You’ve made the decision to become a foster carer, but what how much income could you receive, and how much tax do you pay?
If you’re still thinking about becoming a foster carer, and you’re in North Wales or the North West of England, we recommend that you talk to 1st Affinity Fostering Service, who will support you and guide you in the right direction.
How much income can you receive?
You will receive a set allowance per child that you look after, based on their age, how long you’re looking after them for, where you live, and how many children you look after all together.
These allowances are updated every April by HM Revenue and Customs (HMRC).
You could also get more allowances if:
- the child you’re looking after has special needs
- you have certain skills
- you make a particulary significant commitment to fostering
Do you have to pay tax on your foster care allowances?
The easy answer is that you shouldn’t have to pay tax, but everyone’s situation is different. So let’s look at the rules.
First of all you get a tax exemption of £10,000 per year (which means the first £10,000 of your foster care allowances are tax free).
If you’ve only been a carer for part of a year, you only get a part of the £10,000. For example, if you’ve only been a carer for 200 days in the tax year, you would divide the £10,000 by 365 days, then multiply by 200 days.
- £10,000 / 365 days = £27.40
- £27.40 x 200 days = £5,479.00
So you’d get a £5,479 tax exemption if you had only been a foster carer for 200 days in the tax year, meaning that you wouldn’t pay tax on your first £5,479 of foster care allowances.
You also get tax relief for each child, and each week that they’re in your care. This is on top of the tax exemption of £10,000 above. The tax relief also depends on how old the child is.
Foster care tax relief per week, based on age of child:
- Age under 11 = £200 per child per week
- Age over 11 = £250 per child per week
So if you are looking after an 8 year old for the whole year, you would not have to pay tax on the first £20,400 of foster care allowances.
- Tax exemption = £10,000
- Tax relief = £200 x 52 weeks = £10,400
- Tax free foster care income = £20,400
Can you still claim benefits?
Yes, your foster allowances shouldn’t affect your benefits as long as they’re from either:
- a local council
- a voluntary organisation
- another organisation on behalf of the local council
Do you have to tell the tax office you’re a foster carer?
Yes you do. For tax purposes you’re treated as self-employed if you’re a foster carer. Firstly you will need to register as self-employed with HMRC, which you can do online here.
Before you start the online registration you will need details such as:
- Your address
- Your date of birth
- Your national insurance number (NINO)
- The date you started your foster caring (this will be the start date for your self-employment)
Do you have to tell the tax office what you’ve earned?
Yes, each year you will need to complete a tax return. This is always for the year to 5 April, and has to be submitted online to HMRC by 31 January after. Do get it done as soon as you can after 5 April though, as it’s one less thing to worry about, and also do ask for help from an accountant who understands foster care allowances.
What you have to put on the tax return
You have to put any foster care allowances above the tax exemption and tax reliefs mentioned above.
You would also have to enter any other income you receive, such as employment income, other self-employment, or any pensions you receive.
Make sure you also record any tax you’ve already had deducted from any other income.
You can see the income and tax deducted on any employments or pensions on your P60 which your employer or pension provider has to give you after the end of each tax year.
Other useful resources
I hope you’ve found this useful. There are many other online resources, and I’ve listed some below:
- HMRC: Foster carer guidance
- HMRC Fact Sheet: Qualifying care relief
- The Fostering Network: Guidance on tax and national insurance
Do also get in touch with 1st Affinity Fostering Service, as they are immensely supportive.
Thank you for reading!
Kinder Pocock are an approachable cloud-savvy firm of accountants based in Herefordshire but supporting businesses on the move.
We specialise in Security/Technology, Design and Indie Hospitality businesses.
Contact Us to see how we can help