Spire Accountants

HMRC treats all foster carers as self-employed for tax purposes. So, once they have been approved, all foster carers should register as self-employed. HMRC will charge a penalty if a foster carer does not register as self-employed within six months of the end of the tax year in which they are approved (i.e. the year they start self-employment). The tax year runs from 6 April to 5 April, so the deadline for registering as self-employed is 5 October. (For example, if you became approved as a foster carer between 6 April 2025 and 5 April 2026, you would need to register by 5 October 2026)

It's simplest to register with HMRC online. You can also call HMRC if you need support with your registration. 

Once registered as self-employed, foster carers will need to calculate how much tax they owe and submit a self-assessment tax return every year. To do this, it’s important that foster carers have a record of the children they foster, the dates they are with them, and their ages.  

Foster carers who register as self-employed are automatically registered for Class 2 National Insurance contributions. 

 There is a special tax scheme for foster carers called Qualifying Care Relief (QCR). This scheme covers foster care, shared lives care, Staying Put care, parent-and-child care, supported lodgings and kinship care. It allows foster carers to receive payments from their fostering service up to a certain level (called their ‘tax threshold’), without having to pay tax. Qualifying Care Relief means that many foster carers have little or no tax to pay on their fostering income.

QCR has 2 elements and are as follows for tax year 2026/27- 

• a fixed amount of £19,690 for each household for a full year.
• a weekly amount for each cared for child or adult:
  • £415 for children under 11
  • £495 for children aged 11 or over
  • £495 for each adult 

However, foster carers need to do a simple calculation at the end of each tax year to find out what their tax threshold is and compare it with their total fostering payments for the same tax year. If their total payments are below their tax threshold, they do not have to pay tax on their fostering income.

It’s important to remember that each foster carer’s tax calculation will be unique to them and their personal circumstances. We would advise foster carers not to compare themselves with others, as their tax thresholds are unlikely to be the same.  

Once a foster carer has calculated the tax they owe, they will need to send in a self-assessment tax return, covering the period from 6 April in the previous year to 5 April in the current year. The deadline for submitting the tax return is midnight on 31 October (for paper forms) or 31 January (for online forms).  

Any tax due should be paid by the 31st January following the income tax year for which the return is being filed for.

It is important to note that an income tax return is required even if you have no tax to pay and the only source of revenue you have is from fostering.

If you complete a paper copy of a self-assessment tax return form you will need to complete two forms: the SA100 and the self-employment supplementary page (short version or long version, for foster carers who receive £85,000 or more in total payments from their fostering service). The GOV.UK website offers further guidance for completing the tax return forms. 

Foster carers pay National Insurance contributions (NICs) to qualify for certain welfare benefits and the State Pension. There are two types of National Insurance for people who are self-employed, depending on their profits: Class 2 and Class 4. Foster carers who register as self-employed are automatically registered for Class 2 NICs. Foster carers will only pay Class 4 NICs if they make a significant profit on their fostering income.  

Because Qualifying Care Relief usually drops fostering taxable profit to nil, most foster carers pay no Class 2 or Class 4 National Insurance. The risk is that a year with no NIC is a gap in your State Pension record. Foster carers can claim National Insurance credits that protect that record even when there is no taxable profit, so you do not lose out on your pension for the years you spend caring. You apply for these credits separately, and it is well worth doing for every qualifying year.  

Foster carers have a few options in terms of paying these contributions. The best option will depend on their individual circumstances, including whether they have a full National Insurance record. Foster carers can check their National Insurance record on the GOV.UK website.

Fostering income is exempt from the MTD regime roll out. 

In addition to this exemption, foster carers with additional income sources- such as rental income or another self-employed business- will not be required to join the MTD system in 2026/27, even if that income would normally bring them above the MTD threshold.  

However, from 2027/28, foster carers with income from other sole trades and/or rental income, will have to register for MTD if the combines income from that sole trade/rental income exceeds £30,000. 

Please refer to our dedicated MTD for more information.

If you still have any questions  about the above, please contact Spire Accountants at:

Email: Shakeela@spireaccountants.net

Phone: 07442202165

Website: www.spireaccountants.net