How much tax do foster parents pay? | Active Care Solutions

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.

Do foster parents pay tax?

While income from fostering is taxable, HMRC's special tax rules for foster parents that mean that if fostering is your only income and you are caring for one child, your income will be tax free.

If you are caring for more than one child, either siblings or unrelated children, you'll receive a higher allowance and may therefore need to pay some tax, but this is much less than if you were an employee of an organisation.

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.

Foster parent tax exemption and relief

We all have a personal tax allowance. Currently in the UK a person must earn £12,500 per year before they are eligible for tax. As a foster parent, you are eligible for an additional £10,000 tax exemption.

Additionally you will also receive tax relief for every week a child is in your care. Currently this is £200 per week for a child under the age of 11 and £250 a week for a child over 11.

This means if fostering is your only income and you foster two teenagers for a full tax year (April to April) you'll need to earn over £45,900 before paying any tax.

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 - Doreen

Doreen fosters 2 children aged 8 and 12. She looks after them long term and they have been with Doreen for over a year. Alongside fostering Doreen works 14 hours a week in a local cafe. Her earning from the cafe are £9,000 per year.

Annual Salary - £9,000

Fostering income - £39,000

Addition fostering expenses such as additional mileage not covered by the fostering allowance - £1,500

Doreen's total fostering income is £40,500.

Doreen's total income is £49,500

Doreen is eligable to pay tax on £3,600 of her income, this would mean that Doreen would need to pay approximately £700 in tax for the for the year.

Example 2 - Amir

In the tax year, Amir fosters a 12 year old boy for 32 week, a 6 year old boy for 40 weeks and a 16 year for 10 weeks.

Fostering is Amir's full time career and he has no other income.

Amir recieves £30,800 from fostering. Amir's fostering tax exemption and fostering tax relief is £28,000.

As a result £2,800 of Amir's fostering income is eligable for tax.

Because Amir has no other income he has not exceeded his personal tax allowance and therefore will not need to pay any tax.

This means Amir is able to keep over £3,500 more of his income, compared to an employee earning the same annual income.

Example 3 - Sarah

Sarah runs her own small business, working as a mobile hairdresser, which she manages alongside fostering.

Sarah fosters two siblings aged 12 and 14. Both children have been in with her for 5 years.

Sarah's business profit from her hairdressing is £16,000. Alongside this Sarah's fostering income is £40,000.

Sarah has no additional fostering expenses.

Sarah's income for the year is £56,000.

Sarah's fostering tax exemption and fostering tax relief is £28,000.

Sarah is eligble to pay tax on £12,000 of her fostering income. Due to her personal tax allowance she will pay tax on £3,500 of her business profit.

Sarah will have to pay tax on £15,500 of her total income, which would be an approximate tax bill of £3,100.

This is a similar amount an employee would pay in tax if they were earning £28,000 per year.

An employee earning a similar income would be pay approximately £10,000 a year to HMRC.

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 your taxable profit from fostering (what you are paid from fostering after your tax exemption and tax relief have been deducted) is over £6,365 (in 2019/2020).

Although many foster parents won't be eligible to pay Class 2 contributions, you may feel it's best to make voluntary contributions to ensure you are entitles to claim state benefits, including your state pension.

If your profit from fostering is move than £8,632 a year (2019/2020) foster parents are eligible to pay Class 4 National Insurance contributions.

Great rewards and benefits for foster parents

Our foster parents gain access to a range of discounts at many leading retainers, the ones listed below are just some of the great brands that offer our foster parents a discount. Discounts are also available in many restaurants and venues offering great family days out. Easy to use, discounts are applied instantly - so even if you're out shopping, you'll be able to make the most of your discounts immediately.