Finances

 

Fees and Allowances

When a child is placed in foster care, the cost of caring for them  is paid to the foster carer in the form of a fostering allowance.

Many fostering services also pay a fee on top of this allowance, in recognition of the work they do in caring for these children. This additional payment is classed as the “reward” element of the fee.

To ensure that no foster carer is out of pocket because of their caring role, a recommended national minimum allowance was introduced by the Department for Education.  There is currently no recommended amount for the reward element, and each fostering service will set this separately.

The national minimum allowance has been calculated on the basis of the minimum amount that any foster carer needs to meet the cost of caring for a foster child. Recommended rates, excluding rewards, are as follows:

National Minimum Fostering Allowance 2017-18 (weekly rates)

Weekly ratesBabiesPre-PrimaryPrimarySecondary (11-15)Secondary (16-17)
Rest of the UK£125£128£141£161£188
South East (£)£138£142£158£179£211
London£144£147£165£187£219

National Minimum Fostering Allowance 2016-17 (weekly rates)

Weekly ratesBabiesPre-PrimaryPrimarySecondary (11-15)Secondary (16-17)
Rest of the UK£123£126£139£159£185
South East (£)£136£140£156£177£208
London£142£145£163£184£216

National Minimum Fostering Allowance 2015-16 (weekly rates)

Weekly ratesBabiesPre-PrimaryPrimarySecondary (11-15)Secondary (16-17)
Rest of the UK£123£126£139£159£185
South East (£)£136£140£156£177£208
London£142£145£163£184£216

 

Fostering is classed as a self-employment therefore carers need to: Income Tax and National Insurance

  • register as self-employed and for Class 2 National Insurance
  • complete a tax return

Registering as self employed

Registering as Self-Employed is relatively straight forward, and can be done one of two ways:

  1. Completing a paper form CWF1 by downloading it from HMRC’s website
  2. Registering online using HMRC’s website register here

Completing Your Tax Return

  • Once you have completed the registration you will be asked to complete a tax return on an annual basis for the period 6 April to 5 April.
  • You will need to ensure that you submit your tax return by 31 October (if you are filing by paper) or by 31 January (if you are filing online) following the end of the tax year.  You will also need to make sure you pay any tax liability due by 31 January following the end of the tax year.
  • The date you register from should be the date that you went to panel, as this will allow you to claim the full amount of allowances that you are entitled to.

There are a number of things that can affect your tax liability including:

  1. The number of children in your care at any one time
  2. The type of placement (i.e. if you receive an enhanced fee for one of your placements)
  3. Whether you foster with a partner
  4. Whether you receive any other income in addition to your fostering income

As a foster parent, you’re in a unique tax position. You have a choice of methods to calculate your taxable fostering income:

  • The simple method
  • The profit method

Simple Method

In 2003, HMRC set up a tax scheme for foster carers to simplify the calculation of their taxable income by comparing a ‘Qualifying Amount’ to their total fostering income.  The Qualifying Amount is made up of two elements:

  1. The first element is a fixed rate of £10,000
    1. This amount is available if you have been a carer for the entire tax year.
    2. If you have only been a carer for part of the tax year, the amount is calculated on a pro-rata basis from the date you were appointed in the year
  2. The second element is a weekly rate of:
    1. £200 per week per placement under the age of 11
    2. £250 per week per placement over the age of 11

In order to qualify for this tax relief you will need to group together the total income you received for your fostering duties. All receipts from your fostering service are included in your income (i.e. birthday money, mileage, expenses etc.)

If your total fostering income is less than your ‘Qualifying Amount’ then your taxable income is deemed as NIL and therefore you have no tax to pay. If your income is over the qualifying amount, the excess is treated as your taxable income.

If you have any fostering income in excess of your qualifying amount, you also have your personal allowance to use as well (providing you have no other income e.g. employment income).

Profit Method

The profit method rules state that, in calculating your taxable fostering income, you simply deduct your actual expense from your fostering income for the tax year.

In practice, you would need to keep track of your expenses throughout the tax year and retain any receipts that you are given. This is in case HMRC request evidence to support any entries you have made in your self-assessment tax return.

