Wisbech accountant on foster caring and what it means for paying tax
Here is the fortnightly Barwell's Banter column, written by Nickie Barwell of Barwell Accountants in Wisbech...
Income from foster care is taxable and requires reporting on a Self Assessment Tax Return as self employment.
As a foster carer you will receive a weekly allowance, the level of which is dependent upon the age of the child and your location.
Additional funding is available if the child has specific needs or if you have certain skills.
For tax purposes there is a tax exemption of £10,000 per year. This means that you don’t have to pay tax on the first £10,000 of income.
This exemption is per household, meaning that if there is more than one carer in the same household it is shared equally among them.
If you are a carer for less than a year, you are only entitled to a proportion of the £10,000.
In addition to the £10,000 exemption you are also
entitled to tax relief for every week (or part week) that a child is in your care.
For a child under 11, the rate is £200 per child per week and for children aged over 11 the rate is £250 per child per week.
For example, if you are a foster carer for a 13 year old (child A) for a whole year and also a seven year old (child B) for 12 weeks of the year your exemptions would be as follows :
Fixed amount £10,000
Child A (52 weeks x £250) £13,000
Child B (12 weeks x £200) £2,400
So the total tax fee amount in this scenario is £25,400.
In the above scenario, if the actual fostering receipts for the year were £32,000, then £6,600 represents your profit from Self Employment.
If you have no other taxable income, then there would still be no tax liability as the taxable amount is below the tax free personal allowance which is £12,570 (2022/23).
Instead of using this simplified method to calculate your profit from Self Employment you are also allowed to use the profit method where you pay tax on your total care receipts less any expenses and capital allowances.
It is worth considering which method would be most beneficial for you.
Class 2 and 4 national insurance will be due on the profit from self employment figure if it is above certain limits.
Class 2 national insurance is £163.80 per year (2022/23) for profits over £6,725 and class 4 national insurance is calculated at 9% on profits between £9,880 and £50,270 (2022/23)
As a foster carer, you will also be eligible for National Insurance credits which count towards your State Pension. If you are a registered foster carer and need help with your tax affairs then please contact us.