Understanding Foster Care Tax – The Basics

Most foster carers benefit from Qualifying Care Relief (QCR).

This means:

• A large part (often all) of your fostering income is tax-free
• You don’t need to calculate actual expenses
• You only pay tax if your income exceeds set thresholds

Qualifying Care Relief Includes:

• A fixed annual exemption
• A weekly exemption per child placed

In many cases:
👉 No tax is payable
👉 No tax return is required (unless you have other income)

But the rules change if:

• You foster as a couple
• You have additional income
• You exceed relief limits
• HMRC issue a filing notice

This is where correct advice matters.

Common Problems We See with Foster Carer Finances

1. Being Told to Pay Tax When None Is Due

Many foster carers are incorrectly advised to register as self-employed and pay tax — even when Qualifying Care Relief fully covers their income.

2. Confusion Around Joint Foster Carers

Couples often don’t know:

• How income is split
• Who reports what
• Whether both need tax returns

3. Unnecessary Self Assessment Returns

Some carers are filing tax returns every year when they don’t legally need to.

4. Benefits & Universal Credit Worries

Incorrect reporting can affect:

• Universal Credit
• Child Benefit
• Housing support

5. HMRC Letters & Anxiety

A simple HMRC letter can cause stress when you don’t know how to respond or if past filings were incorrect.

Our Accountant for Foster Carers Services

1. Foster Carer Tax Review

We review:

• Your fostering income
• Allowances and fees
• Your household situation
• Any other income

Outcome: Clear confirmation of whether tax is due (often none).

2. Qualifying Care Relief Calculations

We:

• Apply HMRC rules correctly
• Maximise tax-free thresholds
• Ensure correct treatment for single or joint carers

Outcome: You don’t overpay tax.

3. Self Assessment Returns (When Required)

If you do need to file:

• We prepare and submit your return correctly
• Report fostering income properly
• Include other income accurately
• Handle HMRC queries if they arise

Outcome: Fully compliant, stress-free filing.

4. Advice for Foster Carers with Other Income

Many foster carers also have:

• Part-time jobs
• Self-employment
• Rental income
• A working partner

We help structure this properly so:

• Reliefs are preserved
• Tax is minimised legally
• Benefits are protected

5. HMRC Support & Corrections

If:

• HMRC have written to you
• Past returns were done incorrectly
• You’ve overpaid tax

We can:

• Deal with HMRC on your behalf
• Amend returns
• Correct your position

Outcome: Peace of mind.

Do All Foster Carers Need to File a Tax Return?

No.

You only need to file if:

• HMRC ask you to
• You have taxable income outside fostering
• Your fostering income exceeds relief limits

Many foster carers do not need to file at all.

We’ll tell you honestly, not push unnecessary work.

Do Foster Carers Need to File a Self-Assessment Tax Return?

Yes, under current HM Revenue & Customs (HMRC) guidance, most foster carers in the UK are required to file a Self-Assessment tax return each year if they receive fostering payments, even if no tax is ultimately due.

This is because HMRC treats foster carers as self-employed for tax purposes, with a special tax relief regime applying to fostering income.

Why Foster Carers Are Required to File a Tax Return

1. Foster carers are treated as self-employed for tax purposes

HMRC considers foster carers to be self-employed. As a result:

• You are normally required to register with HMRC when you start fostering
• Your fostering income must be reported annually
• The standard Self-Assessment deadline applies (31 January following the end of the tax year)

This classification is for tax reporting only and does not affect employment rights or employment law status.

2. A Self-Assessment return is required even if no tax is payable

Each tax year in which you receive fostering payments, you are generally expected to:

• Submit a Self-Assessment tax return
• Declare your fostering income
• Claim the appropriate tax relief

Even where the final tax bill is £0, HMRC still requires the return so it can:

• Confirm the level of income received
• Apply the correct tax treatment
• Record that no tax is due for that year

3. Qualifying Care Relief is claimed through the tax return

Foster carers benefit from Qualifying Care Relief (QCR) — a special scheme designed specifically for fostering income.

Under QCR:

• A fixed annual household amount is tax-free
• Additional weekly amounts per child placed are also tax-free
• In many cases, the relief fully covers fostering income

However, the relief must still be claimed on the Self-Assessment return, which is why filing is usually required even when no tax is payable.

When a Foster Carer May Not Need to File

There are limited exceptions, including:

• You did not receive any fostering payments during the tax year
• HMRC has formally confirmed that a return is not required
• You have no other income and no open Self-Assessment record

These situations are uncommon and should always be confirmed properly to avoid penalties.

Practical Points to Be Aware Of

• HMRC usually issues a notice to file after the end of the tax year (6 April to 5 April)
• The online filing deadline is 31 January
• Late or incorrect filings can result in automatic penalties, even when no tax is due

This is why correct advice and accurate filing are essential.

Speak to a Specialist Accountant for Foster Carers

If you’re a foster carer and want to:

• Know where you stand with tax
• Stop worrying about HMRC
• Avoid overpaying tax
• Get clear, honest advice

…we’re here to help.

Book Your Free Foster Carer Tax Review

Call: 020 3740 7074
Email: info@accountaxzone.com
Website: accountaxzone.com

Join Hundreds of Happy SMEs getting services from our expert Accountant in London

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