A Guide to Foster Carer Finances: Salary, Tax and Self-Assessment

Foster Carer and Child

With so many fostering agencies and local councils offering to take on foster carers, it can get quite confusing when it comes to foster carers salary and their tax allowance. Are foster carers self-employed? Do foster carers do their own tax returns and self-assessment? Can foster carers still claim benefits?

In this post, we’ll provide all the answers you need about foster carer finances.

What is the average UK foster carer salary?

At Olive Branch Fostering, we pay up to £405 a week, per child, based on experience. Our foster carers start at £321 a week and get a rise each year when they become more experienced. Once their fee goes up, it never goes down – something most other agencies do not offer.

However, foster carer wages are not regulated by the government, so each fostering agency or local council can decide how much to pay each foster carer. The weekly pay figure is usually the same for both long- and short-term placements. However, pay can differ due to factors such as the age of the child or young person or the type of care the foster carer is giving.

Bear in mind that these wages are provided to cover the following:

  • General household expenses
  • Food
  • Clothing
  • Mileage
  • School meals

Any other expenses will normally be covered too. Payments take into account that caring for a foster child can often cost more than caring for your birth children.

Generally, both fostering agencies and local authorities pay their foster carers directly into their bank account, every two weeks.

Are foster carers self-employed and do foster carers pay tax?

In the UK, all foster carers self-employed. However, there is a scheme specifically for foster carers, set up by HM Revenue and Customs (HMRC), called Qualifying Care Relief. This scheme provides foster carers with a tax free amount to be deducted from their total fostering payments, to work out if they need to pay tax on their fostering income.

If you do have to pay tax, it may be possible to offset this amount against your personal tax allowance of £12,500, for 2019/20.

The qualifying amount for Qualifying Care Relief is made up from 2 parts:

  1. A fixed amount of £10,000 for each household for a full year
  2. A weekly amount for each child or young person, which works out at £200 for children under 11 and £250 for children aged 11 or over

The scheme calculates a unique tax threshold for the foster carer’s household. Using their foster carer’s wage, it determines if a foster carer has to pay tax from their fostering salary. Many foster carers in the UK have total fostering payments below the tax threshold, so they don’t have to pay any tax on their fostering income.

As an example, Carrie is a foster carer for 2 children – Ella who is 8, and Emily, who is 13. Both children have been in Carrie’s care for over a year, so Carrie has been receiving payment for them for all of the 52 weeks in the tax year.

Carrie’s ‘qualifying amount’ for the tax year 2018/19 is calculated as follows:

Fixed amount = £10,000

Amount per child; Ella – 52 weeks x £200 = £10,400. Emily – 52 weeks x £250 = £13,000

Total qualifying amount = £33,400

Provided that the receipts Carrie provides for the tax year, is less or equal to £33,400, plus any unused part of her personal allowance, she will not have to pay any tax.

Personal tax for 2018/2019 was £11,850, but has now risen to £12,500 for 2019/20.

Do foster carers pay Class 4 NIC?

As they are self-employed, all foster carers must register to pay Class 2 National Insurance Contributions (NIC). However, if a foster carer is not taxed on their fostering income, they will automatically not have to pay any Class 2 NIC. There are two types of NIC’s for self-employed people in the UK, Class 2 and Class 4.

Foster carers will only pay Class 4 NIC if their foster carer salary is eligible for tax. The Class 4 NIC will be payable on whatever the foster carer’s taxable income is for that tax year. In addition, Class 4 NICs are only paid at 9% of any taxable profits over £8,632 or 2% of any profits over £50,000 (figures correct for 2019/20).

Do foster carers have to do their own self-assessments and tax return?

All foster carers in the UK have to complete a self-assessment tax return – even if the foster carer salary is not taxable, or covered by the Qualifying Care Relief. In April of each year, HMRC will write to or email you, to inform you that you are required to complete a self-assessment tax return. This can be done by paper or online, by either yourself or by an accountant on your behalf.

If you work and pay your taxes monthly from a different wage, you will still need to declare this income on your self-assessment tax return. The self-assessment needs to declare all of your taxable income for the year, even if some of your income has already been taxed. You will not be taxed twice on the same income when you do declare it.

Can I still claim benefits whilst fostering?

Most benefits from the UK government are still payable, on top of the foster carer’s salary. As fostering allowances are to cover the cost of the foster child, foster children will not be counted as part of your household when any means-tested benefits are calculated. That includes Income Support, Jobseeker’s Allowance, Housing Benefit and Council Tax Benefit.

However, the time you spend caring does not count as work for either Income Support or Jobseeker’s Allowance, and you do have to show you are available for work if you want to claim Jobseeker’s Allowance.

When it comes to Child Benefits, foster carers can only claim for their own children, but not any foster children. Some foster children may be eligible for the Disability Living Allowance. It is usually paid to the foster carer who the child lives with. This is paid on top of any benefits, tax credits or other income.

Fostering in the North West

If you’re considering fostering in the North West of England, Olive Branch Fostering is here to answer any questions you may have. We’re a leading foster care agency, based in Rossendale, with a wealth of experience matching children with the right foster homes.

Get in touch with us today to talk more about becoming a foster carer.