Is HMRC’s penalty waiver good news for your foster carer tax return?

HM Revenue & Customs (HMRC) has again announced it is waiving the penalty for late completion of self-assessment tax returns. This sounds great, but it might not be good news for your situation – in which case, you’ll still need to act by 31st January 2022.

Overview of foster carer NICs

Basically, generous tax thresholds – known as Qualifying Care Relief – mean that you probably won’t have to pay any tax on your fostering allowance earnings.

When you register as self-employed with HMRC, you’re automatically enrolled for the Class 2 NICs. However, because of Qualifying Care Relief, you probably won’t have to pay Class 2 NICs either – though you might decide you want to.

At a glance

• You don’t have to pay Class 2 NICs if you haven’t made a taxable profit or if your taxable profit is under the threshold.
• Some foster carers make voluntary Class 2 NICs to access welfare support like maternity benefit, bereavement benefit and a state pension.
• You’ll only make Class 4 contributions on what you’ve made a taxable profit on.
• You should claim Class 3 NI credits at the end of every tax year – 4th April. These contribute towards your state pension.
• You’ll only pay Class 4 NICs, in addition to Class 2 NICs, if you go above a certain profit threshold from your self-employed foster care earnings.
• You don’t have to pay NICs after you reach State Pension age unless you’re self-employed and paying Class 4 contributions.

Foster carer NIC rates for 2020/21

Qualifying Care Relief

The Qualifying Care Relief (QCR) threshold is £10,000 per household per year, plus additional weekly relief per foster child of between £200 and £250.

As an example, the average foster carer with National Fostering Group earns around £22,000 and pays no tax.

Class 2 NICs

• £3.05 a week
• Under QCR threshold – zero Class 2 NICs due
• If none are due, you can make voluntary payments
• Over threshold – Class 2 NICs must be paid

Class 4 NICs

• 9% due on profits between £9,500 and £50,000
• 2% due on profits over £50,000
• Must be paid in addition to Class 2 contributions

How to pay voluntary Class 2 NICs

HMRC says: “You can usually pay voluntary contributions for the past 6 years. The deadline is 5 April each year”.

You can pay your NICs through your annual self-assessment tax bill. This is calculated for you when you prepare your self-assessment online, before you submit it.

You will then be given the option to pay immediately. You can also pay by BACS or Faster Payments. Make sure you pay before HMRC’s deadline.

HMRC’s deadline for self-assessments and NICs payments

Normally, self-assessments submitted online must be filed and paid by 31st January. Self-assessments and payments that miss this deadline are subject to a penalty fee.

However, HMRC has taken the pandemic into consideration and is again giving everyone more time to complete their 2020/21 tax return and pay tax (probably not applicable) and any NI due.

The deadline to file and pay remains 31 January 2022.  However, the penalty waiver means you have more time to complete your return online and pay tax due without worrying about receiving a penalty.

• If you can’t file your return by the 31st January deadline, you won’t receive a late filing penalty if you file online by 28th February. Interest will still be payable from 1st February.
• If you can’t pay your self-assessment tax by the 31 January deadline, you won’t receive a late payment penalty if you pay in full or set up a Time to Pay arrangement by 1st April.

Important! If you need to make a benefits claim

Self-employed foster carers who need to claim certain contributory benefits soon after 31st January 2022 must pay their annual Class 2 NICs by this date. This is to make sure your claims are unaffected.

Class 2 NICs are included in the 2020/21 Balancing Payment. Your benefit entitlements may be affected if you can’t pay your Balancing Payment by 31st January.

A benefits claim might also be affected if you’ve got a Time to Pay arrangement to pay off the Balancing Payment and other self-assessment tax liabilities with instalments.

See HMRC’s full statement. You can phone them on 0300 200 3822 for more information.

You can also get free advice from The Fostering Network. If you’ve been approved as a foster carer with us, you automatically get membership to the network, including access to the helpline on 0207 401 9582. Alternatively, you can email them.