A Guide to Foster Carer Finances

When you’re considering becoming a foster carer it’s important to understand the financial rewards of your new career. 

Being a foster carer means you’ll receive financial support to enable you to care for a child or young person who is unable to live with their birth family.  The financial support available can vary a lot but there are lots of excellent resources available including the government’s ‘Becoming a foster parent’ website and advice sections on the Fostering Network.

The most recent changes were seen in the 2023 Spring Budget when the Government made a significant increase to the tax thresholds for foster carers. This means that you as a foster carer can earn more money from fostering before having to pay any tax.

How much money do foster carers receive?

The government sets a minimum allowance that all foster carers must get paid. You will often find that foster agencies and local authorities will pay more than the minimum allowance. Any additional allowance is a reward for you as a foster carer for providing a home for some of the most vulnerable children in society.

At Olive Branch Fostering, our carers can receive annual allowances of up to £35,900 per year, per child. Carers receive their allowance whenever they have a child placed in their care and the amount will differ per carer based on their experience, the type of fostering they do, and how many children they care for. At Olive Branch, your allowance will increase as you gain more experience in fostering but it never goes down – something most other agencies do not offer.

At Olive Branch Fostering we know that the biggest rewards are not financial. The biggest rewards are the positive outcomes we see for the children and young people we care for every day. All thanks to our outstanding community of foster carers and Olive Branch’s supportive network in the North West.

How do carers get paid?

As a foster carer, we know your primary focus is on the child/children in your care. That’s why you don’t need to worry about claiming your financial reward from fostering – we do that for you.

Olive Branch foster carers receive their payments by BACS directly into their account fortnightly (in arrears). Carers will be provided with remittance advice for all payments, plus an annual statement detailing all payments received. All you need to do at the end of the year is submit a tax return.

Do foster carers pay tax?

There is a scheme specifically for foster carers, set up by HM Revenue and Customs (HMRC), called Qualifying Care Relief. This scheme provides foster carers with a generous tax-free amount to be deducted from their total fostering payments, to work out if they need to pay tax on their fostering income.

Following the recent increases in Qualifying Care Relief, here’s an illustration of how tax relief could work for carers:

An example

Carrie is a foster carer for 2 children; Ella is 8, and Emily is 13. Both children have been in Carrie’s care for over a year, so Carrie has been receiving payment for them for 52 weeks in the tax year. Carrie’s ‘qualifying amount’ for tax relief 2023/24 is calculated as follows:

• Fixed annual tax relief = £18,140
• Tax relief per child
• Ella – 52 weeks x £375 = £19,500
• Emily – 52 weeks x £450 = £23,400

Total qualifying amount for tax relief = £61,040. This means Carrie can earn £61,040 before she pays any tax.

Are foster carers employed or self-employed?

All foster carers in the UK are classed as self-employed and therefore must complete a self-assessment tax return – even if the foster carer’s allowance is not taxable.

In April of each year, HMRC will write to or email you, to inform you that you are required to complete a self-assessment tax return. This can be done by paper or online, by either yourself or by a local accountant or bookkeeper on your behalf.

If you have additional paid you will still need to declare this income on your self-assessment tax return.

Do foster carers pay National Insurance?

Foster carers are required to pay Class 4 NIC but only if their total annual foster carer allowance is eligible for tax. The Class 4 NIC will be payable on whatever the foster carer’s taxable income is for that tax year. In addition, Class 4 NICs are only paid at 9% of any taxable profits over £12,570 or 2% of any profits over £50,270 (figures correct for 2023/24).

Can I still claim benefits whilst fostering?

Many foster carers are still entitled to some benefits whilst fostering. It’s important to seek advice from your local benefits agency if you receive benefits and you’re considering fostering.

Additional help and advice

All Olive Branch we’re always here to answer your questions. In addition, all of our foster carers receive free membership of FosterTalk, a leading support service for foster carers in the UK.

Their services include free online resources and helpline access to professionals on tax, benefits and National Insurance. Here’s the link if you’re already a member or wish to join as a pre-approval member: Foster Talk Finance.

We also recommend visiting the Fostering Network, the UK’s leading fostering charity. Their Advice & Information section is constantly updated and offers support on many topics including finance.

Looking to foster in the North West?

If you’re considering fostering in the North West of England, Olive Branch Fostering is here to answer any questions you may have. We’re the leading foster care agency in the region with our head office based in Lancashire. Our teams have a wealth of experience in supporting foster carers and matching children with the right foster families

Get in touch with us today to for an informal chat about becoming a foster carer.