Are foster care payments taxable income?

For tax purposes, HMRC assesses fostering receipts under the Qualifying Care Relief rules. This relief gives foster carers a tax-free amount based on their household’s qualifying care activities. Only any surplus after the relevant relief has been deducted is normally treated as taxable fostering profit.

What counts as fostering income? Taxable receipts can include payments received from a local authority or fostering agency for caring for a child. Depending on the arrangement, this may include maintenance allowances, fees and other payments connected with the placement. You should keep a record of every fostering payment and check how each part is described in your payment statements.

Qualifying Care Relief is calculated for the tax year and is made up of an annual household amount together with an additional amount linked to the number of children cared for and the weeks they are placed. Different rules can apply in some circumstances, so the calculation should reflect your actual fostering arrangements and the relevant tax year.

How the calculation works

• Add together the fostering payments received during the tax year.
• Deduct the Qualifying Care Relief available for your household and qualifying placements.
• If the result is zero or below, there is usually no taxable fostering profit.
• If the result is above zero, the surplus is generally taxable and must be considered alongside your other taxable income.

This is different from simply treating the whole amount paid to you as salary. Fostering payments are intended to cover the costs and responsibilities of caring for a child, and the relief recognises this when calculating the amount potentially subject to tax.

What if you have other income? Any taxable fostering profit is considered with your other income, such as employment income, a pension or income from self-employment. The amount of tax due can therefore depend on your overall circumstances, including your available allowances and the tax band into which your total income falls. Qualifying Care Relief does not automatically make other sources of income tax-free.

Do you need to report it to HMRC? You may need to register for Self Assessment and report your fostering figures if the calculation produces taxable profit or HMRC requires you to submit a return. Even where Qualifying Care Relief reduces the fostering profit to nil, keeping accurate records is important because you may need to demonstrate how you reached that result.

Records should include payment statements, placement dates, the children cared for, expenses or other relevant costs, and the relief calculation for each tax year. Keep copies of any Self Assessment returns and correspondence with HMRC. Your records should be clear enough to separate fostering receipts from personal or unrelated income.

Tax treatment can change if a placement ends part-way through a tax year, more than one carer is involved, you foster through an agency, or you receive income from another business. The relief thresholds and HMRC guidance can also change between tax years. Check the current rules when completing your return and seek advice from HMRC or a qualified tax adviser if your circumstances are complex.