Understanding Fostering Tax Relief
Do Foster Carers Pay Tax?
For a lot of people, taxes can be complicated and daunting. The below information and example payments illustrates how taxation when fostering can be beneficial and how this is calculated.
As a rule, income from fostering is taxable, however, HMRC has recently implemented specialist and favourable tax rules for foster carers. This ensures that for the majority of our carers, their fostering payments will be completely tax-free.
If you would like to get a better estimation of how much you might earn, then please try our the Swiis payment calculator.
Tax Relief on Fostering (Qualifying Care Relief)
In the recent Spring Budget 2023, it was announced by the Chancellor Jeremy Hunt that there were substantial positive changes being made to the foster carer tax relief system.
Qualifying Care Relief is a tax benefit available to all foster carers to ensure that they are not taxed on income which is intended to be spent on the care of the child or young person they are looking after.
The below information is a guide to how much tax free income foster carers can receive.
The government’s new rules have applied a fixed tax exemption of up to £18,140 per year per fostering household. This means you don’t have to pay tax on the first £18,140 of the income (after expenses) you make from fostering per year.
In addition to the £18,140 tax exemption, the fostering household will receive additional tax relief for every week (or part week) that a child or young person is in your care of £375 (per week) for each child under 11, or £450 per week for each child or young person aged 11 or older.
Collectively, the Qualifying Care Relief of £18,140 and additional weekly fostering tax benefits (applicable to the age of the children you have in placement), will for most foster carers, negate the requirement to pay tax on earnings from fostering.
To work out your total qualifying care relief, multiply the number of weeks that each child has stayed with you by the relevant amount (age related as above), then add £18,140.
Example 1
Ben & Michael
Income from Swiis:
Ben and Michael have been caring for Johnny (aged 6) for the full tax year which is the same as 52 full weeks (April to April). Ben and Michael receive £26,156* fostering pay and allowance from Swiis as an income (known as the fostering weekly fee).
Tax Due to HMRC:
Ben and Michael will be allowed £37,640 in tax relief for the full tax year (April to April) from HMRC.
This is made up of the £18,140 Qualifying Care Relief plus the £19,500 additional relief linked to the child in placement (£375 per week for a child under 11 x 52 weeks = £19,500).
SUM = £18,140 + £19,500 = £37,640 Total Tax Relief for the Year
As Ben and Michaels income from Swiis (£26,156) is within the tax relief total for the year (£37,640), they will NOT pay any tax on the pay received from Swiis.
Example 2
Janet
Income from Swiis:
Janet has been caring for Lucy (aged 6) and her sister Mathilda (aged 15) for the full tax year which is the same as 52 full weeks (April to April). Janet received £52,312* fostering pay and allowance from Swiis as an income (known as the fostering weekly fee).
Tax Due to HMRC:
Janet will be allowed £61,040 in tax relief for the full tax year (April to April) from HMRC.
This is made up of the £18,140 Qualifying Care Relief plus the £42,900 additional relief linked to the children in placement (£375 per week for a child under 11 (Lucy) x 52 weeks = £19,500 plus £450 per week for a child over 11 (Mathilda) x 52 weeks = £23,400 = £61,040).
SUM = £18,140 + £19,500 + £23,400 = £61,040 Total Tax Relief for the Year
As Janet’s income from Swiis (£52,312) is within the tax relief total for the year (£61,040), Janet will NOT pay any tax on the pay received from Swiis.
*The amounts outlined above should be used for reference only, any additional earnings you may receive outside of fostering, may affect the total amount of tax benefits you are entitled to.
Swiis payment calculator
Find our how much you could earn
If you would like to find out how much you could earn as a foster carer with Swiis, and how much of this would be tax-free, then please take a look at our payment calculator.
Important things to remember
Are foster parents self-employed?
Yes, foster carers are classed as self-employed, so make sure you register yourself as self-employed as soon as you start caring for your first foster child. Once registered, you will then be required to complete a tax return every year.
Do foster carers need to complete a tax return each year?
Yes, as foster carers are classed as self-employed, you will need to complete a tax return every year while fostering. The end of the tax year is the 5th April and have until 31st January to submit your tax return.
You can only submit one self-assessment per person per tax year, so make sure any other sources of income are included within the same tax return.
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