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.
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.
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.Read More
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.Read More
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Why choose ACS?
Regular supervision with your very own dedicated social worker
Generous fostering allowance and bonuses
Over 10 languages spoken
Local support where you need it
Small agency with a family feel