Foster Carer
Tax & MTD Guide
Qualifying Care Relief, the simplified method, Self Assessment, National Insurance and MTD explained for UK foster carers and shared-lives carers.
Estimate your tax as a self-employed foster carer
Adjust the figures to see your estimated Income Tax and Class 4 National Insurance for the year.
Total turnover before expenses
Under £1,000 we use the trading allowance automatically
Estimated tax bill
£2,452
8.2% effective rate for 2026/27
- Income tax
- £1,886
- Class 4 NI
- £566
Take-home pay
£19,548
after tax, NI and expenses
This is an estimate using GOV.UK rates for 2026/27, not your official tax calculation. TapTax is MTD-compatible, so you can connect to HMRC and file the real figures in a couple of taps.
- Foster carers are self-employed for tax, but a special scheme called Qualifying Care Relief means most carers pay little or no Income Tax on their fostering payments.
- Your tax-free threshold is a fixed £18,140 a year plus a weekly amount for each child you care for: £375 a week under 11 and £450 a week aged 11 and over.
- You choose each year between the simplified method (tax only the income above your threshold) and the profit method (deduct actual expenses), and pick whichever leaves the lower profit.
- You usually still need to register for Self Assessment and file a return to claim the relief, even when your taxable profit is nil, and you can claim National Insurance credits to protect your State Pension.
- MTD for Income Tax is judged on gross fostering payments, not on your profit after relief, so a carer over £30,000 of payments may be in scope from April 2027 even with no tax to pay.
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.
How Tax Works for a Foster Carer
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 2026/27 the underlying rates still matter for the slice of income, if any, above your relief threshold: the personal allowance covers the first £12,570, then 20% to £50,270, 40% to £125,140 and 45% above, with the personal allowance tapering away between £100,000 and £125,140. Class 4 National Insurance is 6% on profit between £12,570 and £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: Your Tax-Free Threshold
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:
- Qualifying Care Relief
- A tax relief for foster carers, shared-lives carers, kinship carers and some adult-placement carers. It gives you a tax-free 'qualifying amount' made up of a fixed sum per household plus a weekly sum for each person you care for. If your total care payments are below the qualifying amount, your taxable profit is nil. If they are above it, only the excess is taxed (unless you choose to use actual expenses instead). It removes the need to track individual fostering expenses for most carers.
The fixed amount for 2026/27 is £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 | £375 per week |
| Child or young person aged 11 and over | £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.
A Quick Threshold Calculation
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:
- Fixed amount: £18,140
- Child under 11: 52 weeks x £375 = £19,500
- Child 11+: 30 weeks x £450 = £13,500
- Total qualifying amount: £51,140
If your total fostering payments for that year were, say, £42,000, they sit comfortably below £51,140, so your taxable profit is nil and there is no Income Tax or National Insurance to pay on your fostering.
Simplified Method vs Profit Method
Qualifying Care Relief gives you a choice each year, and you take whichever leaves the lower profit:
- Simplified method. Compare your total fostering payments with your qualifying amount and pay tax only on the excess. You do not track or deduct individual expenses. This suits the vast majority of carers.
- Profit method. Ignore the relief and instead deduct your actual allowable expenses from your fostering income in the normal sole-trader way. This only wins if your real running costs are unusually high and your payments are modest, so the ordinary profit is lower than the income above your qualifying amount.
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.
Allowable Expenses (If You Use the Profit Method)
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.
What You Cannot Claim
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.
Record-Keeping for Foster Carers
Even with the relief, good records protect you. You need to keep:
- A running total of all fostering payments received from each local authority or agency, by week.
- The start and end dates of each placement and the age of each child, so your weekly qualifying amounts are right.
- Any remittance advice or statements from your fostering service.
- If you ever use the profit method, the receipts and mileage logs behind your expenses.
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.
National Insurance and Your State Pension
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 for Foster Carers
VAT is rarely an issue for foster carers. You must register only when taxable turnover exceeds £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.
