How are foster care expenses treated for tax?

For most foster carers, fostering-related expenses are not claimed individually in the same way as ordinary business expenses. Instead, qualifying care relief provides a tax calculation specifically designed to recognise the costs of looking after children in foster care. The relief is deducted from qualifying fostering receipts before any taxable profit is considered.

This means that costs such as food, heating, clothing, travel connected with fostering, activities and other household spending may be reflected through the relief rather than claimed separately. A carer should not normally deduct the same cost twice—once through qualifying care relief and again as an individual expense.

The calculation generally follows this order:

• Identify the fostering payments and other qualifying receipts received during the tax year.
• Work out the qualifying care relief available for the household and the children or young people cared for.
• Deduct the relief from the qualifying receipts.
• Consider whether any balance is taxable fostering income.

If the available relief covers the relevant fostering receipts, there may be no taxable profit from fostering. If receipts are higher than the relief, the excess may need to be included when working out taxable income and completing tax records.

Good records remain important even when individual expenses are not being claimed. Keep statements or payment summaries from the fostering service, placement dates, records of children cared for, and notes supporting the relief calculation. It is also sensible to retain receipts for significant fostering-related purchases and records of travel or other costs, particularly where the fostering service asks for evidence or where the expenses may have another tax or accounting relevance.

Payments described as allowances, fees, reimbursements or expenses should be recorded according to how they were actually paid and the terms of the fostering arrangement. A payment labelled an “expense allowance” is not automatically ignored for tax purposes. Its treatment depends on whether it forms part of the fostering receipts and how the qualifying care relief rules apply.

Personal spending must also be distinguished from costs connected with fostering. For example, a household bill may relate partly to fostering and partly to the family’s ordinary living costs. That does not necessarily mean the fostering element can be deducted separately, because the qualifying care relief system is intended to account for the cost of providing care without requiring every shared household expense to be apportioned.

Where a carer has income from another source, such as employment, self-employment or a pension, fostering expenses do not normally reduce that other income. The fostering calculation should be kept separate from unrelated income and expenses unless professional tax advice confirms that a particular cost has a different treatment.

Foster carers should take particular care with larger purchases, alterations to the home, vehicles and equipment. These costs may have personal as well as fostering purposes, and their treatment is not determined simply by the fact that a child in foster care uses them. Do not assume that the full cost is deductible from fostering income.

At the end of the tax year, compare the fostering receipts with the qualifying care relief available and check whether the result needs to be reported to HM Revenue and Customs. The correct position can depend on the type of fostering arrangement, the number and timing of placements, whether two people foster together and the carer’s wider tax circumstances. If the calculation is unclear, use HMRC’s current guidance or speak to a tax adviser familiar with foster carers’ tax rules.