Qualifying care relief
Disabled people and carers
What is qualifying care relief?
Qualifying carers (both foster carers and shared lives carers) are normally treated as being self-employed, as explained earlier in our introduction to qualifying care relief, but are able to use a simplified method of working out their taxable profits. If total receipts from qualifying care do not exceed the individual’s limit (referred to as the qualifying amount), the receipts will be tax-free.
The carer still needs to register with HMRC as self-employed even if all their receipts are tax-free. That also gives them the opportunity to pay voluntary Class 2 National Insurance contributions if need be or, from 6 April 2022, claim to be treated as having paid Class 2 National Insurance where taxable profits are between the small profits threshold of £6,725 and lower profits limit of £11,908.
Qualifying care relief is an alternative to working out your trading profit on ordinary Self Assessment principles. If you are entitled to qualifying care relief, then the relief is mandatory – in other words you have to use it: there is no choice. If you are not entitled to qualifying care relief, you can simply declare the payments you receive for providing care minus expenses wholly and exclusively incurred in looking after the service user.
Who gets the relief?
This relief will apply to you if you provide foster care, ‘qualifying care’, for children or young people up to their 18th birthday and you receive income for doing so.
Foster carers need to be providing services, qualifying care, to a local authority (HSC Trust in Northern Ireland) or to an independent fostering provider or voluntary organisation. The relief does not apply to income received from private fostering arrangements nor where the payments are made to a parent or someone who had parental responsibility for the child before they were taken into care.
You can read more about the definition of qualifying care for foster carers on the dedicated page.
Please note that most payments to adopters who have taken on parental responsibility for the children they adopt are free of income tax anyway, so qualifying care relief is not relevant for them. Similarly, payments to people who have taken on parental responsibility for a child or children under a residence order, or a special guardianship order, are also free of income tax.
Shared lives carers
The relief also applies to those caring for individuals providing qualifying care under ‘shared lives care’ arrangements, which include adult placement carers, staying put carers and certain kinship carers.
Where an individual gets shared lives care receipts for more than three people at the same time, qualifying care relief does not apply and the individual will be liable to the normal taxation rules for traders, including completing a tax return and keeping full records of all income and expenses (this cap of three does not apply to foster care). For the purpose of determining whether the three person limit has been exceeded, brothers and sisters, including half-brothers and sisters are treated as one person. If you care for two adults and two children (under the age of 18), then the cap does not apply because you do not have more than three adults in your care.
Other arrangements may be covered, such as supported lodging schemes and parent and child arrangements set up by some local authorities. Your local authority or social care scheme can tell you if your arrangements are eligible for qualifying care relief.
What do I need to know before I can work out my relief?
What are total qualifying care receipts?
These include all income from a local authority, independent fostering provider or voluntary organisation or social care scheme for qualifying care. You can read the definition of qualifying care for foster carers and shared lives carers separately.
What is an income period?
If you are a self-employed carer, your income period is generally the 12 months up to the date when you make up your accounts. So if you make up your accounts to 31 December each year, the period from 1 January to 31 December is your income period and the date to which you make up the accounts, 31 December, is your accounting date.
HMRC also call this your basis period and the profits you will be taxed on for any tax year will be those to the accounting date ending in that particular year. So if your accounting date is 31 December, your accounts for the year ending 31 December 2021 will be the basis for the profits you are taxed on for 2021/22.
While for tax purposes the date you make up your accounts to is your choice, many carers do work on an April to March year which, as well as being the actual tax year, is also the year end used by most local authorities and social care schemes. You may therefore find it simpler to use 31 March or 5 April as your year end.
You can find more information on accounting periods and accounting dates by looking at the page How do I work out my taxable profits? in the self-employment section.
If you just receive casual one-off receipts from caring, your year end will be 5 April each year and so your income period will run from 6 April to 5 April.
The schemes that pay you should provide you with statements, possibly electronic, showing the payments made to you. Keep these in case HMRC ask for evidence.
What is a qualifying amount?
This is the amount which you can receive for your caring activities free of tax. It is made up of two amounts:
- A fixed amount for each household of £10,000 a year; and
- An amount per child or person per week, allocated to the relevant carer.
If there are two or more carers in the house receiving their caring income separately, the (£10,000) limit is divided equally between them. If you are a carer for less than a full year then you will get a proportion of the fixed amount (£10,000) based on the number of days you were a carer in that year. There are no regional changes to this amount depending on where you live in the country, nor is there any addition if you look after disabled children or adults.
The amount per week is:
- £200 a week for a child under age 11; and
- £250 a week for an adult or young person age 11 or over including the week in which the child reaches their 11th birthday. If the placement is only for part of a week, the amount is allocated in full for that week. A week runs from Monday to Sunday for these purposes and the full weekly allowance is available for any part-week when you have a person in your care. For example, if a person arrives on a Thursday, the full weekly allowance is appropriate for that week.
