Do foster parents pay tax?
While income from fostering is taxable, HMRC’s special tax rules for foster parents that mean that if fostering with ACS your income is likely to be tax free.
You can find out more about this direct from HMRC here. But we have tried to simplify this for you too and provided some examples.
When you become a member of the ACS team, you’ll receive membership of FosterTalk an independent service which also provides tax advice to foster parents.
After all, working out tax as a self-employed person can be a little tricky, but our guide to tax and National Insurance will help.
Foster parent tax exemption and relief
We all have a personal tax allowance. Currently in the UK a person can earn £12,570 per year before they are eligible for income tax. However, as a foster parent, you are eligible for ‘Qualifying Care Relief.’ This tax exemption is shared between all foster parents in the same household and means you won’t pay tax on the first £20,440 you earn from fostering.
Additionally you will also receive tax relief for every week a child is in your care. Qualifying care relief compromises of two parts:
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- Annual tax allowance – you can receive £20,440 in fostering income, per year, before you have to pay any tax.
- Weekly relief – a weekly tax relief amount for each child in your care:
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- £435 per week for children under 11
- £515 per week for children aged 11 or over
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This tax relief is available for all types of foster care placements, including short term, long term fostering.
How does tax for foster parents work?
Below are a few practical examples of how tax for foster parents is calculated to give you an idea of what your income could be. The examples shows that due to the generous tax allowance for foster parents, the fostering allowance equates to a much higher ‘take home pay’ rate than earning a similar amount via PAYE.
Example 1 – Karen
Karen fosters two children aged 8 and 12. She looks after them long term and they have been with Karen for a year. Alongside fostering Karen works 14 hours a week in a local cafe.
- Annual salary from cafe: £9,000
- Annual fostering income: £51,789.75
- Additional fostering expenses such as additional mileage not covered by the fostering allowance: £1,500
Total annual income is £62,289.75
- Annual tax relief: £20,440
- Weekly tax relief for 52 weeks at £515 (for children over 11) = £26,780
- Weekly tax relief for 52 weeks at £435 (for children under 11) = £22,620
Total in tax relief = £69,840
- Karen’s qualifying care relief for fostering is £69,840
Karen is not eligible to pay tax as her salary from the cafe is below the personal tax allowance of £12,570 and her fostering allowance is below the Qualifying Care Relief which in Doreen’s case would be £69,840
Example 2 – Amir
Amir has been fostering for ten years and fosters one child aged 16, who he looks after long term.
Fostering is Amir’s full time career and he has no other income.
- Annual fostering income: £27,608
- Additional fostering expenses such as mileage allowance for travel to attend training and support groups: £1,500
Total fostering income for the year is £29,108
- Annual tax relief: £20,440
- Weekly tax relief for 52 weeks at £515 (for children over 11) = £26,780
Total in tax relief = £47,220
- Amir’s qualifying care relief for fostering is £47,220
Amir’s fostering income is below the tax threshold due to the Qualifying Care Relief, so he will not pay tax on his income.
Example 3 – Sarah
Sarah fosters two siblings aged 12 and 14. Both children have been in with her for five years. Alongside she runs her own small business, working as a mobile hairdresser, which she manages alongside fostering.
- Sarah’s business profit from her hairdressing: £16,000
- Sarah’s annual fostering income: £54,717.10
- Additional fostering expenses such as mileage allowance for travel to attend training and support groups: £3,000
Total income for the year is £73,717.10
- Annual tax relief: £20,440
- Weekly tax relief for 52 weeks at £515 x 2 (for children over 11) – £53,560
Total in tax relief = £74,000
- Sarah’s qualifying care relief for fostering is £74,000
Sarah’s fostering income is below the tax threshold due to the Qualifying Care Relief, so she will not pay tax on her income.
Sarah is eligible to pay tax on £3,430 of her mobile hairdressing profit once her personal tax allowance has been taking into account. Sarah’s tax bill for the year will be approx £686.
National Insurance for foster parents
As a foster parent, you are self-employed. Anyone who is self-employed must register to pay Class 2 National Insurance Contributions.
You must pay class 2 National Insurance contributions, if you make a profit from fostering (this is anything you have been paid for fostering which is over and above the qualifying care relief, detailed above.)
Because foster parents at ACS all fall under this threshold their National Insurance Contributions (NICs) is likely to be NIL.
Fostering and your finances. Find out more…
Fostering allowance calculator
Our calculator will help you find out how much you could recieve if you become a full time foster parent with ACS.
Tax & National Insurance
Find out how foster parents pay very low levels of tax, if any at all due to generous allowance provided by HMRC.
Fostering & claiming benefits
Fostering doesn’t affect means tested benefits as your fostering allowance isn’t classed as income in the same way as other work.
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