Do foster parents need to pay National Insurance?
Whether you have to pay National Insurance will depend completely on your personal situation. If you’re not required to pay tax on your fostering allowance because your ‘profit’ from fostering is less than your qualifying care relief, then you also won’t need to pay National Insurance.
You may still decide to pay Class 2 National Insurance voluntarily to secure your entitlement to state benefits in case you need to claim them in future, including state retirement pension, employment and support allowance, and maternity allowance.
However, if you are below state pension age and your profits from fostering are over £8,424 for 2018/19, you will also need to pay Class 4 National Insurance, which is 9% of your total profit over this threshold. This doesn’t count towards your contributory state benefits.
Frequently asked questions
What is Class 2 National Insurance?
Class 2 National Insurance provides foster parents with access to a range of state benefits, including;
- Basic State Pension – so you can claim your basic state pension once you reach retirement age.
- Bereavement Benefits – if you take a break from fostering after your husband, wife or civil partner has died.
- Maternity Allowance – if you decide to take some time out of fostering while you expand your own family.
- Contributory Employment Support Allowance (ESA) – if you are sick and not able to foster as a result.
However, your benefits may be affected if there are gaps in your National Insurance record, which is why you may want to decide to make voluntary contributions to your Class 2 National Insurance. This works out at around £2.95 per week and buys you into a full year of state pension and benefits.
If you decided to pay voluntary contributions, you will pay once a year with your tax bill. If you haven’t paid it but would like to, you’ll need to get in touch with HMRC directly, as they will not chase you for this.
Do you need to register for Class 2 National Insurance?
No, you’ll automatically be registered for Class 2 National Insurance contributions once you’re registered as self-employed.
What if I decide not to pay Class 2 National Insurance voluntarily?
Foster carers who decide not to pay Class 2 National Insurance voluntarily may have the option to claim for National Insurance Credits for carers. However, to opt-in for these credits, your profitable income will need to be below the earnings threshold.
You can apply for National Insurance credits for parents and carers online or by post. You will simply need to fill in a form and submit a letter from your fostering agency on headed paper confirming that you are a foster carer. This adds one year to your National Insurance contributions record. You will need to re-apply every year for your National Insurance credit to be applied to your record.
However, you wouldn’t want more than half of your total National Insurance record to be made up from credits, as this could affect your benefit entitlements. Don’t forget, you may have used credits to cover the gaps in your contributions record, if you had time off work to look after your own children. We’d advise you seek advice from an accountancy firm like Williams Giles to work out what’s best for you.
How many years do I have to pay National Insurance?
You’ll need 35 qualifying years to get the full new State Pension.
What if I haven’t been paying National Insurance?
You can make back payments of Class 2 National Insurance for up to six years previously, however, we’d recommend speaking to an advisor before making a decision, as you may reach the qualifying number of years before retirement to be entitled to a full state pension.
Generous fostering allowances
You’ll receive a generous fostering allowance while a child is in your care, designed to recognise your professionalism and commitment. We also offer other benefits, such as allowances for birthdays and religious festivals, as well as two weeks paid respite.
Plus you'll have access to our rewards platform where you can find hundreds of discounts to some of your favourite shops, restaurants and family experiences.
While income from fostering is taxable, HMRC has specialist tax rules for foster parents that mean that if you’re caring for 1 child, the income you receive from fostering will generally be completely tax-free.
Fostering shouldn’t impact the means-tested benefits you receive, such as income support, child benefit and housing benefit, as the fostering allowance isn’t classed as income when calculating eligibility.
Ready to start your fostering journey?
One of our team is available to talk to you over the phone to answer any of your fostering queries.
You can get in touch by filling out our online enquiry form with any queries that you may have.
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