Tax FAQs

This will depend on a number of factors, including the total amount of fostering payments you receive and if you have taxable income from another source such as work or a pension. However, most foster carers do not pay tax on their fostering payments.

Foster carers can use a tax scheme called Qualifying Care Relief (QCR)  to work out if they need to pay tax on their fostering income. This scheme provides a tax-free amount that is deducted from your total fostering payments to work out whether you need to pay tax on your fostering income. If you do, it may be possible to offset this amount against your personal tax allowance (£12,570 for 2023/24). 

If you have used up your personal tax allowance from employment income or a pension, then you will need to pay tax on the amount of fostering income that has gone over the calculated tax threshold.

Yes. All foster carers are classed as self-employed by HM Revenue and Customs (HMRC). This means all foster carers need to register with HMRC as self-employed, regardless of the type of fostering you do and the amount of income you receive from fostering. This includes family and friends foster carers and those that provide respite care. You can register as self-employed online or ask an accountant to help you with this process. 

Yes. For every year that you are an approved foster carer you will need to complete a self-assessment tax return - even if you don’t pay tax on your fostering income. In April, HM Revenue and Customs (HMRC) will remind you that you must complete this tax return.

You will have until 31 December (for a paper form) or 31 January (for an online form) to do this. You can complete the form yourself or ask an accountant to do this on your behalf.

You can calculate the amount of tax you owe by using the Qualifying Care Relief. This scheme provides a tax-free amount that is deducted from your total fostering payments to work out whether you need to pay tax on your fostering income. If any tax has been deducted at source, this will be taken off this figure to work out your tax due. 

If you do need to pay tax, you may be able to offset this amount against your personal tax allowance (£12,570 for 2023/24). If you have used up your personal allowance, this amount will be taxed at 20 per cent for all basic rate taxpayers.  

As a foster carer, you can complete your tax return using  Qualifying Care Relief. 

which means you don’t need to keep receipts, unless a child in your care has specific needs or requirements which mean you incur additional expenses (see below). You will need to keep remittance slips from your fostering service and your annual summary if they provide you with one.

You will also need information about the fostering you have done, including the dates that children were in your care (including respite care, even if they were only with you for one night) and the ages of each child who was living with you. 

Yes. You must declare all your taxable income for the year on your self-assessment tax return, even if some income sources have been taxed already. You will not be taxed twice on the same income.

There are two types of National Insurance for people who are self-employed, including foster carers: Class 2 and Class 4.  

Class 2 National Insurance contributions are paid at a flat rate per week (£3.45 per week for 2023/24). If your taxable income is below the ‘small profits threshold’ (£6,725 for 2023/24), there is no requirement to pay these contributions. However, it may be helpful for you to choose to pay them if you can (for example, to access benefits such as the state pension).    

It is also possible for foster carers with a taxable income below the small profits threshold to claim National Insurance credits, which will credit your National Insurance record for the year. The best course of action will depend on your individual circumstances. 

Class 4 National Insurance contributions are paid at a rate of 9% on profits between the ‘lower profits limit’ (£12,570 in 2023/24) and the ‘upper profits limit’ (£50,270 in 2023/4) and 2% on profits over the ‘upper profits limit’. Therefore, if your taxable profits from fostering are above the ‘lower profits limit’, you will need to pay Class 2 and Class 4 National Insurance. 

If you have decided to stop fostering, you should contact HM Revenue and Customs (HMRC) to let them know. You will still need to complete a self-assessment tax return for any part of the tax year that you are an approved foster carer. (If you continue to be self-employed through another business, you will also still need to complete a self-assessment tax return.)

Making Tax Digital is a UK Government plan to change the way that tax works in the UK from 2024. Under the original proposal, foster carers would have had to send in quarterly tax returns (a return every three months) and use 'compatible software' to do all tax administration online. Our members shared serious concerns about the extra time and financial burdens this would place on foster carers and services, so we lobbied HMRC to argue that foster carers should not be included in this change. We are delighted that, following that campaign, foster carers will now be exempt from Making Tax Digital. 

If you run your own business, or work for yourself rather than an employer, you are self-employed. For tax purposes, HM Revenue and Customs (HMRC) class foster carers as self-employed.

Income tax is a tax you pay on most types of income (for example, the money you earn from employment) and is collected by HM Revenue and Customs (HMRC). It is used to fund public services such as the NHS, education and the welfare system.

Qualifying Care Relief is a tax scheme that allows foster carers to receive certain payments (qualifying amounts) tax free. This means that a foster carer’s tax bill is calculated based on their total fostering payments minus the tax-free income they receive from the Qualifying Care Relief scheme. You can read more about Qualifying Care Relief on the gov.uk website.

Your personal allowance is the amount of money you can earn each tax year before you start paying income tax.

You pay National Insurance contributions to qualify for certain benefits and the state pension. There are four types (‘classes’) of national insurance:

This is a form that allows you to report your income and pay tax to HM Revenue and Customs (HMRC). It is a form that must be completed every year by anyone who doesn't have their tax deducted from their wages and pensions by an employer (for example, self-employed people).

Your total income from fostering is the total amount of money you receive from your fostering service. This includes the fostering allowance for each child, any fee, reward or skill payments, holiday or birthday allowance, respite and reimbursed expenses.

Some local authorities or independent fostering agencies issue weekly/fortnightly/monthly remittance slips detailing your payments and the number of children you had in your care.

Some fostering services issue annual summaries or statements which detail all the income received and children you looked after during the tax year.

Foster carers can claim exceptional expenses for additional costs they incur that are directly related to the specialist requirements of a child they are caring for. This may include the purchase of medical equipment, sensory equipment, mileage to hospital and therapies. It’s important for foster carers to keep receipts of the purchases they wish to claim as exceptional expenses.