‘Continuing Care’.
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 affected by your job. Your personal tax threshold will apply to your regular job. 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.
If you’re not sure about anything just contact us here at Lorimer Fostering and we’ll help as much as we can. Just submit your details using the form below or call/WhatsApp Rachael on 07938 575 738 and we’ll get back to you as soon as possible.