For any ‘profit’ made on your fostering income, the same rules apply whereby you still have your personal allowance to take advantage of before tax is calculated.

Special Guardianship (SGO)/Residence Order (RO) Allowances

If a carer received income for a placement that is placed under SGO or RO, the income is not taxable and should not be entered on a tax return.

Tax for Foster Carers

Follow the link to an easy online step by step explanation of tax specifically for Foster Carers. The guide is written and produced by the HMRC as an e-learning tool.

Tax for Foster carers learning tool

Tax for Shared Lives Carers

Claiming Benefits

The UK Benefits system is currently undergoing major change with the introduction of Universal Credit which is being phased in across the country.

Under the current system, allowances and fees received by foster carers in return for fostering are fully disregarded for the purposes of calculating entitlement to means tested benefits for the purposes of calculating income related benefits, foster children are not included in the benefit assessment.

For further information please visit:  Benefits for foster carers

The same principles will apply within Universal Credit.

Fees and allowances will not be taken into account as earnings or income and will not affect the amount of Universal Credit a foster carer is entitled to receive. For further information please consult the Department of Work and Pensions Website.

Housing Benefit

Fostering income is disregarded for Housing Benefit purposes.

Housing benefit is for rented accommodation (not available if a carer has a property that they own and rent out)

Spare room reduction:

  • You can claim 1 bedroom for:
    • each single adult
    • each couple
    • all children of the same gender under 16
    • all children under 10 (regardless of gender)
    • each disabled tenant
    • each partner needing an external overnight carer
    • all foster children (also applies when no foster children live with you as long as the room isn’t empty for more than 52 weeks)
    • each foster child that can’t share a bedroom because of a disability or medical condition (contact your local council with medical evidence)
    • each adult child in the Armed Forces or each reservist
    • all external carers who provide overnight care for you or your partner
  • Housing Benefit could be reduced by:
    • 14% of the ‘eligible rent’ if you have 1 extra bedroom
    • 25% of the ‘eligible rent’ if you have 2 or more extra bedrooms

Most local authorities have a benefits calculator on their website.

Council Tax

  • Your fostering income must be disregarded for the purposes of Council Tax reduction and therefore you can apply for Council Tax Reduction.
  • Apply through local authority
  • How much you get depends on:
    • where you live – each council runs their own scheme
    • your circumstances (eg income, number of children)
    • your household income – this includes things like savings, pension, your partner’s income
    • if your children live with you
    • if other adults live with you

Disability Living Allowance for children

Disability Living Allowance (DLA) is a tax free benefit for disabled children who need help with mobility or care costs.

To qualify the child must:

  • Be under 16 years of age
  • Have difficulty walking or need more looking after than a child of the same age without a disability (they must have had the difficulties for at least 3 months and expect them to last for at least 6 months). Terminally ill children are not subject to the 3 month rule.
  • Be in Great Britain, another EEA country or Switzerland when making the claim
  • Not subject to Immigration control
  • Be habitually resident in the UK and have actually lived in the UK for a certain period of time

The child may have to attend an assessment in respect of a claim.

Child AgeLength of time in UK
Under 6 months13 weeks
6 months to 3 years26 of last 156 weeks
Over 3 years2 of the last 3 years

The residence qualification does not apply to terminally ill children (those with 6 months or less to live).

The allowance has a care and mobility component – the tables below show the rates and level of care required.

  • Care Component
BandRate and level of care required
Lowest£21.80 per week help for some of day or night
Middle£55.10 per week frequent help or constant supervision during the day, supervision at night or someone to help when on dialysis
Highest£82.30 per week child can’t walk, can walk a short distance without discomfort, become ill when walking or are blind/severely sight impaired
  • Mobility Component
BandRate and level of care required
Lower£21.80 per week they can walk but need help or supervision outdoors
Higher£57.45 per week child can’t walk, can walk a short distance without discomfort. become ill when walking or are blind/severely sight impaired

Carer’s Allowance: If you spend over 35 hours a week caring for a child who is in the middle or higher rate band you may be entitled to claim carer’s allowance

For more information on DLA, please download this PDF.

