Foster Carer Tax & Benefit FAQs

We thought it would be helpful to provide a selection of the most “popular” queries that we deal with.

Needless to say we constantly review the service and look to improve it.

We look forward to receiving your call and helping you with your questions. For more information on Foster Carer Tax please read more here.

Call us on 01527 864586 or email tax@intellectbiz.com for personalised advice on these areas.

I’m A New Foster Carer, Is My Foster Care Income Taxable?

There are 3 key areas to consider when finding out if you need to pay tax on your foster care income:

  • You are self-employed from your date of approval at panel. You need to register for self- assessment with HMRC using form CWF1.
  • You need to ensure that you understand your national insurance position as you start fostering to safeguard your entitlements to state pension and benefits.
  • You need to review your benefits entitlement. Being a foster carer can significantly improve your benefits entitlements.

What Records Do I Need To Keep As A Foster Carer For Tax Returns?

As a registered foster carer, you are required to keep the following records in order to calculate your profits from fostering and complete your tax return:

  • Records of your total fostering income to include reimbursed expenses and fee payments as well as payments for the placements’ maintenance.
  • The dates the placements arrive and leave, and their dates of birth.
  • Records and receipts for any exceptionally large or unusual expenditure (not normal accommodation and maintenance), which might occur if you are a specialist foster carer.
  • You should keep your records for at least 22 months following the end of the tax year to which they relate, or 15 months if you submitted the tax return late, whichever is longer.

Do Foster Carers Pay National Insurance?

Foster Carers are classed as self-employed and therefore pay national insurance. You can read more about Fostering NI Allowances here. 

Does Fostering Affect Benefits?

This is one of the most popular queries we receive … unfortunately there simply isn’t a “one size fits all” answer to this one.

Although foster carers are self-employed, fostering income is disregarded when considering eligibility for many benefits for example universal credit, housing benefit and council tax relief. Becoming a foster carer can increase your benefit entitlement and should not affect your existing entitlements if you are already claiming benefits. Obviously each individual’s circumstances are different and many carers do not realise they have an eligibility to benefits.

My Spouse And I Are Both Foster Carers. Do We Both Have To Register To Do Tax Returns And Operate As A Partnership?

Someone in the fostering household must register with HMRC as a self-employed person and declare the fostering profit each tax year.

The decision regarding whether or not to form a partnership depends on the level of other taxable income which each partner has in a tax year. For couples whose only household income is fostering we would often recommend that a partnership is created and both parties register for self-assessment –both parties can then maintain their National Insurance record and the household tax bill will be reduced.

Where partners have other income the decision is more complex and you require specific advice.

Can Foster Carers Claim Marriage Allowance?

If you are married or in a civil partnership you may be able to take advantage of marriage allowance.

Every UK taxpayer has a tax-free personal allowance. Marriage allowance allows a taxpayer who is not using all their tax free allowance to transfer unused allowances to their spouse or civil partner saving the household about £200 tax per year.

Marriage allowance has been in place since 2015/16 tax year and claims can be backdated.

The transfer can only be made to a basic rate tax payer (if your husband/wife or civil partner is a higher rate taxpayer you cannot use marriage allowance).

I Foster Children With Special Needs – Can I Claim Additional Costs Against My Income?

Claiming additional costs against your income will reduce your tax liability.

You are a specialist foster carer if:

  • You are paid a premium for looking after a child with special needs

OR

  • You complete skills training and are paid a higher” skills related” rate by your service provider.

In both of these situations in addition to the standard allowances under HS236 you can claim expenditure which is EXCEPTIONAL BY NATURE OR DEGREE relating to the special needs of your child (HMRC BIM 52765).

My Foster Placement Receives DLA, Can I Claim Carers Allowance?

You can claim carers allowance for your placement if they receive the care component of DLA at the middle or higher rate. Carers allowance is taxable income but is payable at £66.15 per week (2019-20).

I Have Received A Tax Late Filing Penalty, What Should I Do?

You must file a tax return with HMRC to stop additional penalties being added to your account.

You receive a late filing penalty because HMRC think you should have completed a tax return for a particular year and they have not received it. The filing deadline for a tax return is 31 January following the tax year. Late filing penalties start at £100 and can reach £1600 if you do not file the return.

If you believe you were not required to file a return, HMRC may cancel the requirement for the return and cancel the penalties.

My Placement Is 18 And Is Remaining With Me. How Does This Affect My Foster Carer Tax?

If at age 18 your placement remains with you on a “familial basis” and you continue to receive payments from the children’s department under a “staying put” arrangement, then the income is “fostering income” included in the fostering profit calculation.

If housing benefit is claimed by or on behalf of the young person then this is rental income in the hands of the foster carer and potentially taxable. The housing benefit will also reduce the carers eligibility to benefits.

How Is Foster Care Income Reported?

After you have calculated your Fostering Profit using HMRC Help sheet HS236 – Qualifying care relief you enter the figures on your Self-assessment tax return
Fostering income is classed as a self-employment so you need to complete self-employment pages on your tax return

· Your Fostering receipts figure goes in the Turnover box
· Your total allowances go into a cost box
· The difference between the 2 figures is your Fostering Profit
· The Fostering profit calculated is before deduction of your tax free personal allowance
· If your fostering receipts are less than your costs you enter Zeros on the self- employment pages

How Much Is The Fostering Birthday & Christmas Allowances?

Each carer is given an allowance per child as a Christmas & birthday allowance. This will be the equivalent of half a week’s allowance for a birthday and one week’s allowance per year for Christmas or festive presents.
These will be paid to the foster carer automatically, with the exception of festive payments which have to be applied for via WSS80.
For more information, call Intellect Tax for assistance with claiming expenses.

What Benefits Are Foster Carers Entitled To?

Depending on other sources of income and savings a Fostering Household may be entitled to:
• Universal credit –the new benefit being offered to all new claimants.

Carers previously in receipt of benefits may be paid some/all of the following:
• Working tax credits
• Income Support
• Jobseekers Allowance
• Housing Benefit
• Council Tax Benefit

What Is The Foster Carer Pension?

As a self-employed person, a Foster Carer pays or has credited Class 2 NIC to ensure they maximise their entitlement to a state pension.
A foster carer has to set up a personal pension scheme to make pension contributions to increase their pension at retirement age.

What Is the Foster Carers Mileage Allowance?

Mileage may be paid by a Foster carer’s service provider. For tax purposes, mileage costs can only be used to reduce taxable profits if a carer is in receipt of enhanced payments from their service provider. In this case mileage costs can be claimed at the revenue approved rates of 45p per mile up to 10,000 miles and 25p for any mileage over this amount.

How Does Being A Foster Carer Affect Getting A Mortgage?

Many mortgage companies do not understand the tax treatment applied to Foster income and the reality of the mortgage market is that only a handful of lenders offer Foster carers mortgage deals.
If you are considering getting a new mortgage or changing your existing arrangements it is important that you take independent financial advice.