Do foster carers need to register as self-employed?

Whether you need to register with HM Revenue and Customs (HMRC) depends on the amount of taxable profit left after the tax reliefs available to foster carers, not simply on the fact that you receive fostering payments. Many foster carers have no tax to pay on their fostering income because of qualifying care relief, so they may not need to register for Self Assessment solely because they foster.

Being treated as self-employed

For tax purposes, fostering is generally treated as a self-employed activity. This does not usually mean forming a limited company, registering a business with Companies House or charging VAT. It means that you are responsible for reporting relevant income and claiming the reliefs that apply to your fostering work.

Fostering income can include payments received from a local authority, fostering agency or other approved fostering service. You should keep a clear record of all payments, placement dates and related information, even where you expect your qualifying care relief to cover the income. Good records help you establish whether a tax return is required and support the figures included in it.

How qualifying care relief affects registration

Qualifying care relief is a special tax allowance for approved foster carers and certain other shared-lives carers. It is designed to cover the costs associated with caring for children and young people in your home. The relief is calculated using rules based on your household and the number and ages of the children placed with you.

If your fostering receipts are covered by qualifying care relief, your taxable fostering profit may be nil. In that situation, you would not normally have to register for Self Assessment just because you foster. If your receipts exceed the available relief, the amount left may be taxable and HMRC may require you to register.

There are alternative ways of calculating your taxable profit, including using qualifying care relief or claiming allowable actual expenses. The rules can be technical, and the most suitable approach depends on your circumstances. You should not claim the same cost twice or assume that every household expense is allowable.

When you may need to register

• Your taxable fostering profit is above the relevant tax-free threshold after applying the reliefs available to you.
• You have other self-employed income, such as income from a separate business, that creates a Self Assessment obligation.
• HMRC asks you to complete a tax return for another reason.
• You need to report other taxable income or gains that cannot be dealt with entirely through PAYE.

Having a job where tax is deducted through PAYE does not automatically remove the need to register. Your employment income and fostering activity are considered separately when deciding whether a tax return is required.

How to register with HMRC

If registration is required, you normally register for Self Assessment as a sole trader. You provide HMRC with your personal details and information about the self-employed activity. HMRC then issues a Unique Taxpayer Reference, which you use when completing your tax return.

The usual deadline for notifying HMRC that you need to file a Self Assessment return is 5 October following the end of the tax year in which the requirement first arose. The UK tax year runs from 6 April to 5 April. The return and any tax due must then be dealt with by the applicable filing and payment deadlines. Registering late or paying late can result in penalties and interest, so check the current dates with HMRC.

Once registered, you normally submit a return each year until HMRC confirms that you no longer need to do so. If you stop fostering, or your circumstances change so that a return is no longer required, tell HMRC rather than simply ignoring future notices.

National Insurance and record keeping

Self-employed tax status and National Insurance are related but separate issues. Whether you owe self-employed National Insurance depends on your profits and the rules for the relevant tax year. A low or nil taxable profit may mean there is no compulsory contribution, although voluntary contributions may be relevant to some people’s entitlement to state benefits.

Keep records of fostering payments, qualifying care relief calculations, expenses, mileage and any other income relevant to the return. Retain supporting documents for the period required by HMRC, even if your final tax bill is nil. Records are particularly important where placements begin or end part-way through a tax year, or where more than one type of income is involved.

If you are unsure whether your fostering receipts are fully covered by qualifying care relief, contact HMRC or obtain advice from a tax adviser who understands foster care taxation. Your fostering service can also explain the payments and statements it provides, but it cannot replace personalised tax advice. Do not register simply because someone has described foster carers as self-employed; first establish whether you have a reportable taxable profit or another reason to complete Self Assessment.