Carer Allowance

  •  If a carer has a placement that receives Disability Living Allowance at the middle or higher rate of the care component, they can claim carers allowance.
  • They must ensure their taxable income other the fostering is less than £100 per week
  • Fostering Income is disregarded

Frequently Asked Questions – fostering income and Tax

I foster with my partner, can we reduce our tax liability in any way?

If you foster with your partner it may be beneficial to trade as a partnership but only if their personal allowance is not fully utilised. The numbers would need to be crunched to see if it would be beneficial for you.

We only have one placement, but we received double funding because they need special care, is there any way of reducing my tax liability?

As a specialist foster carer you are entitled to compute your taxable income in exactly the same way as a non-specialist foster carer. However, in addition to the standard allowances, exceptional expenditure may be claimed as an additional deduction in calculating your taxable income. HMRC explains that expenditure may be ‘exceptional’ in, either nature or degree, but must relate directly to the placements special needs in order to be tax deductible.

How is my fostering income taken into account for tax credits?

You must include your income from foster caring in your declaration of income. Your foster caring income for tax credit purposes is the same as your taxable profit from fostering. So if your total foster care receipts are less than your qualifying amount, your profit from foster caring for both tax and tax credit will be nil.

Note: Other income (yours or your partner’s) will be taken into account for Working Tax Credit and Child Tax Credit purposes.

How will my income from fostering affect my entitlement to Child Tax Credit?

You can claim Child Tax Credit for your own children, but not for your foster children (unless, very exceptionally, the local authority do not pay you for accommodation/maintenance).

How will my income from fostering affect my entitlement to Working Tax Credit?

You are entitled to claim Working Tax Credit provided that you or your partner are in ’qualifying paid work’ for at least 16 hours a week if you have a child of your own, or 30 hours a week if you do not. Foster caring is ’qualifying paid work’.

For further information on Tax issues visit:

GOV.UK foster carers

 

Useful Forms & Tax Data

HMRC Form DescriptionHMRC Form No.
Registration for Self-Assessment & Class 2 National Insurance CWF1
Application for National Insurance Credits for CarersCF411a
Qualifying Care Relief GuideHS236

Useful Numbers:

Tax Credit Helpline – 0345 300 3900
Newly Self Employed Helpline – 0300 200 3504
Self Assessment Helpline – 0300 200 3300
Self Assessment Payment Helpline – 0300 200 3835
NIC Deficiency Helpline – 0300 200 3503
Self Employed  NIC Helpline – 0300 200 3505

THE INFORMATION  WAS CORRECT AT THE TIME OF WRITING (SPRING 2017).  FOSTERLINE WOULD ALWAYS RECOMMEND SEEKING PROFESSIONAL ADVICE REGARDING TAX AND FINANCIAL ISSUES.

Link to record keeping apps supplied by the HMRC http://www.hmrc.gov.uk/softwaredevelopers/mobile-apps/record-keeping.htm

HMRC Webinars for foster carers

HMRC has put together a useful range of Webinars for foster carers on a range of issues that affect them. These are designed to give practical help and advice on how to keep records and what tax and insurance foster carers are required to pay. You can choose to take part in a live webinar or watch a pre-recorded session.

For more information and  to access the webinars follow this link:

http://www.hmrc.gov.uk/webinars/self-employed.htm#8

This page also includes links to supporting material and guidance which you might find helpful after you have viewed the webinar.

Webinars on offer include:

Foster carers and HMRC

This webinar is suitable for prospective Foster carers or those who have been approved as a Foster carer. Find out about what self-employment means to you, how to use qualifying care relief, keeping records and what to put on your tax return

Shared Lives carers and HMRC

This webinar is suitable for those involved in Shared Lives care for example, Adult Placement care, Kinship care,  staying-put care and parent and child arrangements. Find out about what self-employment means to you, how to use qualifying care relief, keeping records and what to put on your tax return.

 National Insurance for the self-employed

Find out about the types of National Insurance when self-employed, how to pay it and what benefits your National Insurance counts towards.

 How to Complete Your First Online Tax Return

Find out how to register for Self Assessment Online, how to tailor your Tax Return, how to complete the self-employed pages and how to send your completed return online. This webinar is aimed at sole traders and is not suitable for directors of limited companies.

 

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