Do foster carers pay tax on their fostering income?

Foster carers do not automatically pay income tax on every pound they receive. HMRC’s qualifying care relief scheme allows eligible foster carers to deduct specific relief from their fostering receipts when calculating taxable profit. The amount left after the relief, together with any other taxable income, determines whether tax is due.

How qualifying care relief works

Qualifying care relief is a simplified tax calculation for approved foster carers. It is made up of a fixed annual amount for the foster carer’s household and an additional amount for each child or young person in qualifying care. The applicable amounts depend on the current HMRC rules, including factors such as the child’s age and the number of qualifying placements.

The relief is deducted from fostering receipts rather than paid to the carer. If the total relief covers the relevant fostering receipts, there may be no taxable profit from fostering. If receipts are higher than the available relief, the excess is generally treated as taxable fostering profit.

Which fostering payments are considered?

Fostering receipts can include payments received from a local authority, fostering agency or other fostering provider. This may include the fostering allowance and any separate fee or payment connected with providing care. The tax treatment depends on what the payment is for, so carers should keep a clear record of each payment instead of assuming that a particular label makes it tax-free.

Payments relating to different types of care, respite arrangements or other approved caring responsibilities may have separate rules. Where a payment is not clearly part of a qualifying fostering arrangement, it is sensible to check its treatment with HMRC or a tax adviser.

What if you have other income?

Qualifying care relief applies to eligible fostering income; it does not automatically remove tax on wages, self-employment income from another business, pensions, property income or investment income. Those sources are considered under their own tax rules. Your total taxable income, available personal allowances and applicable tax bands can therefore affect the final amount you owe.

For example, a carer may have no taxable profit from fostering after applying qualifying care relief but still have income tax to pay on employment income. Conversely, the tax position may be different for a household with more than one foster carer or with several sources of income.

Do foster carers need to complete a tax return?

Some foster carers need to register for Self Assessment and report their fostering income, particularly where the receipts exceed the available relief or HMRC asks for a return. A return may also be relevant where the carer has other taxable income or needs to report another reason under HMRC’s rules. Having no tax to pay does not by itself answer whether a return is required.

Foster carers should use the current HMRC guidance to check their position and meet any registration or filing requirements. Tax rules and the relief amounts can change, so information from an earlier tax year may not apply to the current year.

What records should foster carers keep?

• Statements or records showing each fostering payment received.
• The dates of placements, respite care and other qualifying arrangements.
• Details needed to identify which payments relate to each child or young person, while keeping personal information secure.
• Records of any other income relevant to the tax return.
• Copies of submitted returns, calculations and correspondence with HMRC.

Keeping records throughout the tax year makes it easier to apply the correct relief and explain how the figures were calculated. It also helps distinguish fostering receipts from household money received for an unrelated purpose.

What about National Insurance?

Foster carers may be treated as self-employed for tax and National Insurance purposes, but the rules are not identical to income tax rules. Whether National Insurance is due can depend on taxable profits and the carer’s wider circumstances. Qualifying care relief may affect the profit calculation, but it does not remove the need to check National Insurance requirements separately.

The safest approach is to calculate fostering receipts using the current qualifying care relief rules, consider other household income separately and keep supporting records. HMRC guidance can help with the standard calculation, while an accountant or tax adviser can clarify more complicated situations, such as joint carers, several placements, mixed income or changes during the tax year.