Are foster carers self-employed?

The self-employed classification mainly affects how fostering income is recorded and declared. A fostering agency or local authority does not normally pay foster carers a salary through PAYE, provide an employment contract or make standard employee deductions from fostering payments. Instead, the carer receives agreed fostering payments and is responsible for dealing with their own tax position.

Fostering payments are not treated in the same way as ordinary business income. HM Revenue & Customs provides qualifying care relief , often referred to as the foster carer tax scheme. This relief is intended to reflect the costs of caring for a child or young person and can substantially reduce the income on which tax is calculated. Depending on the carer’s circumstances and the amount received, the resulting taxable profit may be very low or nil.

The relief is based on rules that take account of the carer’s household and the number and length of placements. It can cover different payments connected with fostering, including maintenance payments and fees, although the precise treatment depends on the nature of the payment and the carer’s circumstances. The calculation should be reviewed when placements, household arrangements or fostering income change.

Being self-employed for tax purposes does not mean foster carers run an ordinary business in the usual sense. They must follow the fostering agency’s agreement, standards, policies and placement plans, and work with social workers and other professionals. The classification relates primarily to tax and payment arrangements; it does not remove the safeguarding, training, assessment and recording responsibilities that come with fostering.

Whether a foster carer needs to complete a Self Assessment tax return depends on their overall tax position. A carer may need to register with HMRC and report fostering income where the qualifying care relief does not cover the relevant receipts, or where they have another reason to submit a return. A nil or low taxable profit does not automatically answer every registration question, so it is sensible to check the current HMRC guidance or obtain advice from an accountant who understands foster carer taxation.

Good record-keeping is still important, even where the relief means no tax is ultimately due. Keep:

• payment statements from the fostering agency or local authority;
• dates and details of placements;
• records of fees, allowances and any additional payments;
• receipts for relevant purchases and other fostering-related costs; and
• copies of tax returns, calculations and correspondence with HMRC.

Qualifying care relief is a special method of calculating taxable fostering income, so foster carers should not assume that they can claim every household cost again as a normal business expense. Costs such as food, clothing, travel, activities and equipment may already be reflected in the relief or in the fostering allowance. The payment statement and the agency’s guidance should be checked before claiming a deduction.

There are also practical differences from being an employee. A foster carer does not usually receive statutory employee benefits or employer pension contributions from the fostering agency. Tax and National Insurance responsibilities may also differ from those of an employee, depending on the carer’s taxable profit and wider circumstances. If fostering is combined with employment, self-employment or other income, all relevant sources need to be considered together.

Fostering income can also be relevant when a household receives means-tested benefits or tax credits. The effect is not determined solely by whether fostering payments are taxable, because each scheme has its own rules about income and allowable costs. Anyone receiving benefits should obtain a specific calculation before assuming that fostering will have no effect.

Before applying, ask the fostering agency how its payments are divided between allowances, fees and other elements, whether it provides annual payment summaries, and what financial records carers are expected to keep. Become a Foster Family can explain its fostering payment arrangements and provide guidance during the assessment and fostering journey, but individual tax advice should come from HMRC or a suitably qualified tax adviser.