Foster carers do such a fantastic job – but they do need to be aware of all the tax implications. Nickie explores this area of personal tax:
Income from foster care is taxable and requires reporting on a Self Assessment Tax Return as self employment. A foster carer will receive a weekly allowance, the level of which is dependent upon the age of the child and your location. Additional funding is available if the child has specific needs or if you have certain skills.
For tax purposes, there is a tax exemption of £10,000 per annum. This means that you don’t have to pay tax on the first £10,000 of income. This exemption is per household and if there is more than one carer in the same household it is shared equally among them. If you are a carer for less than a year, you are only entitled to a proportion of the £10,000.
In addition to the £10,000 exemption you are also entitled to tax relief for every week (or part week) that a child is in your care. For a child under 11, the rate is £200 per child per week and for over 11 it is £250 per child per week.
For example, if you are a foster carer for a 13 year old (child A) for a whole year, and for a 7 year old (child B) for 12 weeks of the year, your exemptions would be as follows :
Fixed amount £10,000
Child A (52 weeks x £250) £13,000
Child B (12 weeks x £200) £2,400
So the total tax free amount in this scenario is £25,400.
In the above scenario, if the actual fostering receipts for the year were £32,000, then £6,600 becomes taxable. If you have no other taxable income then there would still be no tax liability as the taxable amount is below the tax free personal allowance which is £11,000 for the current tax year.
Instead of using this method you are also allowed to use the profit method where you pay tax on your total care receipts less any expenses and capital allowances.
As a foster carer, you will also be eligible for National Insurance credits which count towards your State Pension. If you are fostering for adoption you will be entitled to adoption pay and leave from when the child comes to live with you.
If you are a registered foster carer, make sure you don’t miss out on your tax benefits. If you need help with your tax affairs, then please contact us.