Are fostering payments taxable income?

In practice, the key issue is whether your fostering receipts are higher than the tax relief available to your household. HM Revenue & Customs (HMRC) applies Qualifying Care Relief to approved foster carers, so only the amount above the relevant relief may be included when calculating taxable profit.

What counts as fostering income? Payments received for providing foster care are generally treated as income from your fostering work. This can include the maintenance element, professional or skills payments, fees and other amounts paid by a fostering service. The exact treatment can depend on what a payment is for, so keep the payment statements and documentation supplied by your fostering service.

Qualifying Care Relief is designed to recognise the costs of caring for a child or young person in placement. It is made up of a fixed household amount and an additional amount for each child in your care, with the additional amount depending on factors such as the child’s age and the length of the placement. The available relief is recalculated for the relevant tax year and may change when children move into or out of your care.

How the calculation works is broadly as follows:

• Add together the fostering payments received during the tax year.
• Work out the Qualifying Care Relief available for your household and placements.
• Deduct the relief from the fostering income.
• Only any remaining amount is potentially taxable as profit from fostering.

If your fostering income does not exceed the available relief, there is normally no taxable profit from fostering for that year. This does not mean the payments are ignored; it means the relief covers the income for tax calculation purposes. If the income is higher than the relief, the excess may be taxable and should be considered alongside your other taxable income.

Tax is assessed on the carer, not simply on each payment. Where two people foster together, the way income and relief are allocated can depend on the fostering arrangement and each person’s circumstances. Do not assume that splitting payments informally will produce the correct tax result. Keep clear records of who is approved, who receives the payments and how the fostering service describes them.

You should keep records of fostering payments, placement dates, children’s ages, periods when a placement is paused or ends, and any relevant statements from the fostering service. These records help you check the relief for each tax year and provide evidence if HMRC asks how the calculation was made.

Do foster carers need to pay National Insurance? Tax and National Insurance are separate. A fostering household may have no income tax to pay because of Qualifying Care Relief, but National Insurance obligations can still depend on whether the fostering activity is treated as self-employment, the level of profit and the carer’s wider circumstances. The absence of income tax does not automatically settle the National Insurance position.

You may need to tell HMRC that you are self-employed and complete a Self Assessment tax return, particularly where your taxable profit is above the relevant reporting threshold, HMRC asks you to file, or you have another reason to submit a return. The reporting position can vary, so check the current HMRC rules rather than relying on an earlier year’s treatment.

Fostering payments may also affect calculations involving other income or means-tested support. Taxable fostering profit is not necessarily treated in exactly the same way as fostering income for every benefit or financial assessment. If you receive Universal Credit, Housing Benefit or another benefit, check the rules for that benefit separately and report changes as required.

Tax rules and relief amounts can change, and an unusual arrangement—such as respite care, multiple fostering households, a mixture of fostering and other care work, or payments from more than one source—may require individual advice. Your fostering service can explain how its payments are described, while HMRC or a suitably qualified tax adviser can confirm how your circumstances should be reported.