Can foster carers claim tax relief on fostering expenses?

Foster carers can receive tax relief for genuine fostering expenses, but most use HMRC’s qualifying care relief scheme instead of claiming every cost individually. This scheme applies a standard tax treatment to fostering income by deducting a tax-free amount from qualifying receipts. Only any income above the relevant qualifying amount is normally considered when working out taxable profit.

How qualifying care relief works

Qualifying care relief is designed specifically for foster carers and certain other approved care providers. The calculation is based on the amount received for fostering and the number and ages of the children placed in your care. The relevant thresholds and rates can change, so you should use the current HMRC guidance when completing your tax return.

Where your fostering receipts do not exceed the applicable qualifying amount, there may be no taxable fostering profit to report. If your receipts are higher, the excess is generally treated as taxable income. This means the scheme often gives a clearer and more favourable result than adding up individual household costs.

Can you claim individual fostering expenses as well?

You should not deduct the same cost twice. If you use qualifying care relief, you normally calculate your taxable fostering income using the scheme rather than deducting the costs already represented by that allowance. Claiming the standard relief and then deducting the same food, travel or activity costs again would produce an incorrect tax calculation.

In some circumstances, a foster carer may choose to calculate profit using actual allowable expenses under the ordinary self-employed rules instead. This involves identifying eligible costs, keeping supporting records and applying the correct business and private-use apportionment. It is important to compare the available methods before choosing one, particularly if your fostering receipts or costs are unusual.

Examples of costs that may be relevant

Depending on the circumstances and the method used, costs connected directly with fostering may include:

• food and everyday items bought for a fostered child;
• clothing, equipment or personal items needed because of the placement;
• travel undertaken for fostering purposes, such as attending meetings or transporting the child;
• activities and outings arranged as part of caring for the child; and
• an appropriate business proportion of certain household or communication costs where there is a clear fostering use.

A cost is not automatically allowable simply because it occurs while you are fostering. Personal household spending, general improvements to your home and costs with no clear connection to the fostering activity may not qualify. Where something is used partly for private purposes, only the reasonable fostering-related proportion should be considered.

Keeping records

Keep records of fostering payments, placement dates, mileage, receipts and any other costs you may need to explain. Records should show what was purchased, why it was connected with fostering and whether it was used privately as well. Even when the qualifying care relief calculation means that no tax is due on your fostering income, retaining accurate records helps you complete Self Assessment and respond to questions from HMRC.

Foster carers are generally treated as self-employed for tax purposes. You may therefore need to register for Self Assessment and submit a tax return, depending on your circumstances and the amount of income involved. Fostering payments should be considered separately from other income, such as employment earnings, pensions or benefits, because those sources may be taxed under different rules.

What about larger purchases?

Large items such as furniture, vehicles or significant home alterations need particular care. They may be capital expenditure rather than ordinary day-to-day expenses, and special rules can apply. A purchase made partly to improve your family home is not necessarily a deductible fostering cost. Keep the invoice and consider obtaining tax advice before including it in a return.

Tax treatment can also depend on whether you foster alone or with another approved carer, how payments are received and whether you have other self-employed activities. HMRC rules and reporting requirements can change, so check the current guidance or speak to a qualified tax adviser if you are unsure which calculation method applies. Your fostering service can also help you understand how payments and records are normally provided, but it cannot replace personalised tax advice.