All foster carers must register as self-employed, submit self-assessment tax returns and pay National Insurance. Although this might sound daunting, it’s actually a straightforward process and we offer you all the support you need.
How to register as a self-employed foster carer
Even if you don’t make a profit from being a foster carer, once you have been approved you will need to register as self-employed with HM Revenue & Customs (HMRC) for Income Tax self-assessment and National Insurance Contributions (NICs).
Registration needs to be done within six months of the end of the tax year that you are approved in – so, by 5th October at the latest. You will need to know the date you were approved as a foster carer and your National Insurance number. There are several ways you can register:
Online – this is the easiest way to do it and it will automatically enrol you for the online self-assessment tax return service. You will be given a unique taxpayer reference (UTR) and receive an activation code through the post.
By phone – alternatively, you can call the HMRC’s Newly Self-Employed Helpline on 0300 200 3310.
By filling in form CWF1 – This can be a bit awkward so we recommend one of the two methods above, ideally. The CWF1 form is designed to be filled in on screen but you can’t save it. Once you have completed it, you can print off a copy to send.
Most foster carers do not have to pay tax, thanks to Qualifying Tax Relief, which has really simplified self-assessment. Under this scheme, you don’t have to keep detailed accounts and receipts, and it’s very easy to work out if you owe any tax. You can find out more about it on our Tax and Foster Care page.
Foster carer National Insurance Contributions (NICs)
You pay NICs to qualify for certain state benefits and the state pension. There are different types of NI, and these are known as ‘classes’. Which class of National Insurance you pay depends on your employment status and how much you earn. You usually stop paying NICs when you reach state pension age, even if you are being paid to foster. The only exception to this is if your earnings are above a certain profit threshold. Here are the different classes of NICs you might pay as a foster carer.
1. Class 2 contributions
When you register with HRMC as self-employed, you will be registered for Class 2 NICs. However, you won’t have to pay Class 2 NICs if you have no taxable profit from fostering, or if your taxable profit (the amount over the threshold) is up to £6,365 (2019/20). However, you can opt to pay Class 2 NICs voluntarily. You might choose to do this because Class 2 NICs give you access to welfare support like maternity benefit, bereavement benefit and the state retirement pension. If you don’t pay it, you might lose access to these benefits. For 2019/20, Class 2 NICs were £3 a week.
2. National Insurance Credits (Class 3)
NI credits count towards your National Insurance record. You can apply for a NI credit for each week you are approved as a foster carer. Do this at the end of each tax year by filling in form CF411A and submitting a letter from National Fostering Group to confirm that you were approved to be a foster carer for the tax year. Class 3 credits count towards the basic and additional state pension.
3. Class 4 contributions
You will only have to pay Class 4 NICs if you go above a certain profit threshold from your self-employed foster care earnings. If you go above this threshold, Class 4 NICs are paid in addition to Class 2 NICs. For 2019/20 the rates of Class 4 NICs were:
9% on profits of £8,632-£50,000
2% on profits over £50,000
NICs if you are above pension age
As a self-employed foster carer who has reached state pension age, you won’t pay NICs. The only exception is if you are required to pay Class 4 contributions.
Further information and support
You can call the National Insurance general enquiries helpline on 0300 200 3500 or take a look at HMRC’s e-learning package for foster carers. 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.
If you need more information or support we are happy to discuss your NICs, so please get in touch. If you ask for a call back, an advisor from your local team will get in touch to explain more about how to become a foster carer, and answer any questions you have about foster care pay and self-employment.
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