Yes, foster carers are self-employed. Because foster carers are not considered employees of the local authority or foster agency, they need to be classified as self-employed for tax purposes. This means if you are a foster carer, you’ll be responsible for reporting your fostering income and expenses on your tax return and you may need to pay tax on your fostering allowance, depending on how much it is.
If you’ve not been self-employed before, the thought of registering as self employed can be daunting. That’s why we’ve put together a simple guide to help you get started, as well as listing the help and resources available to you as a foster carer at Capstone.
As a foster carer, you’ll receive a fostering allowance to pay for the living costs of your foster child as well as a reward for your time and work in caring for them. Even if you don’t make a profit, you’ll need to register as self employed with HM Revenue & Customs for Income Tax and National Insurance Contributions as soon as you have been approved as a foster carer.
There are several different ways you can register as self employed, including:
The deadline for registering as self-employed is six months before the end of the tax year that you were approved as a foster carer in, which is the 5th October at the latest.
Before you register you’ll need to know the date you were approved as a foster carer and your National Insurance Number.
National Insurance contributions are a payment needed to qualify for some benefits in order to claim the State Pension. You have to pay National Insurance when you’re self-employed if your profits exceed £12,570 a year, although you can still qualify for some benefits if your profits are between £6,725-£12,570. There are different types of National Insurance Contributions, which can be tricky to get your head around. That’s why we’ve broken them down into the main classes of contributions below.
Class 2 contributions are the standard contributions you’ll register for when you initially register with HMRC as self employed. You won’t need to pay for Class 2 NICs if you have no taxable profit from fostering, or if your taxable profit is less than £12,570 in (2023-2024).
Because National Insurance contributions give you access to certain welfare benefits like maternity benefits and the state retirement pension, some people still volunteer to pay their National Insurance Contributions even if they are not required to pay to ensure access to these benefits. The rate for National Insurance Contributions for Class 2 between 2023-2024 is just £3.45 a week.
National Insurance Credits are payments that count towards your National Insurance Record. You can apply for National Insurance Credit for each week you are approved as a foster carer. You can do this by filling in form CF411A along with proof of your fostering approval either by applying either online or by post.
Class 4 Contributions are only needed if you make over £12,570 in profits. The National Insurance Contribution is divided into bands for 2023-2024 as follows.
Do I Pay NICs if I am above pension age?
If you are over 66 - state pension age, you won’t pay national insurance contributions, unless you are already required to pay Class 4 contributions.
If you fail to register for self assessment, HMRC can penalise you for up to 100% of the tax owed.
HMRC will not usually penalise you if you miss the registration deadline, as long as you pay your tax on time. But if you do miss a deadline, you should contact HMRC as soon as possible.
If you stop being a foster carer, you should notify HMRC that you are no longer self-employed. Failure to do so could mean that HMRC continues to send you self-assessment tax returns after you have stopped fostering. If you ignore these tax returns you could be liable for penalties.
You should report your fostering income to Univeral Credit every month if you are self employed. You should do this even if you did not have any income of expenses that month.
Our team have created multiple resources to help you with all aspects fostering finances. If you have any other questions about Tax, Pensions, Benefits you can check out our guides, including how much foster carers get paid.
As a member of the Capstone family, you will also have access to Foster Talk, which has its very own helpline to offer support regarding self employment and tax. For further information, you can also contact HMRC via their hotline, 0300 200 3500.
Want to find out more about fostering with Capstone? Contact our helpful team today.
If you’ve got any questions or would like to find out more about fostering with Capstone, fill out the form below.
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