Are respite foster care payments taxable?

Respite foster care payments are normally treated as income from fostering, rather than as a tax-free reimbursement. However, an approved foster carer may qualify for Foster Care Relief, also known as qualifying care relief. This relief is designed to recognise the costs of looking after children in foster care and can reduce the taxable amount of fostering income substantially, potentially to nil.

For tax purposes, respite fostering is generally considered in the same way as other foster care. The fact that a child stays for a shorter period does not, by itself, make the payment exempt. Payments may include the fostering allowance and other amounts connected with the placement, depending on the agreement with the fostering service. You should keep a record of what each payment is for, rather than assuming that every amount has the same treatment.

How Foster Care Relief works

Foster Care Relief is calculated using an annual household amount and an amount relating to the children cared for during the tax year. The calculation takes account of factors such as the number of children and the length of time they are placed. Respite arrangements therefore need to be recorded accurately, including the dates each placement began and ended.

If your qualifying care receipts are within the available relief, there may be no taxable fostering profit to report. If your receipts are higher than the relief available, the excess may be taxable. This is not the same as saying that the fostering service has deducted tax from your payments: fostering payments are not usually handled like ordinary wages through PAYE.

What can affect the calculation?

• Whether you are an approved foster carer providing qualifying care.
• The total amount received for respite and any other fostering placements during the tax year.
• The number of children cared for and the duration of each placement.
• Whether you foster alone or as part of a household with another approved carer.
• Other income and your wider personal tax circumstances.
• Whether payments include amounts for expenses, equipment, travel or other purposes that need to be identified separately.

Foster Care Relief applies to qualifying fostering activity, not automatically to every payment received by someone who fosters. For example, income from a separate job, letting property or another self-employed activity is considered under its own tax rules. Similarly, benefits and other household income are not made tax-free simply because you provide respite foster care.

Records to keep

Keep payment statements, placement dates, agreements, receipts and relevant expense records. It is also useful to note whether a payment relates to the child’s allowance, an additional fee, mileage or another cost. These records help establish the total received in the tax year and support the relief calculation if HMRC asks for evidence.

Do not rely only on bank statements, as they may show the amount received without explaining what it covered. Keep records for each placement and retain them for the period required under HMRC rules. Your fostering service may provide payment summaries, but you remain responsible for checking that they are complete and accurate.

When tax returns may be needed

If Foster Care Relief covers your qualifying fostering income, you may not have tax to pay on those receipts. You may still need to consider whether a Self Assessment tax return is required because of other income or because HMRC has asked you to file one. Where receipts exceed the available relief, the taxable balance must be considered alongside your other income and allowances.

Tax treatment can also differ where two adults foster together, particularly if payments are made to one person or the household has other sources of income. Before submitting a return, check the current HMRC guidance or speak to an accountant or tax adviser familiar with foster carers. They can confirm whether the receipts qualify for the relief, how they should be allocated and whether any separate reporting obligation applies.

Tax rules and HMRC guidance can change, so use the rules applying to the relevant tax year rather than relying on an old payment statement or advice given for a previous placement.