Qualifying care relief

Basics

Qualifying carers (both foster carers and shared lives carers) are normally treated as being self-employed, as explained on our page Foster carers and shared lives carers. However, they are able to use a simplified method of working out their taxable profits due to qualifying care relief (QCR). This means that if total receipts from qualifying care do not exceed the individual’s limit under QCR (referred to as the qualifying amount, which we explain below), 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 or be treated as having paid voluntary class 2 National insurance contributions. See our page NIC for the self-employed for more information.

QCR is an alternative to working out your trading profit when self-employed in the usual way. If you are not entitled to qualifying care relief, you must declare the payments you receive for providing care minus expenses wholly and exclusively incurred in looking after the service user to arrive at the taxable self-employed profit. See our page Calculating self-employed profits for detailed guidance on how to work out taxable profits.

Foster carers

This relief will apply 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 certain services, known as 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 about the definition of qualifying care on our page Qualifying care relief for foster carers.

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 QCR 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

QCR 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.

You can read about the definition of qualifying care on our page Qualifying care relief for shared lives carers.

Where an individual gets shared lives care receipts for more than three people at the same time, QCR does not apply and the individual will be liable to the normal taxation rules for the self-employed (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.

The 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 annual amount for each household, and
• an amount per child or person per week, allocated to the relevant carer

These amounts had been fixed for many years. However, in March 2023 the government announced uprated amounts for the 2023/24 tax year and committed to increasing the amounts annually in line with inflation. The amounts are now as follows:

Tax years up to and including 2022/23

The fixed annual amount per household was £10,000.

The weekly amount for each cared-for child or adult, allocated to the relevant carer, was:

• £200 a week for a child under age 11, and
• £250 a week for an adult or young person aged 11 or over*

2023/24 tax year

The fixed annual amount per household was £18,140.

The weekly amount for each cared-for child or adult, allocated to the relevant carer, was:

• £375 a week for a child under age 11, and
• £450 a week for an adult or young person aged 11 or over*

2024/25 tax year

The fixed annual amount per household is £19,360.

The weekly amount for each cared-for child or adult, allocated to the relevant carer, is:

• £405 a week for a child under age 11, and
• £485 a week for an adult or young person aged 11 or over*

*including the week in which the child reaches their 11th birthday.

A week runs from Monday to Sunday for these purposes and the full weekly amount 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 available for that week.

If there are two or more carers in the house receiving their caring income separately, the fixed annual amount per household 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 annual amount 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 additional amount if you look after children or adults with disabilities.

How the relief works

The relief is in two parts depending on whether your income is more or less than the qualifying amount.

Qualifying care receipts

Qualifying care receipts include all income from a local authority, independent fostering provider or voluntary organisation or social care scheme for qualifying care. You can read about the definition of qualifying care for foster carers and qualifying care for shared lives carers separately.

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 March each year, the period from 1 April to 31 March is your income period and the date to which you make up the accounts, 31 March, is your accounting date.

While 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.

If your accounting date is different to this then, from the 2023/24 tax year, you may be affected by the new basis period reform rules. These rules can be complicated, but you can read about it in our detailed guidance on our page Trading income: basis period reform.

If you just receive casual one-off receipts from caring, it is usual to treat your income period as running 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.

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. If 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, you cannot claim any business expenses or capital allowances. Normally there cannot be a loss in a year when your qualifying care receipts are fully relieved either. 

Receipts more than qualifying amount

If 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 elect to use instead of the usual method of calculating self-employed profits. Under this simplified method, your profit will be the difference between your total qualifying care receipts and your qualifying amount.

If you use this method, you still need to 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).

If you choose not to use the simplified method, then your profits will be worked out based on your total income receipts from caring less allowable expenses and capital allowances, which is the usual way to calculate self-employed profits. If you use this method, you should fill in a tax return and HMRC advise in HS236 to include the Self-employment (full) pages.

You may want to use this method if your expenses and any available capital allowances are more than your individual limit.

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.

Time limits

You must elect to use the simplified method if you want it to apply. In practice you would 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.

Your election has effect only for the tax year for which it is made.

The deadline for making the election is 12 months after the self assessment tax return filing date (31 January) for the year for which the election is made or a later date if HMRC will permit.

Losses

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 trading 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.

For more information on losses when self-employed see our Trading losses section.

Other 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 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, whichever method you choose to work out taxable profits.

Record-keeping

You will need to keep records to help you decide which method of taxing your profits is best for you. For more information on records to keep when self-employed see our Business record keeping page.

Even if you elect 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 work out your self-employed profits or losses the usual way.

You should keep a record of all of the following:

• total qualifying care income receipts for your income period
• 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 child
• your care-related expenses, in case you need to decide which method of working out your profits to use.

National Insurance contributions

You can find general information about the different types of National Insurance contributions (NIC) when self-employed on our NIC for the self-employed page.

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 self-employed National Insurance contributions.

With regard to Class 2 NIC, if you choose not to pay Class 2 NIC or do not qualify to be treated as having paid Class 2 NIC, you might 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.

More information

HMRC’s guide to qualifying care relief is helpsheet 236.  Detailed information about the operation of qualifying care relief is in HMRC’s Business Income Manual.

We cover the new basis period reform rules and the changes to overlap relief in the 2023/24 tax year on our Trading income: basis period reform page.