All carers should on approval receive a leaflet from Hertfordshire County Council outlining in more detail the current tax position. This leaflet will be distributed as and when there are any significant changes. It is advised that you keep this leaflet safe so that you can refer to it if needed. If you do not have a copy of this leaflet speak to your Supervising Social Worker who will ensure one is sent to you. This is a Fostering Network leaflet on Income Tax and National Insurance. There is also a factsheet on Foster Care Tax and Benefits available from the Money Advice Unit via www.hertfordshire.gov.uk/benefits.
18.1 For taxation purposes, HMRC classify foster carers as self-employed and consider the total gross income from fostering, including expenses. Carers are exempt from taxation on their fostering income where their gross income from fostering is below a threshold known as ‘Qualifying Care Relief’, plus any unused standard tax personal allowance (maximum of £12,500 in 2020/2021). QCR is based on the number and ages of the children who are fostered. Carers should register as self-employed with HMRC and complete an annual tax return.
18.2 The threshold consists of two elements:
i) A fixed amount of £10,000 per annum (or pro-rata if approved for less than a year)
ii) An additional amount per child of: iii) £200 per week for a child aged under 11
iv) £250 per week for a child aged over 11 (including Staying Put)
Note: Figures as per HM Revenue & Customs (March 2019). HMRC produce a self- instruction online pack aimed at foster carers, covering the ‘qualifying care relief’ and National Insurance issues.
18.3 The foster carer must calculate their qualifying care relief threshold which is £10,000 per annum for the carer plus the relevant amount per week for each child they care for. If their total income from fostering is equal to or less than the threshold, all payments are exempt from taxation. This is the most common situation. In addition, if the carer has no other paid employment or self-employment, the normal personal tax allowance of £12,500 a year (2019/20), or any remaining balance of it, can also be added to the qualifying care relief threshold. If two people in the household share the fostering receipts, the £10,000 is shared equally, as are the individual weekly additions.
18.4 If payments are more than the qualifying care threshold plus any personal tax allowance, the carer can choose between:
(a) paying tax on the total receipts more than the threshold (without any separate relief for allowable expenses or capital allowances). This is known as the simplified method, or
(b) paying tax on the actual profit from foster care, worked out by calculating gross income, minus actual expenses and capital allowances.
18.5 Foster carers are advised to look at their own tax position and if necessary take advice from HMRC if they are in any doubt about how this affects them, or which taxation option to choose if tax is payable. Those carers who have previously negotiated individual agreements with HMRC are strongly advised to review this situation. Hertfordshire County Council cannot advise generally on how those may be affected.
18.6 We advise carers to keep details of all children placed with them over the year, particularly noting their ages and dates of placement, and a record of all income and expenditure. This is particularly important in relation to exceptional expenditure and providing day care.
See GOV.UK site to access the Qualifying Care Relief for Carers (Self-Assessment Help Sheet) for information regarding how to get certain payments tax-free for foster carers, adult placement carers, kinship carers and staying put carers.
18.7 As foster carers are ‘self-employed’ those who are below pensionable age should also register as such with HMRC for National Insurance purposes and possibly pay Class 2 contributions (£3.05 per week for 2020/21). However, if profits from fostering are below £6,475 (2020/2021) a year – known as the Small Profits Threshold -, foster carers can choose not to pay Class 2 contributions. Class Two contributions, even if paid voluntarily, can help towards pension entitlement (but see below). If Class 2 contributions are due, they are now collected via the tax code and not as a separate payment.
18.8 A link to the Money Advice Unit’s “Benefits and Tax for Foster Carers” and useful advice on tax, benefits and National Insurance can be found here:www.hertfordshire.gov.uk/benefits