Are foster carer payments taxable?

For HMRC purposes, fostering income is normally assessed through the qualifying care relief rules. These rules apply a set tax allowance to income received for providing foster care, so the amount shown as taxable profit is calculated after the relevant relief has been taken into account.

What counts as fostering income?

Payments connected with a fostering placement can include maintenance allowances, fees and other amounts paid by a fostering service. The tax treatment is based on the nature of the payment and the care arrangement, rather than on what the payment is called. Keep details of every amount received, including payments for different types of placement or care arrangement, so the correct position can be established.

How qualifying care relief works

Qualifying care relief is made up of:

• a fixed annual amount for the foster household; and
• a weekly amount linked to the number of children cared for and the length of their placements, with the applicable rules depending on the circumstances.

The total relief is set against qualifying fostering income. If your receipts are within the available relief, they may not create a taxable fostering profit. If your receipts exceed the relief, the surplus is generally the amount that needs to be considered for Income Tax, subject to your wider tax position.

The calculation can become more complicated where two people foster together, where children move in or out during the tax year, or where placements overlap. The relief may need to be allocated between foster carers according to HMRC rules. Do not assume that the full household allowance can automatically be used separately by each carer.

Are fostering expenses deducted as well?

Qualifying care relief is designed to take account of the costs of looking after children in placement. You should not automatically deduct the same costs again when working out your taxable profit. Other costs may have different treatment, particularly if they relate partly to fostering and partly to your private household. Keep receipts and a clear explanation for any expense you intend to claim.

Do foster carers need to complete a tax return?

Foster carers are generally treated as self-employed for tax purposes. You may need to register for Self Assessment and complete a tax return if your circumstances require it, even where qualifying care relief means that little or no tax is ultimately payable. Whether a return is needed can depend on your total income, your taxable profit and other sources of income.

A tax return should include the information HMRC needs to understand your fostering activity. This may include:

• payments received from a local authority or fostering agency;
• the dates and duration of placements;
• the number of children cared for during the tax year;
• your qualifying care relief calculation; and
• other income or tax reliefs that affect your overall position.

What records should you keep?

Maintain a separate record of fostering payments, placement dates, respite or emergency arrangements, and relevant expenses. Bank statements, payment summaries, placement records and receipts can help support the figures in your tax calculation. Keep records for the period required by HMRC, as you may need them if your return is queried.

If you foster with a partner, agree how records will be maintained and how income and relief will be treated before completing a return. The arrangement between the carers, the payment records and HMRC’s rules can all affect the calculation.

What about other benefits and National Insurance?

Income Tax is only one part of the financial position. Fostering payments may be treated differently when assessing benefits, and National Insurance has separate rules from Income Tax. If you receive Universal Credit or another benefit, report fostering income in the way the relevant authority requires rather than relying on the tax calculation alone.

Tax rules and qualifying care relief amounts can change. Before submitting a return, check the current HMRC guidance or speak to a qualified tax adviser who understands foster carer taxation. Your fostering service can also explain how payments are recorded, but it cannot replace individual tax advice.