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Foster Carer Tax Exemption (2003-04-01)

The following is presented based on the information currently available but please note that the situation may be subject to change as the legislation is not yet finalised.

No responsibility for loss occasioned to any person acting or refraining from action as a result of any information in this material can be accepted by the originator.

Proposed new tax exemption for foster carers.

• 27th March 2003 Announcement of proposed new tax exemption rules for foster cares to be effective from 6th April 2003.
• 9th April 2003 Confirmation of proposals in budget day press release but little further information.
• Current position Proposals included in the Finance Bill 2003, currently making its way through Parliament. Hopefully they will be passed with little if any change.

Outline of the proposals.

Where gross foster care receipts for a financial year are below a certain threshold there will be no tax to pay on any of that money.

What are gross foster care receipts?

• boarding out allowance, maintenance allowance,
• clothing allowance, personal allowance,
• fee, reward element, skills payment, task level payment,
• additional needs payments, special needs payments,
• reimbursed expenses, travel and other expenses,
• any other type of payment made by a local authority or agency for foster care

all added together.

What will the threshold be?

The proposal is that there will be a flat rate household element plus an amount per child.

This year the proposed rates are:

• Flat rate £10,000.
• Rate for a child aged under 11 years - £200 per week.
• Rate for a child aged 11 years or over - £250 per week.

This means that the threshold for the year:

• Will depend on the number of children in place, their age and length of stay
• Will not be the same for everyone
• May change from one year to the next even if the flat rate and rates per child do not change.

To calculate the threshold

You will need to know the age and length of stay of each child looked after between 6th April one year and 5th of April the following year.

First find the total allowance for each child

1. For each child in place during the year multiply the length of stay in weeks by either

• £200 if a child is under 11 years old.
• £250 if a child is 11 years old or over.

(Don’t forget if a child has their 11th birthday in the year the rate for them will be £200 for part of the year and £250 for the rest of the year).

2. Add up all the total allowances calculated as above.
3. Add the flat rate allowance of £10,000.

The accompanying table illustrates the kind of levels the thresholds could be this year.

What if the total foster care receipts are more than your threshold?

You will have the following choice:

1. To accept that the amount of foster care receipts above your threshold is taxable income from foster care.
2. To draw up accounts under normal business rules to arrive at a profit for the year which will be taxable income from foster care

(Gross foster care receipts minus a range of expenses and capital allowances = taxable income from foster care for the year.)

If the taxable income from foster care is your only source of income you will only pay tax on it if it is more than your personal allowance for the year (for most people this means more than £4,615 this year)

If you have taxable income from other sources (e.g. employment, other self employment, pensions, certain state benefits, certain savings and investment income) you will pay tax on some, or all, of the taxable income from foster care.

Many carers will not know what their threshold amount is and whether their receipts are more than this or not until the end of the tax year so will not be able to make a decision on what to do for the best until then.

It is not clear yet what is to happen as far as completing tax returns is concerned, will all carers still have to do this or only some?

Until more information is available we advise that:

• Wherever possible keep receipts and where this is not possible keep a note of all expenses.
• Keep a record of the age of each child in place and the length of their stay (to the exact day in case the revenue don’t allow the child allowances to be rounded up to the nearest week).

Further details and information will become available over the next few months. We will try to keep you informed of everything we learn on the subject. It is also worth keeping an eye on the Fostering Network web site at www.thefostering.net for news and views on this and other matters.

Proposed new tax exemption for foster carers.

• 27th March 2003 Announcement of proposed new tax exemption rules for foster cares to be effective from 6th April 2003.
• 9th April 2003 Confirmation of proposals in budget day press release but little further information.
• Current position Proposals included in the Finance Bill 2003, currently making its way through Parliament. Hopefully they will be passed with little if any change.

Outline of the proposals.

Where gross foster care receipts for a financial year are below a certain threshold there will be no tax to pay on any of that money.

