Do foster carers need to complete a Self Assessment tax return?

Not every foster carer has to complete a Self Assessment tax return. You may need to file one if HMRC asks you to, if your fostering receipts create taxable income after qualifying care relief, or if another source of income or tax-related circumstance means you must report your position. The fact that fostering payments are often covered by tax relief does not, by itself, decide whether a return is required.

When a return may be needed

• Your fostering receipts exceed the qualifying amount. Qualifying care relief provides a tax-free amount based on the care you provide and the children or young people placed with you. If your total receipts are higher than the available relief, the excess may need to be calculated and reported.
• HMRC sends you a notice to file. If HMRC issues a notice requiring a tax return, you must normally complete it even if you believe that no tax will ultimately be payable. You can contact HMRC if you think the notice has been issued in error, but you should not simply ignore it.
• You have other income or tax matters to declare. Employment income, property income, savings or investment income, pension income, overseas income, or certain gains can affect whether Self Assessment is necessary. The rules depend on the type and amount of income and your wider circumstances.
• You are claiming particular reliefs or deductions. Some claims can be made through Self Assessment rather than through PAYE. If you are unsure whether a claim requires a return, check the relevant HMRC guidance or obtain professional advice.

Qualifying care relief and the need to file are separate issues

Qualifying care relief is a method for working out whether foster care receipts create taxable profit. It is not a blanket exemption from HMRC reporting requirements. A carer may have no tax to pay on fostering income but still need to submit a return because of other income or an HMRC notice. Conversely, where the fostering receipts are covered by the available relief and there are no other reasons to file, a return may not be necessary.

The calculation normally starts with the total receipts connected with the qualifying care. This can include fostering payments and certain related amounts received for the placement. The receipts are then compared with the qualifying care relief available for the relevant tax year. Where the receipts exceed the relief, the taxable amount is considered alongside any other taxable income. Keep the calculation and supporting records even where it produces no tax to pay.

What if two people foster together?

Where two people in a household foster, the tax position should be considered for each person rather than treating the household as one taxpayer. The way payments are allocated, the arrangements with the fostering service, and each carer’s individual income can affect the reporting position. Each person should keep clear records of the amounts received and obtain advice if it is not clear who should report them.

What information is needed for a return?

If you do need to file, gather records before completing the return. Useful documents include:

• statements or payment schedules from the fostering service;
• details of any allowances, fees or other amounts received in connection with fostering;
• your qualifying care relief calculation;
• records of relevant fostering-related expenses, where these are needed to support an alternative calculation or another claim;
• details of employment, pension, property, savings, investment or other income; and
• records of tax already deducted at source and any payments made to HMRC.

Do not rely only on the amount paid into your bank account. Payment statements may show separate elements, and some amounts may relate to expenses or specific care arrangements. Keeping the underlying paperwork makes it easier to identify what should be included and to explain the figures if HMRC asks for clarification.

Registering and filing are different steps

If you have to report income through Self Assessment, you may first need to register with HMRC. Registration does not mean that tax will definitely be due; it enables HMRC to set up the appropriate reporting record. After registering, you receive instructions about how to submit the return and pay any amount due. Filing a return is the act of reporting the figures for the relevant tax year.

Do not assume that registering automatically ends the obligation for the future, or that submitting one return means you must submit one indefinitely. HMRC may continue to expect returns until you tell it that the reason for filing has ended and HMRC confirms that no further returns are required. If your circumstances change, review the position rather than copying the previous year’s approach.

Deadlines and corrections

Self Assessment has separate deadlines for registering, sending a paper return, submitting an online return and paying tax. These deadlines depend on the tax year and the method used, so check the dates shown by HMRC for your particular return. Missing a deadline can lead to penalties or interest, even where the eventual tax bill is small or nil.

If you discover an error after filing, do not submit a second return without checking the correction process. HMRC provides a way to amend a return within the permitted period. Keep a note of what was changed and why.

Practical steps for foster carers

• Keep a separate record of all fostering receipts and the dates to which they relate.
• Work out the qualifying care relief available for the tax year.
• Consider whether the receipts are fully covered by that relief.
• Review all other income and circumstances that could create a Self Assessment obligation.
• Check whether HMRC has issued a notice to file or requested registration.
• Register and submit the return by the relevant HMRC deadlines if required.
• Retain calculations, statements and receipts in case HMRC asks you to support the figures.

Tax rules can depend on the exact fostering arrangement and on income outside fostering. If you are uncertain whether you need to register, whether a payment is a fostering receipt, or how to divide income between joint carers, use HMRC guidance or speak to a suitably qualified tax adviser. The fostering team can also help you understand the records and payment information provided as part of your fostering arrangements, although it cannot replace personalised tax advice.