HMRC internal manual

National Insurance Manual

NIM21026 - Class 2 National Insurance Contributions: Small Earnings Exception: Special Groups: Foster parents

Someone who is self-employed as a foster parent under an agreement with a local authority or charitable organisation might not produce accounts. They may receive payments made up as follows:-

  • Basic boarding allowances which are reimbursements of costs incurred directly as a result of fostering. These are not regarded as earnings for SEE purposes.
  • Additional enhancement allowances, which are reimbursements of extra identifiable expenses resulting from fostering, eg because a child is incontinent or needs a special diet. These are not regarded as earnings for SEE purposes.
  • Reward elements, which are payments made over and above the reimbursement of costs and recognise the time and skill used by a foster parent in caring for the child(ren). These payments are regarded as earnings for SEE purposes.

Some local authorities and charitable organisations do not calculate their fostering payments by the method above but, instead, negotiate an all-embracing fee. Normally, the foster parent can produce evidence of the agreed profit for tax purposes in the relevant past year.

Payments for fostering are generally made to the wife and entered as her earnings in any tax returns that may be made. In such cases, the reward element (or accepted profit) is regarded as the wife’s earnings for SEE purposes. Like business partners, however, foster parents may apportion the earnings to their best advantage, eg to qualify for SEE. A written statement to this effect should be available. It should show the date from which the arrangement for apportioning earnings began, how long it is to last.