Foster carers in the UK provide an invaluable service to children and young people in need. Recognising the essential role they play, HM Revenue & Customs (HMRC) offers specific tax relief schemes to ensure that carers are not unnecessarily taxed on their fostering income. For the 2025/26 tax year, understanding these rules is crucial for carers to maximise their allowances, remain compliant with HMRC, and properly plan their finances.

 

Understanding Qualifying Care Relief (QCR)

Qualifying Care Relief (QCR) is a special tax scheme designed specifically for foster carers. It allows carers to calculate whether they have a tax liability on the income received from fostering. This scheme covers a variety of care arrangements, including:

  • Fostering
  • Shared Lives care
  • Staying Put arrangements
  • Parent-and-child care
  • Supported lodgings
  • Kinship care

How QCR Works

QCR consists of two key components:

  1. Fixed Household Allowance
    Every approved foster carer household is entitled to a tax-free allowance for the full year:
  • 2023–24: £18,140
  • 2024–25: £19,360
  • 2025–26: £19,690

This fixed allowance is pro-rated if a carer is only approved partway through the tax year.

  1. Weekly Child Rate
    In addition to the household allowance, carers can claim a weekly tax-free amount for each child in their care. The 2025/26 rates are:
  • Children under 11: £415 per week
  • Children 11 and older (including Staying Put arrangements): £495 per week

This relief applies to all fostering-related payments, including fees, rewards, retainer payments, holiday allowances, birthday allowances, mileage, and other reimbursed expenses.

 

Calculating Your Taxable Income

To determine whether you owe tax, follow these steps:

  1. Calculate Your Tax Threshold
    Add the fixed household allowance to the total weekly child allowances for all children in your care throughout the tax year.
  2. Compare Against Total Income
    Obtain the total fostering payments from your fostering service, which should provide an annual statement after 5 April. This includes all payments and reimbursements for the year.
  3. Determine Tax Liability
  • If your total fostering income is below the tax threshold, no tax is due.
  • If your income exceeds the threshold, you may opt to continue using QCR or calculate tax using the traditional profit-and-loss method, deducting allowable expenses.

 

Record-Keeping: Essential for Accuracy

Accurate records are critical to correctly claim QCR:

  • Track arrival and departure dates for every child
  • Maintain the age of each child
  • Record the number of weeks (Monday to Sunday) for tax calculations
  • Keep receipts for exceptional expenses, such as sensory equipment or therapy costs

HMRC considers exceptional expenses as those that are not regularly incurred but relate specifically to the care of the child. Accurate record-keeping ensures correct tax calculations and protects against potential queries.

 

National Insurance Contributions (NICs)

Foster carers, as self-employed individuals, may need to pay National Insurance contributions (NICs):

  • Class 2 NICs: Paid if taxable profits exceed the Small Profit Threshold; optional for voluntary contributions to maintain state pension and benefits.
  • Class 4 NICs: Charged on profits above the Lower Profits Limit.
  • NIC payments cease once carers reach State Pension age.

Even when no tax is due under QCR, registering for NICs ensures continued access to welfare benefits and the state pension.

 

Other Tax Considerations

  1. Private Fostering and Family/Friends Care
    Payments received under private arrangements may not qualify for QCR. However, Section 17 Children Act 1989 payments remain tax-free.
  2. Special Guardianship Orders
    Any special guardianship allowance is exempt from tax and does not need to be declared on a Self Assessment return.
  3. Personal Allowance
    Your personal tax allowance can offset small profits from fostering, further reducing potential tax liabilities.

 

Filing Requirements

Foster carers must submit a Self Assessment tax return each year, covering the period from 6 April to 5 April. Key points include:

  • Use SA100 form and the self-employment supplementary pages
  • Claim QCR accurately based on household and child allowances
  • Include exceptional expenses if applicable
  • Ensure submission deadlines are met: 31 October (paper) or 31 January (online)

 

Choosing Between QCR and Profit & Loss Method

Carers with higher expenses may benefit from using the profit-and-loss method, where actual costs are deducted from total income to calculate taxable profit. This method is time-intensive but can be more beneficial for carers with substantial costs related to fostering.

 

Why Professional Advice Matters

Each foster carer’s circumstances are unique. HMRC thresholds and allowances differ based on approval dates, the number of children in care, and personal financial circumstances.

At Morgan Reach Chartered Certified Accountants, we provide tailored guidance to ensure:

  • Accurate calculation of Qualifying Care Relief
  • Full compliance with HMRC
  • Optimised tax and National Insurance treatment
  • Expert support in record-keeping and filing

 

Key Takeaways for 2025/26

  • Tax exemption per household: £19,690
  • Weekly child allowance: £415 (<11 years), £495 (≥11 years)
  • Foster carers are self-employed and must submit a tax return
  • Accurate records are essential for claiming relief
  • Professional guidance ensures maximisation of allowances and compliance

 

If you are a foster carer in 2025/26, ensure you understand your tax thresholds, allowances, and filing obligations.

Contact Morgan Reach today for expert assistance in preparing and submitting Self Assessment returns, and making the most of the allowances available to foster carers.

 

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