Carrie Green is a self-employed foster carer. She makes her accounts up to 5 April each year so her accounting date is 5 April. Carrie looks after two foster children: Amy, who is 8 and Emma, who is 13. Both children were already in her care on 6 April 2021.
Carrie’s ‘qualifying amount’ for the tax year 2021/22 is calculated as follows (to do this we use the age of the children in her care in the year 6 April 2021 to 5 April 2022):
Amount per child:
Amy: 52 weeks x £200
Emma: 52 weeks x £250
Total qualifying amount
In other words, provided that the total receipts that Carrie received for 2021/22 are less than or equal to £33,400 plus any unused part of her personal allowance, she will have no tax to pay on her foster caring receipts for 2021/22. The total personal allowance for 2021/22 is £12,570. Note that Carrie still needs to be registered for Self Assessment with HMRC and complete tax returns, even though she has no tax to pay.
How does the relief work?
The relief is in two parts depending on whether your income is more or less than the qualifying amount.
Receipts not more than qualifying amount
You will receive automatic relief on all your qualifying care income if your total qualifying care receipts for an income period are less than the qualifying amount. This means that you do not need to work out your profits and expenses in the normal way as your profit is taken to be nil.
The relief is mandatory if it applies to you – in other words you cannot choose to work out your profit or loss in any other way. You do still need to fill in a tax return and claim qualifying care relief on the Self-employment (short) pages (or complete the relevant section on the online form if filing your tax return electronically). HMRC will treat you as not making a profit or loss for the year, so you do not pay tax or Class 4 National Insurance on your caring income. Provided that your qualifying care receipts are less than the qualifying amount, you should put an ‘X’ in box 4 of these pages, and a ‘0’ (zero) in box 31 (or equivalent boxes on the online form). No further entries will then be required for your qualifying care receipts.
If your qualifying care receipts are fully relieved as above, you cannot claim expenses or capital allowances. Normally there cannot be a tax loss in a year when your qualifying care receipts are fully relieved either. If you have any overlap relief (for example, from changing your accounting date) this will not be lost, however you may need to ask a professional adviser to help you work out when and how to use it.
Receipts more than qualifying amount
If your total care receipts for your income period are more than the qualifying amount, there is a simplified way of working out your profits which you can use instead of the standard method. The standard method means that you need to enter on your tax return form details of all income and expenses.
Looking again at Carrie Green from Example 1, her total qualifying amount for 2021/22 was £33,400. If her total foster care receipts were £30,000 for her income period to 5 April 2022, Carrie’s income would be fully relieved as her qualifying amount of £33,400 is more than her income.
Alternatively, if Carrie's total foster care receipts were £36,000, in other words more than her qualifying amount, she could use the simplified method explained below to work out her profits or could use the standard method, also explained below.
The simplified way of working out your profits
Working it out
As we mentioned above, if your total qualifying care gross receipts for your income period (that is your qualifying care receipts ignoring any expenses or capital allowances) are more than the qualifying amount, there is a simplified way of working out your profits that you can use as an alternative to the standard method.
Following on from Example 2 above, Carrie's taxable profit under the simplified method will be the difference between her income of £36,000 and her qualifying amount of £33,400 – giving a taxable profit of £2,600. If Carrie’s personal allowance is available, she will have no tax to pay on this profit.
If you use this method, you should fill in a tax return. You should claim qualifying care relief, and include your total receipts and your qualifying amount, on the Self-employment (short) pages (or the online equivalent pages if filing your tax return electronically).
What if I decide I do not want to use the simplified method?
The standard (income) method
You can only use the standard method if your total qualifying receipts are more than your qualifying amount. If your total receipts are less than your qualifying amount then automatically your profits are taken to be nil.
If your receipts exceed the qualifying amount then you can either use the simplified method (see above) or use this method. Your profits will then be worked out based on your total income receipts from caring less allowable expenses and capital allowances. This is the standard method of working out your profits, in other words as for a normal self-employed ‘business’.
You may want to use this method if your expenses and any available capital allowances are more than your individual limit.
Is there a time limit by which I must decide whether to use the simplified way or not?
You must elect to use the simplified method. In practice you would probably make this decision before you complete your tax return and the way the form is completed will make the intention clear. Filing your tax return by the usual filing deadline will be accepted by HMRC as the relevant notification and a separate notification is not needed in these circumstances.
Your election has effect only for the tax year for which it is made. The deadline for making the election is the first anniversary of the Self Assessment return filing date (31 January) for the year for which the election is made or a later date if HMRC will permit.
If Carrie in Example 3 decided to use the simplified method for working out her 2021/22 profits, she will have until 31 January 2024 (anniversary of the online filing deadline of 31 January 2023 for 2021/22 Self Assessment tax returns) or such later date as HMRC decide in which to make the election.
Capital allowances are allowances that you get on plant and machinery you acquire for your business. For more information on capital allowances, see our page What capital allowances can I claim? or Helpsheet 252 Capital allowances and balancing charges.
