Many people may find it daunting to understand how fostering affects their tax and National Insurance contributions. We have a range of resources to help foster carers better understand what it means for them and their finances. These include FAQs and a tax video presented by our colleagues at Xeinadin explaining issues such as Qualifying Care Relief, calculating your taxable profit, registering with HMRC and more.
You can also register for upcoming tax webinars that include the opportunity to listen to a presentation by Foster Carer tax experts from Xeinadin. The webinars include the opportunity to ask questions.
All foster carers are treated as self-employed for tax purposes. There is a specific tax scheme foster carers can use called Qualifying Care Relief. The scheme calculates a tax threshold unique to the fostering household and when compared with their total fostering payments, determines if a foster carer has to pay any tax from their fostering or not. For many foster carers their total fostering payments are below their tax threshold and they do not have to pay any tax.
Anyone who is self-employed must register to pay Class 2 National Insurance Contributions. 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 £6,725 (2023-24) (£6,725 also in 2022-23), they will automatically not have to pay Class 2 National Insurance Contributions.
The individual circumstances of the foster carer will determine if this is the best option for them or whether they have to make other arrangements to maintain their National Insurance record, for example applying for National Insurance credits or opting to pay the Class 2 contributions voluntarily.
Further information about tax and national insurance is available from HM Revenue and Customs HMRC's help-sheet 236: A help sheet explaining qualifying care relief, the tax scheme for foster carers. You can also go to the www.gov.uk and type HS236 in the search box.
Making Tax Digital
Making Tax Digital is a new digital tax system that is being introduced by the government for self-employed people. Under the original proposal, foster carers would have had to send in quarterly tax returns and use 'compatible software' to do all their tax administration online. Our members shared serious concerns about the extra time and financial burdens this would place on foster carers and fostering 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.
How we can help foster carers
Our member helplines provide confidential, independent and impartial advice for foster carers in the UK.
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How the qualifying care relief scheme for income tax works.
- How foster carers should calculate their tax threshold and complete a tax return if they need to.
- How fostering affects National Insurance contributions.
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What happens if a young person stays on after their 18th birthday.
You can purchase our Income Tax and National Insurance Signpost booklet for just £3 if you are a member of The Fostering Network. Bulk discounts are available for fostering services.
If you would like support from an accountant, our partners Xeinadin have developed a tailor-made fixed fee tax return service designed to meet the needs of foster carers. Find out more about Xeinadin or call 01795 478044. If you are a member of The Fostering Network and a new customer of Xeinadin, please log in to the membership section of our website to access a five per cent off discount code.
