Tax and National Insurance

You are here

Many people may find it daunting to understand how fostering affects their tax and National Insurance contributions. We have a range of resources to help foster carers better understand what it means for them and their finances.

All foster carers are treated as self-employed for tax purposes. There is a specific tax scheme foster carers can use called Qualifying Care Relief. The scheme calculates a generous tax threshold unique to the fostering household and when compared with their total fostering payments, determines if a foster carer has to pay any tax from their fostering or not. For many foster carers their total fostering payments are below their tax threshold and they do not have to pay any tax.  

Anyone who is self-employed must register to pay Class 2 National Insurance Contributions. If a foster carer has no taxable profit from their fostering, or if they have taxable profit (the amount over the threshold) by up to £6,365 (2019-2020) and £6,205 (2018-2019), they will automatically not have to pay Class 2 National Insurance Contributions.

The individual circumstances of the foster carer will determine if this is the best option for them or whether they have to make other arrangements to maintain their National Insurance record, for example applying for National Insurance credits or opting  to pay the Class 2 contributions voluntarily.

Further information about tax and national insurance is available from HM Revenue and Customs:

How we can help foster carers

We have provided more information, including a short film, to help our members understand their tax and National Insurance contributions. Find out more.
 
You can also read our tax FAQs.

Our member helplines provide confidential, independent and impartial advice for foster carers in the UK.
 
Our members also have exclusive access to our online community where you can log in to share your experience and get advice from other foster carers. The community is a safe and secure area to discuss topics including being a foster carer and looking after a child, as well as advice on finances.
 
We have produced an Income Tax and National Insurance Signpost booklet to help provide foster carers with information about income tax and National Insurance. It covers the following:
 
  • How the qualifying care relief scheme for income tax works.
  • How foster carers should calculate their tax threshold and complete a tax return if they need to.
  • How fostering affects National Insurance contributions.
  • What happens if a young person stays on after their 18th birthday.


You can purchase our Income Tax and National Insurance Signpost booklet for just £2 if you are a member of The Fostering Network. Bulk discounts are available for fostering services.

If you would like to use an accountant, please find out about Williams Giles, a leading provider of specialist tax services for foster carers.

 
Tags: