Are self-employed foster carers responsible for their own tax?

For tax purposes, fostering payments are normally considered under self-employed rules rather than treated as a salary. This means the tax treatment depends on the amount received, the qualifying care relief available to you and any other income you have. Being treated as self-employed for tax does not usually mean you need to form a limited company or register with Companies House.

Qualifying care relief is the main tax measure for foster carers. It provides a tax-free amount made up of a fixed relief for the household and an additional amount for each qualifying child or young person cared for. The available amount can depend on factors such as the number of children placed, their ages and how long they stay. The relief is set against fostering receipts when working out whether any taxable profit remains.

If your fostering receipts are covered by qualifying care relief, there may be no taxable fostering profit. If the receipts are higher than the available relief, the surplus may need to be included when calculating your taxable income. The relief applies to qualifying fostering income, so it does not automatically remove tax due on wages, pensions, property income or other self-employed work.

Foster carers can generally work out their position using qualifying care relief or by calculating actual allowable expenses under the normal rules. These methods should not be combined carelessly, and the most appropriate approach can vary from one tax year to another. A tax adviser can help you compare the methods and identify which records are needed.

Registration and Self Assessment depend on your circumstances. You may need to tell HM Revenue and Customs that you are self-employed and complete a Self Assessment tax return if taxable profits arise or if another rule requires you to submit one. The position can also be affected by other income, previous tax returns, payments on account and whether you undertake separate self-employed work.

Tax obligations can include:

• registering with HMRC where the relevant conditions apply;
• reporting fostering receipts and any taxable profit accurately;
• keeping evidence of payments, placement dates and the children or young people covered by the relief;
• recording relevant expenses if you use the normal expense method; and
• checking whether National Insurance applies to any self-employed profit.

Good records are important even where you expect no tax to be payable. Keep statements, payment schedules, placement information, invoices and expense receipts for the period HMRC requires. Records should show which amounts relate to fostering and which relate to other work or household income. Your fostering service may provide payment information, but you remain responsible for checking that the figures used in your tax calculations are complete and accurate.

Tax treatment can change if you foster jointly with a partner, have more than one fostering arrangement, receive payments for respite care or combine fostering with employment. A partner’s income is normally considered separately, although qualifying care relief is calculated with specific household rules. Do not assume that a nil tax result for one year will automatically apply in later years.

HMRC guidance on reliefs, registration thresholds and reporting deadlines can change. Check the current rules for the tax year concerned and seek advice from a qualified tax adviser if your circumstances are complicated. Your fostering agency can also explain how payments are described and where to obtain suitable tax guidance, but it cannot replace personal tax advice.