Qualifying Care Relief, the simplified method, Self Assessment, National Insurance and MTD explained for UK foster carers and shared-lives carers.
Fostering is one of the few self-employed trades where the tax rules are genuinely on your side. Foster carers are treated as running their own business, but the government recognises that fostering is care, not commerce, and has built a generous, simple relief specifically for it. Qualifying Care Relief gives most carers a tax-free threshold far above what their fostering payments come to, so the usual sole-trader headache of tracking every receipt often disappears entirely.
That said, "little or no tax" is not the same as "nothing to do." Foster carers still need to register, still need to understand which method to use, and still need to know when Making Tax Digital and National Insurance affect them. This guide walks through how fostering income is taxed, how the relief is calculated week by week and child by child, and the handful of decisions that genuinely move your bill.
For tax purposes a foster carer is a self-employed sole trader. Your fostering payments (the fee and the allowance you receive from a local authority or independent fostering agency) are your business income. In the ordinary world of self-employment you would pay Income Tax and National Insurance on income minus expenses. Foster carers instead get Qualifying Care Relief, a special scheme that replaces the normal calculation with a much more favourable one.
For 2025/26 the underlying rates still matter for the slice of income, if any, above your relief threshold: the personal allowance covers the first GBP 12,570, then 20% to GBP 50,270, 40% to GBP 125,140 and 45% above, with the personal allowance tapering away between GBP 100,000 and GBP 125,140. Class 4 National Insurance is 6% on profit between GBP 12,570 and GBP 50,270 and 2% above, with Class 2 settled through Self Assessment. Scottish carers pay Scottish Income Tax across six bands (19%, 20%, 21%, 42%, 45% and 48%) with an S-coded tax code; Welsh carers carry a C code at rates matching the rest of the UK. National Insurance is UK-wide. If your tax code looks wrong because of a pension or a part-time job alongside fostering, run it through the tax code checker.
Qualifying Care Relief is the heart of foster-carer tax. Instead of working out profit in the usual way, you build a personal tax-free threshold made of two parts:
The fixed amount for 2025/26 is GBP 18,140 a year per household (not per carer, so a fostering couple share one fixed amount). On top of that you add a weekly amount for each child or young person:
| Person in your care | Weekly amount |
|---|---|
| Child under 11 | GBP 375 per week |
| Child or young person aged 11 and over | GBP 450 per week |
Add the fixed amount to the weekly amounts for every placement across the year, and that total is your qualifying amount. If your fostering payments for the year come in below it, your taxable profit from fostering is nil. Only payments above the qualifying amount are taxed.
Say you fostered one nine-year-old for the full 52 weeks and a fourteen-year-old for 30 weeks during the year. Your qualifying amount is:
If your total fostering payments for that year were, say, GBP 42,000, they sit comfortably below GBP 51,140, so your taxable profit is nil and there is no Income Tax or National Insurance to pay on your fostering.
Qualifying Care Relief gives you a choice each year, and you take whichever leaves the lower profit:
You can switch method from year to year, so it is worth a quick check each time you file. For most carers the simplified method is both simpler and cheaper, which is the rare case where the easy option is also the optimal one. To sense-check any taxable slice above your threshold, drop the figures into the sole trader tax calculator.
If you do choose the profit method, you deduct expenses incurred wholly and exclusively for fostering. Because fostering happens in your own home and around family life, many costs are dual-use and you can only claim the business proportion. The table below is the realistic picture for a carer who has opted out of the relief.
| Expense | What qualifies | Notes |
|---|---|---|
| Extra food and household costs | The additional food, toiletries and consumables for the children you care for | Only the extra above your normal household spend |
| Children's activities and outings | Clubs, swimming, days out, hobbies linked to the placement | Keep receipts and a note of the purpose |
| Travel and mileage | Driving to school, contact sessions, medical and review meetings | Claim mileage at HMRC's approved rate or actual motoring costs |
| Home running costs | A fair proportion of heat, light and water for the extra occupancy | Use a reasonable apportionment |
| Equipment and bedding | Cots, beds, safety equipment, car seats, bedding bought for placements | Capital items via the Annual Investment Allowance |
| Training and registration | Mandatory fostering training and relevant CPD | Must relate to your fostering role |
| Insurance and phone | Business-use share of contents insurance and phone calls about placements | Private share is not allowable |
| Professional fees | Foster-carer association membership, accountancy for the return | Fully deductible where business-related |
The important point: almost no carer is better off here than under Qualifying Care Relief. The relief is so generous that tracking these expenses is rarely worth it. Treat the profit method as a fallback to check, not a default.
You cannot claim the everyday cost of running your home that you would incur anyway, your own clothing, or any private-life share of dual-use costs. And under the simplified relief method you do not claim expenses at all, because the relief already replaces them. Mixing the two, taking the relief and also deducting expenses, is not allowed.
Even with the relief, good records protect you. You need to keep:
The two figures that decide everything are your total payments and your qualifying amount. Get those right and the rest follows. Keeping a simple weekly log as placements change saves a frantic reconstruction at filing time, and it is exactly the kind of continuous record MTD will expect.
For a foster carer the tax return is usually a formality, but it is a formality you still have to complete. Track your payments and your placement weeks, claim Qualifying Care Relief, and the relief does the heavy lifting.
Because Qualifying Care Relief usually drops taxable profit to nil, most foster carers pay no Class 2 or Class 4 National Insurance. The risk is that a year with no NIC is a gap in your State Pension record. Foster carers can claim National Insurance credits that protect that record even when there is no taxable profit, so you do not lose out on your pension for the years you spend caring. You apply for these credits separately, and it is well worth doing for every qualifying year. If you also have other income, such as a part-time job or a pension, see how the streams combine on the multiple-income tax calculator.
VAT is rarely an issue for foster carers. You must register only when taxable turnover exceeds GBP 90,000 in any rolling 12-month period, and fostering payments from a local authority or agency are generally not the kind of business income that pushes a carer towards that line. Almost no foster carer will need to register for VAT, and the question only really arises if you run a separate trading business alongside your fostering.
Making Tax Digital for Income Tax replaces the annual return with quarterly digital updates and a year-end finalisation. The crucial detail for carers is that the entry thresholds are based on gross income before Qualifying Care Relief, not your taxable profit:
This trips carers up. A foster carer receiving GBP 40,000 in fostering payments has gross income of GBP 40,000 even if the relief reduces their taxable profit to zero. That carer is over the GBP 30,000 threshold and in scope from April 2027. So judge your MTD start date on the payments you receive, not the tax you pay. Our guide to MTD for sole traders explains the quarterly rhythm, and using MTD-compatible software from the start means your weekly payment log doubles as your digital record.
Not registering at all. Because the relief often means no tax, carers assume there is nothing to file. HMRC still expects you to register and submit a return to claim the relief and report the position.
Forgetting National Insurance credits. A nil-profit year can be a State Pension gap unless you claim foster-carer NI credits. This is the single most overlooked thing carers miss.
Using the wrong weekly rate or age band. A child who turns 11 mid-placement moves to the higher GBP 450 weekly amount from their birthday. Getting the age bands and placement weeks right keeps your qualifying amount accurate.
Mixing the relief with expenses. You either take Qualifying Care Relief or you deduct actual expenses. You cannot do both in the same year.
Judging MTD on profit, not payments. The thresholds look at gross fostering payments, so a carer with high payments and nil taxable profit can still be brought into MTD.
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