When fostering a child, foster carers receive many different forms of support to help them take care of the children to the best of their ability.
This includes financial support in the form of a fostering allowance that is paid weekly, and can vary according to different factors including the age and needs of the child, the number of children fostered, and the individual private fostering agency or local authority that the foster carer belongs to.
How does the Fostering Allowance Work?
The purpose of a fostering allowance is to cover the costs of caring for foster children, from buying food and clothing to transporting them to school and entertaining them, and yes, the allowance is legally regarded as a form of income.
When you register as a new foster carer you must also register with Her Majesty’s Revenue and Customs (HMRC) as ‘self-employed’, and start keeping records of the children you foster, their ages and the dates that you began and ceased looking after them.
You will also have to complete a Self Assessment tax return each year to declare all of your income from fostering allowance.
All self-employed people are registered for Class 2 National Insurance contributions but don’t worry, as foster carers receive a tax allowance and additional tax relief which can mean you pay little tax on your foster care payments or even none at all.
It’s also important to remember that foster care payments will also not affect any social security benefits you currently receive.
Tax Allowance and Tax Relief Explained
Everyone in the UK receives a tax-free income allowance, currently, this amount is £10,000*. On top of this personal allowance, foster carers are provided with a ‘qualifying care relief’ that can considerably raise the ‘qualifying amount’ of fostering allowance on which you are exempt from paying tax.
The qualifying amount will depend on a number of factors including how many children you have fostered or are currently fostering, the age of the foster children, and how long you were looking after them during that tax year.
The amount of weekly tax relief increases when a child is 11 years old: for a child under 11 it is £200 a week, for children 11 and over, it is £250.
Understanding foster care allowances, and carrying out a Self Assessment as a foster carer can be tricky, but as with all aspects of foster care, there is always plenty of support on hand for you.
As an NFA carer, you will have 24-hour access to professional advice on carer allowances and tax allowances.
Alternatively, HMRC will also be able to answer your questions about tax allowances, tax relief and Self Assessment; you can find out how to contact them on their website.
*Information correct as of May 2018