Financial support for foster carers

We know becoming a foster carer is a big decision that takes commitment, compassion and time. Fostering can be life-changing for a young person and deeply rewarding for carers, but it also brings responsibilities and costs. When you’re approved as a foster carer and a child comes to live with you, you’ll start receiving a fostering allowance straight away.

• Immediate support. Allowances begin as soon as a child begins living with you so you can focus on the child’s needs without delay.
• Tax status. For many foster carers, this payment is tax-free.
• Benefits. In most cases, fostering allowances will not affect any benefits you already receive.

Foster carers and self-employment

When you become an approved foster carer, you are classed as self-employed for tax purposes. This means you’ll need to register with HM Revenue & Customs (HMRC) for self‑assessment and National Insurance Contributions (NICs). 

This requirement applies to all foster carers, regardless of the type of fostering you provide or how much you earn from fostering. 

Registering with HMRC is straightforward and can be completed online.

Registering as self-employed  

What you need to do: 

• Have your National Insurance number ready. If you don’t have one, you can apply for a National Insurance number online.
• Register for Self‑Assessment online through HMRC’s website to set up your tax record and National Insurance contributions.

If you’re already registered as self‑employed, you do not need to register again. Instead, let HMRC know that you are now also fostering and complete the relevant fostering section when you fill in your tax return. 

If you prefer, you can ask an accountant to handle the registration and tax return for you. 

Paying tax as a foster carer

A common question is whether foster carers pay tax. When you’re a foster carer, you are classed as self‑employed, therefore, the payments you receive for fostering are taxable. 

However, many foster carers pay very little tax on their fostering income and some pay none at all. That’s because foster carers can benefit from a special tax relief called Qualifying Care Relief (QCR), which reduces the amount of taxable income from fostering. 

National Insurance for foster carers 

Just like with tax, foster carers are treated the same as other self‑employed people for National Insurance purposes. There are four types of National Insurance contributions overall, only Class 2 and Class 4 contributions apply to the self‑employed, and, in turn, to foster carers.

What this means for you:

• Class 2 and Class 4 are the most likely contributions you’ll pay as a foster carer. 
• These contributions work the same way as for any other self‑employed activity and are calculated through your Self‑Assessment tax return.

 Check the latest Class 2 and Class 4 rates and thresholds, via HRMC’s guidance on National Insurance contributions.