When you foster children your local council will give you payments. HMRC treats paid foster and other carers as running a business for tax purposes, which means they might have to pay tax on money they receive. In this case there is a special tax relief called ‘Qualifying Care Relief’ otherwise known as QCR, this simplifies reporting to HMRC and can reduce the tax payable.
QCR not only applies to Foster Carers but also anyone else who provides paid care to vulnerable adults under the Shared Lives scheme.
So, who can claim? You can claim QCR if you foster care for anyone under the age of 18 and provide your service to a local authority or an independent fostering provider. If you are a Shared Lives carer, however QCR is capped if you receive payments for more than three people at once. If the cap is exceeded at any point you will need to keep a full record of income and expenditure and complete a Self-Assessment tax return.
QCR means carers can claim a standard tax deduction against income instead of the expenses they actually incur. This makes the calculation of the taxable amount easy. If the care payments are less than the QCR limits then they are tax free.
How much is tax free though? The qualifying amount is the sum you can get for caring without paying tax. It is a fixed sum of £10,000 per household per year, plus an amount per person cared for each week. That’s £200 for a child under 11, and £250 for anyone over 11. If your income is less than the qualifying amount, you receive an automatic exemption. You are treated as if you haven’t made profit or a loss: you won’t pay tax or Class 4 NI and you can’t claim actual expenses or capital allowances.
If your income is more than the qualifying amount, QCR gives you a simpler way to calculate profits. You work out the difference between total qualifying amount. Again, if you fill in a tax return, claim QCR and put total receipts and the qualifying amount on the self-employment pages. But the simplified method is optional. Alternatively, you just use normal self-employed rules.