Income from fostering: Taxable or not?
Updated: Dec 8, 2020
HMRC treats all foster carers as self-employed for tax purposes. Foster careers might have to pay tax on the money they receive, after deducting expenses and any available personal allowance. The tax scheme for foster carers is known as Qualifying Care Relief (QCR). Carers can claim a tax deduction against income instead of the expenses they incur allowing it to be easy to calculate taxable amounts.
Who is eligible?
You can use qualifying care relief if you have children or adults placed with you by:
· a local authority
· health and social care trusts in Northern Ireland
· a fostering service provider
· a shared lives service provider
The qualifying amount is made up of 2 parts:
- The fixed amount: £10,000 for each household for a full year
The weekly amount for each child or adult cared for
· £200 for children under 11
· £250 for children aged 11 or over
· £250 for adult
If there is more than one carer in the same household, then you will share the fixed amount.
If you are a carer for less than a year, then you can only use a portion of the fixed amount: To work this out:
Count the number of days you have been an approved carer
Multiply the number of days by £10,000
Divide the total by 365 – unless it's a leap year then it is 366
If you care for a child or adult for less than a year, you need to work out the total number of the weekly payments you received.
When you are counting the number of weeks, each week starts on a Monday and ends on a Sunday. A part-week is counted in full.
For example: If a child is placed with you from Thursday to the next Wednesday, it will count as 2 weeks.
What happens if your total payments are less than the qualifying amount?
If the total payments are less than the qualifying amount HMRC will treat you as not making a profit or loss for the year, so you do not pay tax or Class 4 NI. Additionally, you cannot claim expenses or capital allowance if you use QCR.
What happens if you exceed the qualifying amount?
If your total payments are more than your qualifying amount you are given 2 options to work out your tax:
Simplified method – you pay tax on the difference between your qualifying care receipts and qualifying amount
Profit method – you pay tax on your total care receipts less any expenses and capital allowances.
Qualifying care relief applies on a tax year basis – 6th April to 5th April the next.
If your annual accounting date is not 5th April, HMRC will treat your total receipts from qualifying care and the qualifying amount as though they are for the tax year in which your accounting year ends.
For more information about QCR and foster cares:
· HMRC's help-sheet 236: A helpsheet explaining qualifying care relief, the tax scheme for foster carers. You can also go to www.gov.uk and type HS236 in the search box.
· HMRC webinar for self-employed people: Usually, every month HMRC holds a 'webinar' (a 'live' presentation you can watch and participate through your computer). More information on how to register can be found here
· Information on Tax and National Insurance relating to QCR