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Fostering & Tax

Understanding tax can sometimes be challenging, especially as it directly affects your fostering income. We’ve put together the key information you need to make things easier. Read on for a simple breakdown of how tax works for foster carers and what records you’ll need to keep and submit.
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Self employed status

Fostering is classed as self employment, and when you begin fostering, you must notify HMRC of your new status. If you are already self employed, you generally won’t need to change your overall status, but you should still inform HMRC that you have started fostering.

You will only begin receiving fostering income (through your carer payments) once your first placement has been made.

Fostering income and qualifying care relief

Fostering income is taxable, but Qualifying Care Relief (QCR) can significantly reduce, and in many cases eliminate, the amount of fostering income you pay tax on.

Your taxable amount is calculated by taking your total fostering income (carer payments) and subtracting your QCR allowance. If the result is below zero or breaks even, no tax is due. Whether you owe tax will depend on your total fostering income.

Current Qualifying Care Relief rates

The Government has increased QCR to the following levels:

  • £19,690 tax exemption per household each tax year
  • Weekly tax relief per child or young person:
    • £415 per week for a child aged under 11
    • £495 per week for a child aged 11 or over

This weekly relief is in addition to the household allowance. If you start fostering partway through the year, the amounts are calculated pro rata from your start date.

Other income

Any income outside of fostering is not covered by QCR and is taxed as usual.

Calculating taxable profit

The “profit” from fostering (income above your QCR allowance) is the figure used for tax purposes. You can also apply your personal allowance, depending on any other non-fostering income.

Alternatively, you can choose the traditional profit and loss method, where you compare your fostering income with your actual fostering-related expenses. This method requires detailed record-keeping and often results in a higher taxable amount compared with using QCR.

Example

If Foster Carer A fosters:

  • a 12 year old for the whole tax year (52 weeks), and
  • a 6 year old for 20 weeks,

the total tax exemption would be:

  • Household allowance: £19,690
  • 12 year old: 52 weeks × £495 = £25,740
  • 6 year old: 20 weeks × £415 = £8,300

Total QCR = £53,730

This means the foster carer can receive up to £53,730 in fostering payments without paying tax.

Any amount above this is treated as profit and may be taxable.

Tax return

You must submit a tax return to report your fostering income and any taxable profit. This is completed online, and you should register with HMRC under the Making Tax Digital system.

You should also review your National Insurance (NI) position, as NI credits from fostering can help you qualify for your State Pension. If you make a profit from fostering, you may also need to pay Class 2 National Insurance contributions.

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Tax guidance from HMRC

HMRC provides online guidance covering tax and National Insurance for foster carers. You may find this information useful and informative. Please see the link below:

https://www.gov.uk/support-for-foster-parents/tax-arrangements

Please note that the information above does not constitute tax advice from Sunbeam Fostering Northwest. Foster carers should seek independent advice regarding their individual tax position. This guidance reflects the rules as of April 2025, and tax thresholds or regulations may change in the future.