Are council fostering allowance rates taxable?

Whether a council fostering payment creates a tax bill is determined through HMRC’s qualifying care relief rules. These rules apply to approved foster carers who receive fostering-related payments, and they calculate how much of the household’s fostering income is excluded before any taxable profit is considered.

Qualifying care relief is made up of two parts:

• a fixed household amount for the tax year; and
• an additional weekly amount for each child placed, with the applicable amount depending on factors such as the child’s age.

The permitted amounts and conditions can change, so current HMRC guidance should be used when completing a tax return. The relief is linked to qualifying care income and is not a general exemption covering every payment a foster carer may receive.

If the total fostering receipts are within the available qualifying care relief limit, there may be no taxable fostering profit. Where receipts exceed that limit, the amount above the relief may need to be reported as taxable income. This does not necessarily mean that the whole fostering allowance is taxed.

Foster carers are generally treated as self-employed for tax purposes. This means you may need to:

• tell HMRC that you have started fostering, where required;
• keep records of fostering payments, placement dates and relevant household details;
• complete a Self Assessment tax return if HMRC requires one or if your circumstances make it necessary; and
• check whether National Insurance obligations apply to your position.

The type of payment can matter. Maintenance allowances, professional fees, holiday or respite payments, and other amounts connected with caring for a child may need to be considered as fostering receipts. A payment described as an allowance is not automatically outside the tax rules, so keep the statements or payment information supplied by the council or fostering service.

Where two or more foster carers are in the same household, the qualifying care relief may need to be allocated between them rather than claimed twice for the same placement. The correct treatment can depend on how the fostering arrangements are organised and who receives the payments.

Tax treatment is separate from the fostering approval process. Having a tax liability does not usually determine whether someone can apply to foster, and paying tax does not mean that a fostering allowance has been assessed incorrectly. The allowance is intended to contribute towards the costs of caring for a child, while tax rules determine how the income must be reported.

Before submitting figures, check the latest HMRC guidance or speak to an independent tax adviser who understands qualifying care relief. Keep the advice and records with your fostering paperwork, particularly if you care for children of different ages, receive several types of payment, foster through more than one arrangement, or have other self-employed income.