Caring Doesn’t Have To Be Taxing
“In a world full of people who couldn’t care less, be someone who couldn’t care more”
Although many consider the taxman to be lacking in compassion, HMRC acknowledges the fact that, unlike others classed as self-employed, profit is not the prime goal of a registered carer, but an incidental part of his/her vocation. For some years now, special arrangements have been in place with regard to taxation of income for carers, who are normally treated as self-employed. The rules are different depending on the nature of the care given.
CHILD FOSTER CARERS
If you are a foster carer in receipt of income from local authorities or independent fostering agencies, you need to firstly calculate your allowable qualifying amount. This is made up as follows:
- A fixed rate of £10,000 per annum ( or apportioned if you have not been registered for a full 12 months), PLUS
- £250 per week (or part of a week) for each child fostered aged 11 or over AND £200 per week (or part of a week) for each child fostered aged under 11.
If you foster disabled or special needs children, the cost of any extra-ordinary expenditure incurred, e.g. specialist equipment, can also be added to your qualifying amount for additional relief.
If you foster as a part of the Parent and Baby scheme, you can claim the weekly allowance for both, although it is only the parent who is deemed to be in foster care.
If your qualifying amount exceeds your total income from fostering, you are treated as exempt and no profit or loss is recognized.
However, where your total receipts are in excess of the qualifying amount, you are deemed to have made a profit, but you can choose how to calculate your assessable profit:
(1) Simplified method: Total receipts from foster care less your calculated qualifying amount, regardless of what expenditure you have incurred.
(2) Profit method: Total receipts less allowable expenses and capital allowances if applicable. This method will only be beneficial if your expenses and capital allowance total more than your qualifying amount – but it means you must keep accurate records of expenditure to support the calculation.
You can make different choices for different years, provided you submit your self-assessment returns on time.
Simplified arrangements are also in place if you receive income for providing accommodation and care for one to three adults placed by local authorities , registered independent schemes or unregistered schemes which comply with NAAPS standards.
Respite carers who provide less than 182 days of care during the tax year will be deemed as exempt and have no profit. (Note: caring for 2 people on the same day counts as 2 days of care.)
Respite carers who provide more than 182 days of care are treated in the same way as full-time carers who have between one and three adults in their care.
Carers who provide day-care are not covered by the special arrangements but can choose how to calculate their assessable profits as follows:
(1) Claim a fixed amount of £15 for each day of care against income
(2) Claim actual expenses and capital allowances if appropriate against income. You will need to keep records of income and expenditure to support your declared profit or loss.
Full-time carers who provide care for between one and three adults can choose how to calculate their assessable profits as follows:
(1) Fixed Expenses method:
You can claim the following, regardless of what your expenses actually are:
- £400 per week for the first resident in care at any one time
- £250 per week for the second and third residents in care at any one time
If the total of these fixed expenses exceeds your receipts, HMRC will treat your taxable profit as nil.
(2) Actual Income and Expenses method:
The taxable profit or loss is your total adult placement care receipts less actual allowable expenses and capital allowances, if appropriate. You will need to keep records of income and expenditure to support your declared profit or loss.
If you wish to claim loss relief, you must use the Actual Income and Expenses method.
(3) Rent-a-Room method:
If your receipts are £4,250 or less, your taxable profit is treated as nil.
If your receipts are more than £4,250, you will pay tax on the amount by which they exceed that figure, regardless of any expenses incurred. This method may be the least beneficial method in this case.
Full-time carers with more than three adults in care at any one time during the year cannot use the simplified arrangements and must calculate profits or losses and keep records of income and expenditure in the same way as proprietors of any other business.