Are foster carers taxed on their fostering payments?

The key calculation is whether your fostering receipts are covered by HMRC’s Qualifying Care Relief for the relevant tax year. This relief gives foster carers a special tax allowance made up of a household amount and an additional amount linked to the children placed in your care. The applicable rates and conditions can change, so you should check the current HMRC guidance for the tax year concerned.

Fostering payments are usually treated differently from ordinary employment wages. Foster carers are generally responsible for considering their own tax position rather than having income tax deducted automatically from each payment. The payment may include money intended for the child’s day-to-day care as well as a fee or professional allowance for the carer. You should keep a clear record of the full amount received and how it is described in your payment statements.

Qualifying Care Relief is normally calculated by comparing your total qualifying care receipts with the relief available for your household and placements. The relief may cover all of the fostering income. If the receipts are higher than the available relief, the amount left over may count as taxable profit and could be considered alongside your other income, such as employment earnings, pension income or income from self-employment.

Your tax position can therefore depend on more than the fostering payment itself. Relevant factors may include:

• the number of children placed with you during the tax year;
• the ages of the children in placement, where different relief amounts apply;
• how long each placement lasted;
• whether you foster alone or with another approved carer;
• income from employment, pensions or other sources; and
• whether you have other self-employed activities or taxable benefits.

Where two people foster together, the way the household relief and receipts are allocated can affect each person’s calculation. It is important that both carers keep consistent records and understand how the fostering arrangement is recorded for tax purposes. Do not assume that dividing payments equally is automatically the correct approach.

Foster carers should retain payment statements, placement dates, records of children in placement, annual summaries and relevant correspondence from their fostering service. These records help establish which receipts relate to each tax year and support the calculation if HMRC asks for further information. Keep records even where you expect the relief to cover all your fostering income.

You may need to tell HMRC about your circumstances or complete a Self Assessment tax return, particularly if the relief does not cover all your receipts or you already have a reporting obligation for another reason. The requirement is based on your overall tax position, not simply on whether tax was deducted from a fostering payment. HMRC can confirm whether you need to register, report the income or pay any tax or National Insurance due.

Qualifying Care Relief is a specific tax method and should not be confused with claiming every fostering expense separately. Using the relief can affect how the income is calculated, so avoid deducting costs twice. Keep details of expenses and payments, but obtain advice before choosing an alternative calculation or combining fostering income with another self-employed activity.

Tax treatment can also change if your circumstances change. For example, a move from fostering to another type of care arrangement, a change in the number of approved carers in the household, or additional self-employed work may require a different calculation. Payment statements from your fostering service should be checked regularly and any discrepancy queried promptly.

Become A Foster Family can explain how fostering payments are structured and what records are normally provided, but it cannot replace individual tax advice. For a decision about registration, Self Assessment, allowable calculations or the effect on your wider income, speak to HMRC or a suitably qualified tax adviser. This is particularly important before submitting a return or if you have income from several sources.