As mentioned above, if you are entitled to full qualifying care relief or are using the simplified method to work out your profits you will not be able to claim capital allowances.
Where qualifying carers choose to work out their profits in the standard way, they may claim capital allowances.
There are special rules that apply if you do not work out your profits from caring using the same method each year because you may be able to claim capital allowances in one year but not in the next and so on.
For further information, go to the HMRC manual on GOV.UK.
We cover losses in general under our self-employment information for low-income workers.
As stated above, you cannot normally have a loss in any year that your qualifying care receipts are equal to or less than your individual limit for the year. Any losses from earlier years, when you were not exempt, are not lost – they are dealt with as follows:
- losses can be set against your profits from your qualifying care in the usual way if your total receipts from qualifying care exceed your qualifying amount. This applies whether you have worked out your profit by using the standard method or by using the simplified method;
- losses brought forward will continue to be carried forward to set against the profits from qualifying care of a later year, if your total receipts from qualifying care in a year following the year of loss do not exceed your qualifying amount and you therefore have no tax to pay on that income.
Any other income you have, for example from employment or savings, will not be affected if you are claiming qualifying care relief and will be taxed in the usual way.
If your qualifying care receipts are fully relieved, the full amount of your personal allowance (£12,570 in 2021/22 and 2022/23) is available to use against any other income you might have.
If they are not exempt, you can set your personal allowance against any taxable care profits whether or not you choose the simplified or standard method.
Looking at Example 3 above, if Carrie has no other taxable income then her profits of £2,600 would be covered by her personal allowance and she would have no tax liability for the year.
You will need to keep records to help you decide which method of taxing your profits is best for you. Bear in mind that you are legally obliged to keep full records if you decide to use the standard method of working out your profits and expenses.
Even if you are exempt or want to use the simplified method, it is still advisable to keep all your records to support deductible expenses and capital allowances in case you decide instead to compute your profits or losses using the standard method.
Basically you should keep a record of:
- total qualifying care income receipts for your income period;
- a note of the number of weeks that you care for each placement with you in the income period and, if children, the age (or birthday) of each;
- your care-related expenses in case you need to decide which method of working out your profits to use.
See also: What business records should I keep?.
Will the relief affect my National Insurance contributions (NIC)?
You can find out more general information about the different types of NIC for the self-employed in our self-employment section.
Qualifying care relief and Class 2 NIC
HMRC treat any taxable profit you make from qualifying care, whichever method you choose to work it out, as your self-employed earnings for working out whether you need to pay any Class 2 NIC (£3.05 a week in 2021/22 and £3.15 a week in 2022/23).
What if my profits are very low – will I still need to pay Class 2 NIC?
If your profits are totally relieved (so that your taxable profit is treated as nil) or if your taxable profit is below the small profits threshold of £6,515 for 2021/22 (£6,725 for 2022/23), you need not pay any Class 2 NIC for that year. If your profits are below the small profits threshold you can choose to pay Class 2 NIC voluntarily. From 6 April 2022, if your profits are above the small profits threshold of £6,725 but below the lower profits limit of £11,908, you will not have to pay Class 2 NIC but will be treated as having paid Class 2 NIC.
If you choose not to pay Class 2 NIC or, from 6 April 2022 do not qualify to be treated as having paid Class 2 NIC, you need to bear in mind that Class 2 contributions provide access to new style employment and support allowance, maternity benefit, state retirement pension and bereavement support payment and that your entitlement to these benefits may be affected. You might however, be eligible to claim credits for Class 3 NIC while you are caring, which preserves your state pension entitlement – GOV.UK has information on this.
Qualifying care relief and Class 4 NIC
In any year that your profits are fully relieved, HMRC will treat you as not making a profit or loss for the year, so you do not pay Class 4 National Insurance on your caring income.
If you calculate your profits on either the simplified or the standard method, Class 4 NIC may be payable based on your taxable profit for that tax year.
Ellie White is using the simplified method to work out her profits for the tax year 2021/22 and she makes a profit of £12,660.
Her Class 4 NIC is worked out like this:
£12,660 minus lower limit £9,568 = £3,092 profit chargeable to Class 4 NIC
Class 4 NIC due = £3,092 @ 9% = £278.28
The liability of £278.28 will be due for payment together with the tax on the profit of £12,660 on 31 January 2023 (the online filing deadline for the 2021/22 tax return).
⚠️ Note the figures and thresholds used here are all for the 2021/22 tax year. The rate of class 4 NIC from 6 April 2022 is 10.25% (increased from 9% in the example above), but the lower profits limit is also increased to £11,908 (increased from £9,568 in the example above).
Where can I find more information?
You can find HMRC’s guide to qualifying care relief (HS236) on GOV.UK.
You can find detailed information about the operation of qualifying care relief in HMRC’s manual on GOV.UK.