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Foster carers and working tax credit
A number of foster carers have reported that if they claim working tax credit (WTC) by calling the tax credits helpline, they are told that they are not entitled because their income is too high. Yet the law provides that fostering income is only counted for tax credits to the extent that it is taxable, and the generous tax reliefs introduced for foster carers last year are equally applicable to tax credits.
In this article we consider when foster carers are entitled to claim tax credits, both WTC and child tax credit (CTC), and what income is taken into account in assessing their entitlement.
Working tax credit
Since April 2003 foster carers have been entitled, for income tax purposes, to set certain exemptions against any income they receive from the local authority or fostering agency. These exemptions are:
- A fixed amount of £10,000, and
- An amount per child of £200 a week for each foster child under 11, and £250 a week for each child aged 11 or over.
Very often those generous exemptions - known as 'foster care relief' - will result in fostering income being nil, for income tax purposes. When carers apply for tax credits, their income from fostering is counted only to the extent that it is taxable. If, therefore, a foster carer's receipts are fully covered by foster care relief, and they have no other income, they are entitled to maximum WTC.
People are entitled to WTC if they are engaged in 'qualifying remunerative work', which must be for at least 16 hours a week if they have children, are disabled, or are over 50 and returning to work after a spell of unemployment. Otherwise they must work 30 hours a week or more. Hours engaged in foster caring activities are generally regarded as 'qualifying remunerative work' entitling the carer to WTC, if done under a contract of employment or on a self-employed basis.
It should be borne in mind that the carer, or their spouse or partner, may have other work apart from caring, and this may also be 'qualifying remunerative work' for WTC purposes.
Child tax credit
Foster carers are only entitled to claim CTC for their own children, and for any other children for whom they are mainly responsible provided they are not paid for looking after them. They cannot claim CTC for children whom they foster but whose accommodation and maintenance are paid for out of public funds.
Foster carers who offer respite care cannot claim WTC if they claim rent-a-room relief for income tax purposes, but if they claim foster care relief instead they are entitled to WTC on the same basis as other foster carers. However, if they have previously been subject to the rent-a-room scheme, they will have to elect for it not to apply to them so that they can instead take advantage of foster care relief and the WTC eligibility that goes with it.
Adult placement carers
The position of adult placement (AP) carers, who look after vulnerable adults in their own home, is analogous to that of foster carers. AP carers have their own non-statutory arrangements with the Revenue which enable them to set off a large expense allowance against the fees they receive from their local authority or other agency.
Like foster carers, their income from caring is taken into account for tax credits only to the extent that it is taxable under those rules. Also, caring is regarded as qualifying remunerative work if done under a contract of employment or a self-employed basis.
Discretionary payments by local authorities for the maintenance and accommodation of children subject to a residence order are ignored for tax credit purposes. It is also understood that such payments, though not subject to foster care relief, are not subject to income tax as they are discretionary and gratuitous in nature.
Those who look after a child under residence orders are usually able to claim CTC for the child, as they not the local authority are 'mainly responsible' for the child. Furthermore, they are not excluded by any of the rules which prevent foster carers and others from claiming for children placed with them by the local authority.
What to tell the Tax Credit Office (TCO)
If you are a foster carer, an AP carer, or a person who looks after a child pursuant to a residence order, all you need to tell the Tax Credit Office is the amount of your taxableincome. If your income is nil for tax purposes, eg because it is covered by the various tax exemptions available to carers, that is all you tell the TCO. You do not need to give them details of fees and exemptions - that is all irrelevant for tax credit purposes, unless (exceptionally) you have specifically chosen to compute your 'profits' on the normal basis for tax in which case you will enter on your tax credit claim form your net taxable profit.
Don't forget that if you have other income as well as fostering income, you must tell the TCO if any of it is taxable. The same applies to your partner's income, if you are one of a couple.
What happens if I get wrong information from the helpline
Helpline advisers now have guidance telling them that income which is exempt from income tax under the foster care relief is not counted for tax credits. This should mean that in future foster and AP carers ringing the helpline should be given the right advice.
However, if despite the guidance you are told that you are not entitled to WTC and you think this is wrong, take a note of the date and time of your call. It will be useful evidence of the date on which you first tried to claim tax credit. This means that if you have to appeal, or there is some other delay in settling your claim, you can argue that you are entitled to have your award backdated by three months from the date you first spoke to the helpline.
For further information on tax reliefs for foster carers and AP carers, and their tax credit entitlement, follow the link below (scroll down for commentary on foster carers).
Relevant Link: Commentary on foster carers