Many people may find it daunting to understand how to calculate their fostering allowances tax as a foster carer. We have years of experience calculating national insurance, benefits, and tax for foster carers. We help them to better understand their position and what benefits they can claim. Many Foster Carers don’t know that they are actually self-employed and need to complete a self-assessment foster carer tax return. But before you complete your fostering self-assessment, you should read our helpful guide below to find out how much you have to pay, what benefits you are entitled to, and how national insurance affects you. Fostering and tax can be quite complicated with many components needing to be calculated and analysed.
For expert advice and guidance on self-assessments for Carers and fostering allowances, please call us on 0121 794 2289
Do Foster Carers Need To Pay Tax?
Many people ask us, “Do foster carers pay tax in the UK?” or is “Foster care income taxable?”. The short answer is that carers do pay tax, but only on the profit they make from fostering. Intellect Tax Services can help you to work out your Carer’s allowance.
Are Foster Carers Exempt From Tax?
Foster carers are not exempt from tax. In a Fostering household, one or both of the carers should be registered as a self -employed person with HMRC and should submit a self-assessment tax return each year.
Do Carers Need To Submit A Foster Carer Tax Return?
Yes, you should submit a self-assessment tax return each year. Foster carers have to pay tax on their profit from Fostering. Foster carers can use the helpsheet HS236 – qualifying care relief for carers to calculate their taxable fostering profit. HS236 gives Foster carers standard allowances as costs of their business each tax year.
How Much Do Foster Carers Earn?
The fostering allowance is:
£10,000 per annum household allowance plus –this is pro-rata id f you have only been a Foster carer for part of the tax year
A weekly allowance depending on the age of your Foster children being:
• £200 per week per placement under the age of 11
• £250 per week per placement over the age of 11
If your Foster child becomes 11 in the tax year the rate will change from £200 to £250 Your income from Fostering is the Total income that you received for your Fostering duties, including reimbursed expenses, mileage, clothing allowances, etc. The reality of using this method is that many carers have no profit from Fostering and no Income tax to pay BUT you should still submit a tax return –doing so can protect (and increase) your eligibility to state pension at your retirement age.
A foster carer tax return example is below:
Malcolm has 2 siblings under 11 years with him for the whole tax year 2018-19.
Malcolm receives £275 per week for one sibling and £475 for the other sibling. Malcolm has a taxable rental income of £4500
2018-19 tax position Fostering
Sibling1 £275*52 £14,300
Sibling 2 £475*52 £24,700
Total Income £39,000
Qualifying care relief
Fixed component £10,000
Taxable profits from Fostering £8,200
Total Taxable income £12,700
Less: Personal Allowance (£11,850)
Income chargeable to tax £850
£2.95 *52 £153.40
Total tax and National Insurance due £393.40
Are Foster Carers Employed Or Self Employed?
Foster Carers are classed as self-employed which means that they have to complete a self-assessment. If your fostering payments are below the threshold then you do not have to pay any tax. However, you must still register as self-employed. You must also register to pay Class 2 National Insurance Contributions as all self-employed people do.
What Is A CWF1 Form?
You need to register with HMRC as self-employed and you do so by completing form CWF1 online or on paper and sending it to HMRC.
Once you have registered with HMRC you need to calculate your profit from Fostering. As a self-employed person, a Carer has to pay tax on their fostering profit.
I Don’t Make Profit As A Foster Carer, Do I Still Need To File A Self-Assessment Foster Carer Tax Return?
The reality of using this method is that many carers have no profit from Fostering and no Income tax to pay BUT you should still submit a self-assessment – doing so can protect (and increase) your eligibility to state pension at your retirement age.
What Is The Foster Carer Allowance?
Yes, Carers can get special allowances. You can read more in our Fostering Allowance and Benefits In the UK Guide.
How Much Income Tax Do Foster Carers Pay?
Foster Carers are self-employed people and have to pay tax on the profits from their Fostering Business. Carers can use the HS236 – Qualifying care relief for carers to calculate their taxable fostering profit. HS236 gives Carers standard allowances as costs of their business each tax year.
Can I Claim Expenses As a Foster Carer?
