Do foster carers pay tax?
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.
If you receive a high enough income from fostering where you do need to pay income tax – for example, you’re caring for siblings - the amount of income you have to pay tax on is much lower compared to other types of employment.
These specialist tax rules, known as Qualifying Care Relief, are available for all types of foster care placements, including respite, staying put and parent and child.
How do I work out my fostering tax allowance?
Working out your taxable income from fostering is simple and can be completed by following these steps...
Step 1 - Work out your total annual income from fostering
First, work out the total amount of annual income received from your fostering agency or local authority. This should include:
- Weekly fostering allowance
- Holiday payments
- Clothing allowances
- Mileage claims
- Respite payments
- All other reimbursed expenses
This is your ‘total income’.
Step 2 - Work out your fostering tax relief
Every fostering household receives £10,000 of qualifying care relief for a full year. In addition, you’ll also receive a weekly tax relief allowance for each child in your care. The amount of relief you receive varies depending on the age of the child:
- £200 per week for children under 11
- £250 per week for children aged 11 and over
To work out your total qualifying care relief, multiple the number of weeks that a child has stayed with you by the relevant amount (as above), then add £10,000.
Susie has been caring for Ben (aged 7) for the full tax year. Susie will receive £20,400 in tax relief. £10,000 + (£200 x 52)
John has been caring for Lily (aged 14) and Dylan (aged 6) for a full tax year. John will receive £36,000 in tax relief. £10,000 + ((£200 x 52) + (£250 x 52))
Extra tip – Keep a record of the days that a child arrives and leaves your care
The weekly tax relief allowance runs from Monday to Sunday. So, if a child stays with you for 1 night, you’ll be entitled to 1 week of tax relief. If the child comes to you on a Saturday and leaves on a Tuesday, while it’s only 3 nights, you’re entitled to 2 weeks of tax relief. Make sure you keep a record of the days in which children arrive and leave from your care and submit correctly on your tax return - or provide the information to your accountant.
Step 3 - Work out your taxable income
The final step is to work out how much of your fostering income you’ll need to pay tax on. To achieve this, simply subtract your fostering tax relief (step 2) from your total income from fostering (step 1).
Susie receives £19,172 from fostering Ben (aged 7) and is eligible for £20,400 in foster parent tax relief. She will not pay tax on her income from fostering.
John receives £39,974 from fostering Lily (aged 14) and Dylan (aged 6) and is eligible for £36,000 in foster parent tax relief. He will pay tax on £3,974 of his income from fostering.
Things that may affect how much tax you’ll pay
Generally, income from fostering is tax-free. However, there are a number of factors that will determine how much tax you’ll pay, including:
- The number of children you have in placement
- Whether you’re paid an enhanced fee for a child in your care
- Whether you operate as a partnership for tax purposes
- Whether you receive any other income – e.g. a part-time job
Frequently asked questions
Are foster parents self-employed?
Yes, foster parents are classed as self-employed, so make sure you register yourself as self-employed as soon as you start caring for your first foster child. Once registered, you’ll then be required to complete a tax return every year.
You can register yourself as self-employed in three relatively straightforward ways:
1. Register online here
2. Complete a CWF1 form available online
3. Call the newly self-employed helpline on 0300 200 3504
Do foster parents need to complete a tax return?
Yes, as foster parents are classed as self-employed, you’ll need to complete a tax return every year while fostering. The end of the tax year is the 5th April and you have until 31st January to get your tax return submitted. If you miss the deadline, you’ll receive a £100 penalty from HMRC, so make sure you get in early.
You can only submit one self-assessment, so make sure any other sources of income are included within the same tax return. Within your self-assessment, make sure you tick the box for ‘If you are a foster carer or shared lives carer, put ‘X’ in the box’.
Do foster parents need to keep receipts for all expenses?
No, there’s no need to keep a record of your day-to-day expenses, as the Qualifying Care Relief represents the standard costs associated with fostering – for example, mortgage or rental payments, heating, electric, food, clothing, etc.
However, depending on the young person in your care and their needs, you may find yourself with additional, tax-deductible costs that are associated with their care; however, evidence of costs is required, so make sure you keep your receipts for these additional costs.
There’s no set list of things that can be deducted on your tax return, each case is handled individually. So, make sure you keep a tab of any additional costs you may be enduring. For example, you may have a child who frequently wets the bed, therefore receipts from the additional washing powder should be stored.
Got some more questions? Find out the answers here.
Generous fostering allowances
You’ll receive a generous fostering allowance while a child's 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.
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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