Foster carers are usually exempt from paying Income Tax on the fostering allowance thanks to Qualifying Care Relief, also known as Foster Care Relief.
When I first became a foster carer, I was worried that I didn’t know anything about tax! But my social worker put me right at ease. Now, every year when the time comes, I don’t panic about filling in my tax assessment.
As a foster carer, when you submit a tax return at the end of the financial year you will have to work out your own unique tax threshold. Here is how to do it:
You need to know how much National Fostering Group paid you during the tax year. This should be straightforward as we supply you with an end-of-year statement after the 5th April showing the total amount. It will include:
Compare your totals: (1) your tax threshold and (2) total payments from National Fostering Group.
Doug has had a foster child (age 7) on a long-term term placement for 52 weeks. He received a fostering allowance of £375 per week, which gave him an annual income of £19,500.
The first year we had to do our tax forms, I wasn’t sure where to start. However after meeting other carers, who have been fostering for many years, they helped us with the tax forms. You will always find someone in your support network can answer any questions you have.
If you prefer, you can ignore Qualifying Care Relief altogether and use a conventional profit and loss method to calculate your tax liability instead. However, this is more complicated and time-consuming and you’ll need keep every receipt relating to your fostering. You can get more information about Qualifying Care Relief from HMRC.
The personal tax allowance states how much taxable income you can earn before you start paying Income Tax. The current personal allowance for most people is £12,500 (for 2018/19 it was £11,850). If your fostering payments exceed the Qualifying Care Relief threshold, you may be able to use your personal tax allowance to offset your tax liability. This is normally possible if you are a full-time foster carer with no earnings from elsewhere.
If you are fostering as a couple, you can choose whether one of you will declare all of the fostering income as the main carer, or if you will split your income as a partnership. Usually, couples only register as a partnership when they both foster on a full-time basis and their household income from fostering takes them over the Qualifying Care Relief tax threshold. Not all couples do this though – it depends on what makes best financial sense in your particular situation. We can give you more information on this to help you make the right decision.
Qualifying Care Relief has made the self-assessment tax returns process for self-employed foster carers much more simple. Some prospective foster carers say they are worried by the idea of keeping their own accounts, but there’s really no need to worry. It’s straightforward to work out your earnings and tax liability and there’s plenty of support if you need it. You shouldn’t need to employ an accountant, even if you make a profit. However, some foster carers with more complex finances may decide to employ an accountant.
Once you have been approved as a foster carer, you must register as self-employed with HMRC. You will need to do this within six months of the end of the tax year in which you were approved – which means by 5 October.
You can register as self-employed online, which is HMRC’s preferred method. Alternatively, you can complete a CWF1 form or call the Newly Self-Employed Helpline on 0300 200 3310. You’ll need to tell them your National Insurance number and when you were approved as a foster carer.
Once you are registered as self-employed you will be given a unique taxpayer reference (UTC) so you can use the online service to submit your self-assessment tax return online.
Unlike a calendar year, the tax year runs from 6 April of one year to 5 April of the next. We are currently in the tax year 2020/21. HMRC works retrospectively – in other words, while we are currently in the 20/21 tax year, you will need to submit information to HMRC about the previous tax year – 2019/20.
You can get more information from HMRC’s self-employed Income Tax helpline and training, support and development for foster carers, . In addition, if you’ve been approved as a foster carer with us, you automatically get membership to The Fostering Network, which provides free advice via its helpline on 0207 401 9582 or email.
We’re always happy to discuss any tax or National Insurance concerns you have. The best way to get more information is to fill out our enquiry form. If you ask for a call back, an advisor from your local National Fostering Group 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 Income Tax.