What is Foster Carers Tax Allowance and How it Works?

Foster child is a child looked after temporarily or brought up by people other than its natural or adoptive parents. There are many foster carers in UK who receives support in different forms so that they can take care of the child at its best.

It also includes financial support in the form of a fostering allowance. Foster carer is categorized as “Self-employed” and receives fostering allowance for each child or young person they look after on weekly basis. The amount of allowance depends upon different factors such as age, needs of the child, number of children fostered, local authority or the individual private fostering agency that the foster carer belongs to.

Types Of Foster Allowance

1. Emergency – Emergency foster care means where child feels safe in staying for few nights
2. Short-term – In short term, Foster carer looks after a child for few weeks or months and the main aim here is to make plan about their future.
3. Short-breaks – It’s time for a break when disabled children’s with special needs or having difficulties not able to stay regularly with a family.
4. Remand – When court orders to assign a specially trained foster carer to look after a child. The same person is sent on remand by the court.
5. Fostering for adoption – When babies or small children’s stay with foster carers who may be adopted by them in future. If you are fostering for adoption, you are entitled to adoption pay & leave from the day child starts living with you.
6. Long-term – In case of long-term foster, Children’s have to stay with foster carer till them become adults.
7. Family & friends or “Kinship” – In this case, a child goes to live with someone known to him, usually a family member.
8. Specialist therapeutic – Specialist therapeutic means children’s & young people with very complex needs & challenging behavior.

How Foster Allowance Work?

The main purpose of fostering allowance is to cover the cost spent on care of a foster child. It includes the cost of buying food, cloths, transporting them to school as well as entertaining them. This allowance is legally regarded as a form of income. When you register yourself as a new foster carer, you need to register with HMRC as “Self-employed”. You have to keep records of all the children’s you foster, their ages and period of foster. Every foster carer has to declare its income from foster allowance every year in their self-assessment tax return. All self-employed persons are registered for class 2 national insurance contribution but no problem as every foster carer receives tax allowance as well as additional tax relief. Therefore, foster carer has to pay nil tax or little tax on payments of foster care.

You need to remember one thing that foster payments will not affect any social security schemes or benefits you are currently receiving.

Cost Of Fostering

Foster carer gets fostering allowance to cover the cost of a child. We made two tables below by which you can easily understand the slight increase which has been done in the minimum weekly allowance from 2017-18 to 2018-19.

Minimum weekly allowance 2017-18

Minimum weekly allowance 2018-19

You could get more allowance if –

1. The child has specific needs
2. You are having certain skills
3. You make a large commitment to fostering

Tax-free Earnings

There is a fixed tax exemption of £10,000 per year and it is shared equally among the foster carer’s in the same household. In other words, foster carer doesn’t have to pay tax on the first £10,000 they earned from fostering.

Tax-Relief

Foster carer is also eligible for the tax relief every week in addition to the £10,000 exemption on the first income. It means that they don’t have to pay tax on some of your earnings above £10,000.

For example – Saurabh is foster carer for a 13 year old child for the whole year and for a 6 years old child for 9 weeks of the year. He doesn’t have to pay tax on the first £24800 he earns.

If you are a foster, you are also eligible for national insurance credits which contribute to your state pension.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.