Fostering Income Tax
Foster carers are treated by H M Revenue & Customs (HMRC) as carrying on a business for tax purposes. This means that:
- You will be treated as a self-employed person
- You may be required to prepare and file with HMRC a self-assessment tax return, and
- You may be liable to pay income tax and National Insurance contributions.
As a foster carer, you have a choice as to how you are taxed. In order to calculate your taxable fostering income, there are two methods: the profit method and the simple method. The latter is usually the more beneficial method.
The introduction of tax relief in 2003 means that foster carers in the UK do not pay tax on their income from fostering, up to a maximum of £10,000 plus allowances.
What is my qualifying amount?
Your qualifying amount consists of two parts to be added together: a fixed amount, £10,000 for each household for 2004-5:
If two or more carers in the same household receive foster care receipts separately, they will share the £10,000 equally.
If you are a registered foster carer for less than a full year you can claim an appropriate proportion of your fixed amount plus:a weekly amount, for each foster child placed with you (£200 a week for a child under 11 and £250 a week for a child aged 11 or older for 2004 – 05).
John provides foster care for one fourteen-year-old for the whole of the year, and one eight-year-old for ten weeks of the year. No other foster carers live in his house.
His annual accounting date is 5 April.
His qualifying amount will be made up as follows:
Fixed amount £10,000
Child 1 (52 x £250) £13,000
Child 2 (10 x £200) £2,000
Qualifying amount £25,000
If John had total receipts from foster care of £30,000, and made a profit of £8,000 from providing foster care, he can choose between being taxed on:
£8,000 the profit method, or
£5,000 the simplified method
(£30,000 total receipts less the £25,000 exempt amount).
Contact us to use our free fostering agency matching service.