Fostering & tax
Tax can sometimes be challenging, primarily because it affects your fostering income. We have looked to provide key information here. Please read on to help break down the challenges around tax and what records you need to submit.
Self-employed status
Fostering is classed as “self-employed,” and when you start fostering, you should notify HMRC of your relevant status. If you are already self-employed, you may not need to change your status overall, but you should inform HMRC when you start fostering.
You will only receive fostering income (from your carer payment) when your first placement has been made.
Fostering income and qualifying care relief
Fostering income is taxable overall, but there is qualifying care relief that reduces the taxable amount in whole or partly. The total carer payment, less the qualifying care relief, will give the figure subject to tax (if there is a profit), or the payment may be covered in full. This outcome will depend on your total income from fostering.
The “Qualifying Care Relief” was increased by the Government and is now at the following level:
- £19,690 tax exemption per household
- Tax relief for each week you support and foster a child or young person – this is £415 per week for children aged under 11 and £495 for children aged over 11
The tax relief for each child or young person is in addition to the household amount. The figures are calculated pro rata based on when you started fostering during the year.
To provide an example, if foster carer A has a 12-year-old child for the whole tax year and a 6-year-old child for 20 weeks of the tax year, the total tax exemption would be:
- £19,690 + 12 year old child £25,740 (52 weeks x £495 level) + 6 year old child £8,300 (20 weeks x £415 level) = £53,730.
- Therefore, the foster carer can receive a carer payment of up to £53,730 without tax arising. Any amount above this would be “profit.”
Other income outside fostering is not covered by the relief above and should be taxed continuously.
The “profit” level is the amount subject to tax. You will have your personal allowance (depending on other non-fostering income) to set against your fostering profit.
You can decide to use an alternative approach: a traditional profit and loss method to calculate your profit from fostering. This method involves comparing your fostering income to all your fostering expenses. This requires detailed records and often gives a higher taxable figure.
Tax return
You must submit a tax return to report your fostering income and any relevant profit. This should be completed online, and you should register with HMRC under Making Tax Digital.
You should also cover your National Insurance credit position, which may help you qualify for your State Pension. National Insurance may also be payable through Class 2 contributions if you have a fostering profit.
Tax guidance from HMRC
HMRC provides online guidance covering tax and national insurance related to fostering. You may find this informative and helpful, Please see the link below:
Please note that the above information is not intended to represent any advice from Sunbeam Fostering North West. Foster carers should take independent advice and guidance on their tax position. It is also representative of April 2025, and the relevant tax limits may be subject to change.