You can also reduce the fostering profit further by claiming enhanced expenses. It may be possible to reduce the fostering profit further by claiming additional costs.
These costs are “enhanced expenses” that are items which are exceptional by nature or degree arising from the special needs of the child – such costs can only be claimed by a carer who is a “skills level” carer or in respect of Foster children for whom the carer is paid a special higher additional rate. Enhanced expenses are a complex area so please call us for advice on this issue if you think it applies to you.
How Do I Claim Tax If I Am In A Fostering Partnership?
If you are in a partnership you could reduce your tax further by splitting your fostering profit and therefore reduce your household bill. Again this is a complex area – please call us for advice if you are considering a Fostering Partnership.
How Is Foster Care Income Reported?
After you have calculated your Fostering Profit using HMRC Helpsheet HS236 – Qualifying Care Relief, you enter the figures on your fostering income tax return. Fostering income is classed as self-employment so you need to complete self-employment pages on your tax return.
When Do I Have To Complete My Foster Care Tax Return By?
A tax year runs from 6th April to 5th April. The 2018/19 tax year runs from 6th April 2018 to 5th April 2019
The deadlines for filing 2018-19 tax returns are as follows:
• Paper tax return –should reach HMRC by 31 .10.2019
• Online tax return –file by 31.1.2020
If you have not yet filed your paper 2019 tax return do not file it now –you will be fined £100.
To avoid the late filing penalty you need to register for online services with HMRC and file your return by 31st January 2020.
If 2018-19 is the first tax year you need to file a tax return you need to register as a self-employed person with HMRC–you do this by completing form CWF1
The deadline for filing form CWF1 is strictly 31st October and you can be fined for late registration –to date in our experience HMRC has not imposed late registration penalties.
How Intellect Tax Can Help you with Tax For Foster Carers
For many people, completing a self-assessment is a task which fills them with dread and which they find very complicated – add to this the fact that HMRC imposes flat rate penalties, fines, and interest which can make getting a self-assessment return wrong an expensive business.
We currently act for over 3,500 clients based all over the UK and have finely tuned our processes to make our client’s experience with us as efficient and straightforward as possible.
Although we use technology to make our processes as efficient as possible, the foundation of our service is the personal touch. One of our advisors will undoubtedly contact you when working on your self-assessment and our consultants are always available to answer your queries. for more information, please read our Foster Carer Tax FAQs page.
The process is very straightforward:
● Call us and we will sign you up for the tax return service*
● We will then send you a Carer friendly questionnaire showing the details that we need from you.
● You return the completed questionnaire to us and we prepare your tax return using specialist software.
In due course, you will receive from us your tax return, tax computation, and schedules for approval. Along with this, you will receive a letter setting out your tax liabilities (if any) and explaining your national insurance position for the year.
When you are happy that you understand your tax position, you send us your authority and we file your return with HMRC.
We will deal with any correspondence or issues arising from the Self-assessment free of charge. There are no hidden extras in our fee.
There are other reasons why you may need to prepare and file a self-assessment:
● You are a company director or higher rate taxpayer
● You own UK or foreign rental property
● You are subject to CIS (Construction Industry Scheme) regulations
Why Use Intellect?
Once you are signed up as a client you have direct access to our experts and FREE advice – this adds significant value to our fixed fee service
In ONE CALL to our experts you can check :
• Income Tax – your responsibilities, liabilities and any issues
• National Insurance – it is essential that all taxpayers get their National Insurance right – or they may not get a full state pension at their retirement date.
• Benefits – in our experience many Carers (and other taxpayers) are unaware of their benefits entitlements. We are passionate about ensuring our clients get their benefits right.
Here at Intellect, we have worked with Carers for many years, and over that time we’ve built up a wealth of knowledge about Carer finances and tax. So you can trust us to take care of it.
For more information on fostering allowance and benefits, read our guide Fostering Tax Credits and Benefits Guidance
Our expertise is not limited to tax returns for Foster Carers and we can prepare tax returns for anyone who needs one – we would offer flat rate fees for these returns at competitive rates – please call us on 0121 794 2289.