How much tax do foster parents pay? | Active Care Solutions

When you become a member of the ACS team, you'll receive membership of Fostertalk an independent service which also provides tax advice to foster parents.

After all, working out tax as a self-employed person can be a little tricky, but our guide to tax and National Insurance will help.

Do foster parents pay tax?

While income from fostering is taxable, HMRC's special tax rules for foster parents that mean that if fostering with ACS your income is likely to be tax free.

You can find out more about this direct from HMRC here. But we have tried to simplify this for you too and provided some examples.

Foster parent tax exemption and relief

We all have a personal tax allowance. Currently in the UK a person must earn £12,570 per year before they are eligible for tax. As a foster parent, you are eligible for an additional £18,140 tax exemption.

Additionally you will also receive tax relief for every week a child is in your care. From the 2023/2024 tax year this is £375 per week for a child under the age of 11 and £450 a week for a child over 11.

This means if you fostered two two teenagers for a full tax year (April to April) you'll need to receive a fostering allowance of over £64,940 before paying any tax. If you didn't work alongside fostering this would increase to £77,510 as it would also include your personal tax allowance.

How does tax for foster parents work?

Below are a few practical examples of how tax for foster parents is calculated to give you an idea of what your income could be. The examples shows that due to the generous tax allowance for foster parents, the fostering allowance equates to a much higher 'take home pay' rate than earning a similar amount via PAYE.

Example 1 - Doreen

Doreen fosters 2 children aged 8 and 12. She looks after them long term and they have been with Doreen for over a year. Alongside fostering Doreen works 14 hours a week in a local cafe. Her earning from the cafe are £9,000 per year.

Annual Salary - £9,000

Fostering income - £45,500

Addition fostering expenses such as additional mileage not covered by the fostering allowance - £1,500

Doreen's total fostering income is £47,000.

Doreen's total income is £56,000

Doreen is not eligible to pay tax as her salary from the cafe is below the personal tax allowance of £12,570 and her fostering allowance is below the Qualifying Care Relief which in Doreen's case would be £64,940.

Example 2 - Amir

In the tax year, Amir fosters a 12 year old boy for 32 week, a 6 year old boy for 40 weeks and a 16 year for 10 weeks.

Fostering is Amir's full time career and he has no other income.

Amir receives £35,900 from fostering. Amir's fostering Qualifying Care Relief is £52,040, plus his personal tax allowance means the amount he could receive in his fostering allowance would need to be over £64,610 before he was eligible to pay any tax.

If Amir had the same income in a salaried role, Amir would have had to pay £4,666 in tax. So his income is the equivalent of an employee on PAYE earning over £40,000 a year.

Example 3 - Sarah

Sarah runs her own small business, working as a mobile hairdresser, which she manages alongside fostering.

Sarah fosters two siblings aged 12 and 14. Both children have been in with her for 5 years.

Sarah's business profit from her hairdressing is £16,000. Alongside this Sarah's fostering income is £46,800.

Sarah has additional fostering expenses of £3,000 for mileage not including in her allowance.

Sarah's income for the year is £65,800.

Sarah's qualifying care relief for fostering is £64,940.

Sarah's fostering income is below the tax threshold due to the QCR, so she will not pay tax on his income. Sarah is eligible to pay tax on £3,430 of her mobile hairdressing profit once her personal tax allowance has been taking into account. Sarah's tax bill for the year will be £686.

An employee with the same net income would pay £10,646 in tax. Therefore Sarah has almost £10,000 a year more.

National Insurance for foster parents

As a foster parent, you are self-employed. Anyone who is self-employed must register to pay Class 2 National Insurance Contributions.

You must pay class 2 National Insurance contributions, if you make a profit from fostering (this is anything you have been paid for fostering which is over and above the qualifying care relief, detailed above.)

Because foster parents at ACS all fall under this threshold their National Insurance Contributions (NICs) is likely to be NIL.

Great rewards and benefits for foster parents

Our foster parents gain access to a range of discounts at many leading retainers, the ones listed below are just some of the great brands that offer our foster parents a discount. Discounts are also available in many restaurants and venues offering great family days out. Easy to use, discounts are applied instantly - so even if you're out shopping, you'll be able to make the most of your discounts immediately.