What are gross foster care receipts?

• boarding out allowance, maintenance allowance,
• clothing allowance, personal allowance,
• fee, reward element, skills payment, task level payment,
• additional needs payments, special needs payments,
• reimbursed expenses, travel and other expenses,
• any other type of payment made by a local authority or agency for foster care

all added together

What will the threshold be?

The proposal is that there will be a flat rate household element plus an amount per child.

This year the proposed rates are:

• Flat rate £10,000.
• Rate for a child aged under 11 years - £200 per week.
• Rate for a child aged 11 years or over - £250 per week.

This means that the threshold for the year:

• Will depend on the number of children in place, their age and length of stay
• Will not be the same for everyone
• May change from one year to the next even if the flat rate and rates per child do not change.

To calculate the threshold

You will need to know the age and length of stay of each child looked after between 6th April one year and 5th of April the following year.

First find the total allowance for each child

1. For each child in place during the year multiply the length of stay in weeks by either

• £200 if a child is under 11 years old
• £250 if a child is 11 years old or over.

(Don’t forget if a child has their 11th birthday in the year the rate for them will be £200 for part of the year and £250 for the rest of the year).

2. Add up all the total allowances calculated as above.
3. Add the flat rate allowance of £10,000.

Table illustrating the kind of levels the thresholds could be in the current year.

Note:

• Each child in Column C and Column E is assumed to be in place for the whole
• Each child in Column C and Column E is assumed to be in place for the whole financial year (full 52 weeks)

What if the total foster care receipts are more than your threshold?

You will have the following choice:

1. To accept that the amount of foster care receipts above your threshold is taxable income from foster care.
2. To draw up accounts under normal business rules to arrive at a profit for the year which will be taxable income from foster care

(Gross foster care receipts minus a range of expenses and capital allowances = taxable income from foster care for the year.)

If the taxable income from foster care is your only source of income you will only pay tax on it if it is more than your personal allowance for the year (for most people this means more than £4,615 this year)

If you have taxable income from other sources (e.g. employment, other self employment, pensions, certain state benefits, certain savings and investment income) you will pay tax on some, or all, of the taxable income from foster care.

Many carers will not know what their threshold amount is and whether their receipts are more than this or not until the end of the tax year so will not be able to make a decision on what to do for the best until then.

It is not clear yet what is to happen as far as completing tax returns is concerned, will all carers still have to do this or only some?

Until more information is available we advise that:

• Wherever possible keep receipts and where this is not possible keep a note of all expenses.
• Keep a record of the age of each child in place and the length of their stay (to the exact day in case the revenue don’t allow the child allowances to be rounded up to the nearest week).

Further details and information will become available over the next few months. We will try to keep you informed of everything we learn on the subject. It is also worth keeping an eye on the Fostering Network web site at www.thefostering.net for news and views on this and other matters.

What can local authorities / foster care agencies do to help foster carers with the new tax exemption?

1. To enable carers to calculate their income tax exemption threshold.

At the end of the financial year provide to each foster carer:

a) A list of the children in place with them during the that year to include the following information:

• Date of birth.
• Date placement started.
• Date placement ended (unless placement ongoing at end of financial year).

b) A statement setting out the total of all payments made to them in respect of foster care during that financial year.

2. To enable carers to make an accurate comparison of total receipts to threshold.

Ensure that the total receipts from foster care figures included in statement 1(b) above are correct by:

a) Having in place a system to record any overpayments / underpayments made to carers and track the collection / payment of these.

b) If overpayments of fees and / or allowances occur

• Where repayment / collection has been made in the year do not include either payment or repayment in statement 1(b) above.
• Where collection / repayment is outstanding at the year end do not include payment in statement 1(b) above.

c) If underpayments of fees and / or allowances occur

• Where payment is made before the year end include in statement 1(b) above.
• Where payment is not made until after the year end include in statement 1(b) above.