Tax Credits: Foster carers

This section has been written to provide information about tax credits for foster carers and shared lives carers (including adult placement carers). This is a particularly important area in which we have seen examples of wrong advice by the tax credit helpline.

Working Tax Credit

To be able to get WTC the claimant needs to be in qualifying remunerative work. In a nutshell this requires them to be working or about to start paid work, to be of a certain age and to work for a certain number of hours a week. See our entitlement section for further information on qualifying remunerative work.

The work the claimant does as a qualifying carer will fall under this heading if they are paid under a contract of employment as an employee or they are paid for their care services as a self-employed carer (ie if their caring activities are treated as 'qualifying remunerative work'). Most foster carers/shared lives carers are likely to be self-employed.

Changes for the self-employed introduced from April 2015 may affect foster carers. However, according to official HMRC guidance, foster carers who are working the required number of hours via their foster care work should be able to claim WTC and the hours declared on the claim form should normally be accepted. We assume that this guidance applies equally to shared lives carers.

There have been occasions when HMRC have incorrectly denied WTC to carers. Advisers should insist that a claim form is sent out even if the tax credit helpline state that there is no entitlement. If the claim is turned down, an appeal can be lodged.

You should bear in mind that in the case of a joint claim, the claimant and their spouse or partner may have other work apart from caring and this may also be 'qualifying remunerative work' for WTC purposes.

HMRC have some guidance about foster carers on the GOV.UK website.

Child Tax Credit

CTC can be claimed if the claimant (or their partner) are 'responsible' for one or more children or 'qualifying young persons'. For more information about CTC see our entitlement section.

The claimant will be treated as 'responsible' for their own children but not for a child or young person who has been placed with them by the local authority, and is ‘looked after’ by the local authority. Therefore they can claim CTC for their own children, but not for the foster children.

This also applies if they are a potential adopter but the local authority pays them for accommodation or looking after the child or both.

However, adopters and guardians of children or young persons who have parental responsibility for them (eg under a special guardianship order or a residence order) can claim to be 'responsible' for the child in their care and so can claim CTC for them.

More guidance can be found in the HMRC manuals.

Income from caring and tax credits

The amount of tax credits will be based on the level of household income. Qualifying care receipts paid by local authorities and similar agencies are only taken into account in working out tax credit income to the extent that they are taxable.

LITRG have written extensive information for carers to explain how their income from caring is taxed. There are two methods: the simplified method under which qualifying care receipts are reduced by prescribed amounts and tax charged on the balance, if any), and the standard method (under which taxable profits are worked out in the usual way). See Qualifying care relief on the LITRG website.

If the claimant uses the simplified method for working out their profits for income tax self-assessment, their income from caring for tax credits purposes will be the amount on which they pay income tax. If their care receipts are wholly covered by their tax-exempt amounts, then none of their income from caring is counted in assessing their tax credits entitlement.

Also, if they use the standard method, their caring income for tax credits will be the same as their taxable profits after deductions.

Last reviewed/updated 22 June 2018