Tax webinar questions

We had an amazing response to our recent webinar on tax and National Insurance run with our partners Williams Giles Chartered Accountants. 

We have answered general questions below. If you have a very specific query about your circumstances, please contact our helpline in your area. 

Fostering in a couple

If you foster as part of a couple there are a few options available when deciding how to register your self-employment and it’s all about what makes best financial sense depending on your circumstances (and making use of any unused personal tax allowance you might have).  Options available are: 

• One partner registers as self-employed and accounts for all the fostering payments.  This is commonly used where one partner is the ‘main’ foster carer and the other partner has other employment.  This allows the partner to use any of their unused personal allowance (should they enter into a profit) because the other partner’s personal tax allowance is usually swallowed up in their other employment. 

• Both partners register as self-employed as sole traders and they would split the qualifying care relief tax threshold and any profit 50/50.  This is commonly used where both partners are fostering full-time, they have a profit from their fostering and they both have available their personal tax allowance (in addition to the qualifying care relief tax allowance). 

• Both partners enter into a ‘partnership’ where each tax year they have the flexibility to split any taxable profit however they like e.g. 60/40, 70/30, 20/80.  This can be helpful where a partner might have some other employment and their earnings might change from year to year.  Being able to split the profit flexibly allows maximum use of each partner’s personal tax allowances each tax year. There are pros and cons with this arrangement.  The pro is the profit can be split flexibly between the two partners and you can change this each year.  The cons are you need to buy and use a piece of software or an accountant to complete a partnership tax return form (it’s not available to submit during the government gateway service like a normal tax return), there are more forms to complete (an overarching partnership form and then a form for each foster carer) and you would incur double penalties if you missed any HMRC deadlines. 

HMRC will accept any of the above arrangements.

 

Should married tax allowance be used as my husband is working full time? If you are not using your full personal allowance then you can elect to transfer a proportion of your unused personal allowance under the marriage allowance scheme. Find out more: https://www.gov.uk/marriage-allowance 

 

General tax questions

Do I need to keep receipts? No, if you are using Qualifying Care Relief, you do not need to keep receipts. 

Under Tax Free Threshold is there an upper age limit? No, there is no upper age limit. 
 

I didn’t know I needed to do a tax return. Will I be in trouble? 
First of all - don't panic.  There are many foster carers who do not realise they have to register as self employed, so you are not the only one.  
HMRC might issue a fine.  If this were to happen you can always appeal the fine and provide evidence to demonstrate you genuinely did not 
realise you had to register.  Before contacting HMRC to register, read and understand Qualifying Care Relief - the tax scheme for foster carers 
- to see whether you have any tax liability or not from your fostering.  You can then let HMRC know when you contact them. 

We have a long term young person who receives DLA, how does this work in addition to the allowance?
This is not taxable income and does not need to be declared on the tax return.

 

Do l add my personal tax allowance to the expenses box? No, the only expenses shown are your tax free threshold (when you calculate using Qualifying Care Relief).  

Do payments include Covid grant money? This gets shown separately on the Self Assessment Tax Return, but is taxable.  It shown in box 27.1 on the Self Employment pages under Self Employment Support Scheme Grant.

 

Expenses

If we are asked to purchase items on behalf of the young person and then reimbursed, do these need to be included for tax purposes?

Yes, anything shown on your annual statement needs to be included. You could ask the service to pay directly for the item or ask HMRC if it could be exceptional expense.

 

National Insurance 

Class 2 National Insurance Contributions 
 
When a foster carer registers as self-employed they also register for Class 2 national insurance contributions (NICs).  For 2021-22 Class 2 NICs are £3.05/week.  Foster carers have a number of options with regards to national insurance.   

The option you choose from below will depend on your individual circumstances and whether you have a full national insurance record or not.   
If you would like to check your national insurance record and how many contributions you have made you can do this at the following link https://www.gov.uk/check-national-insurancerecord 
Options available to foster carers are: 

• Qualify for the Small Profit Threshold (SPT) 
If a foster carer has no taxable profit from their fostering, or if they have taxable profit (the amount over the threshold) by up to £6,515 (2021-22) (£6,475 in 2020-21), automatically they will not have to pay Class 2 NICs.   

• National Insurance (NI) Credits (a Class 3 credit) 
Foster carers can apply for a NI credit for each week they are approved as a foster carer.  Foster carers can apply for NI credits at the end of each tax year.  There is a form they will need to complete and will require a letter from their fostering service to confirm they have been approved for the tax year.   A NI credit will count towards your national insurance record.  Applications for NI credits can be made on form CF411A which you can locate at the following link https://www.gov.uk/government/publications/national-insurance-credits-for-parents-and-carers-cf411a 
NI credits are a Class 3 credit which means they count towards basic and additional State Pension only. 

• Paying Class 2 national insurance contributions voluntarily 
Foster carers can decide to pay Class 2 NICs voluntarily.  For 2021-22 Class 2 NICs are £3.05/week  (2020-21 £3.05/week).  There is an option when completing the tax return form to pay the contributions voluntarily. 
Class 2 NICs provide access to contribution-based employment and support allowance, maternity benefit, bereavement benefit and state retirement pension.  If you choose not to pay Class 2 NICs your entitlement to these welfare benefits may be affected. 
Class 4 national insurance contributions 
 
Class 4 NICs only have to be paid if you make a certain amount of profit from your selfemployment.  This is in addition to the Class 2 NICs.  The rates of Class 4 NICs are: 
9% on profits between £9,569 and £50,270 in 2021-22 (£9,501 and £50,000 in 2020-21)  2% on profits over £50,270 in 2021-22 (£50,000 in 2020-21) 
The option you choose from above will depend on your individual circumstances and whether you have a full national insurance record or not.   
You stop paying Class 2 National Insurance when you reach state pension age.  You stop paying Class 4 National Insurance from 6 April (start of the tax year) after you reach state pension age. 

Staying Put 

So if Staying Put the Carer would declare what? Staying Put income, housing benefit and the £30 they pay into household for food?  Yes any payments agreed and received in respect of the staying put agreement.

I have a Staying Put, who is 19 are you saying I can take the £250 pw allowance after the age of 21? The Qualifying Care Relief is available against Staying Put income with no upper age limit.

I still have to pay my stay put young person £42.50 per week as an allowance. Can I deduct this from my calculations as an exceptional expense?  Yes, if the Qualifying Care Relief does not already cover your income

SGO and adoption 

What about SGO? SGO income is non taxable.

Do you have to inform HMRC that you have a SGO? No, although if previously fostering you would need to advise them that the fostering has ceased.

If you receive an adoption allowance for a child, is this classed as a fostering placement for tax purposes? No, it is completely separate and not taxable.

Savings 

Just to confirm if we are required to pay money into savings for the child we should deduct this from the income from our agency?  Yes, if not already shown as a deduction by the Agency. 
 

Universal credit

I am on Universal credit and was told I do not need to submit tax returns for fostering each year by HMRC. I called to speak to them and they confirmed no need to submit each year but is this correct? No Universal Credit is a different system, Self Assessment Tax Returns need to be completed by Foster Carers each year.

Pensions

I am receiving a private pension, but not state pension yet, will this affect my tax? Yes you need to declare it. It is in section 3: Tailor your return and it asks ‘did you receive any UK pensions, annuities or state benefits, for example, state pension, occupational pension, retirement annuity, Incapacity Benefit?’

Other queries

If you want a mortgage, can fostering income be used? Yes it can. We have a partnership with the Morgage Brain, who understand how foster carer finances work. You get a discount as a member of The Fostering Network.