MTD for Income Tax: What Changes for Foster Carers
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:
- April 2026: Combined gross trading and property income over £50,000
- April 2027: Over £30,000
- April 2028: Over £20,000
This trips carers up. A foster carer receiving £40,000 in fostering payments has gross income of £40,000 even if the relief reduces their taxable profit to zero. That carer is over the £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.
Common Mistakes Foster Carers Make
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 £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.
People also ask
Foster carer income and Making Tax Digital
If you work for yourself, Making Tax Digital for Income Tax applies to you from 6 April 2026 if your qualifying income is over £50,000, and from 6 April 2027 if it is over £30,000. TapTax keeps your digital records and sends your quarterly updates to HMRC, and it is MTD-compatible.
Start freeQuarterly expenses under MTD: the £90,000 rule
If your annual business turnover is £90,000 or less, HMRC lets you report a single consolidated expenses total in each Making Tax Digital quarterly update instead of breaking expenses down into itemised categories. Most self-employed foster carer businesses are under this threshold, so a quarterly update can be as simple as two figures: total income and total expenses. You still need to keep digital records of each individual expense - the relaxation only changes how much detail goes into the quarterly update itself.
Related calculators and guides
More self-employed tax guides
Frequently asked questions
Do foster carers pay tax on their fostering income?
Most foster carers pay little or no tax thanks to Qualifying Care Relief. You add a fixed annual amount of £18,140 to a weekly amount per child (£375 under 11, £450 for 11 and over) to get your tax-free threshold. If your total fostering payments fall below that threshold, your taxable profit is nil. Only the income above the threshold is taxed, and many carers never exceed it. You still usually need to register for Self Assessment to claim the relief and declare the position.
Do I have to register for Self Assessment as a foster carer?
Yes, in almost all cases. Even though Qualifying Care Relief often wipes out the tax, HMRC expects foster carers to register as self-employed and file a Self Assessment return to claim the relief and report their fostering income. Registering also keeps your National Insurance record clean. If your only income is fostering and it sits below your relief threshold, your tax bill is nil but the return still needs filing. Register by 5 October following the end of the tax year you started.
What is the difference between the simplified method and the profit method?
Qualifying Care Relief gives you a choice each year. The simplified method compares your total fostering payments with your fixed plus weekly threshold and taxes only the excess, with no need to track individual expenses. The profit method ignores the relief and instead deducts your actual allowable expenses from your income in the normal way. Most foster carers are better off with the simplified method, but a carer with very high running costs and modest payments may pay less under the profit method. You pick whichever gives the lower profit.
Do foster carers pay National Insurance?
Foster carers are treated as self-employed, so Class 4 National Insurance applies at 6% on profit between £12,570 and £50,270, then 2% above, with Class 2 settled through Self Assessment. In practice, because Qualifying Care Relief usually reduces taxable profit to nil, most foster carers pay no NIC at all. You can also claim National Insurance credits for fostering, which protect your State Pension record even in years when your taxable profit is zero. Ask HMRC or your local authority about credits.
When does Making Tax Digital apply to foster carers?
Making Tax Digital for Income Tax is mandatory from April 2026 for those with gross self-employment and property income over £50,000, April 2027 above £30,000, and April 2028 above £20,000. Crucially the test is on gross income before Qualifying Care Relief. A carer receiving £35,000 in fostering payments is over the £30,000 line for April 2027 even if their taxable profit after relief is nil. Check your gross payments, not your taxable profit, to know when MTD applies to you.
Are Foster Carers Self-Employed?
Foster carers are not employees of their fostering service or local authority, and HMRC treats them as self-employed for tax and Self Assessment purposes. This means you are responsible for reporting your fostering income on a Self Assessment return rather than receiving a P60 or having tax deducted at source. In practice, however, most foster carers pay little or no tax because HMRC provides Qualifying Care Relief, a generous tax exemption that often eliminates any taxable profit entirely.
Sources
Official guidance on GOV.UK.