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Who is likely to be affected?
- Individuals who provide foster care services
to local authorities, either directly or through
an agency.
General description of the measure
- A new tax relief is to be introduced for
foster carers. The relief will consist of
two elements:
- foster carers whose gross receipts from
foster care do not exceed an individual limit
in a year will be exempt from tax on their
income from foster care; and
- foster carers whose gross receipts from
foster care exceed the individual limit, will
be able to choose an optional, simplified,
method of calculating their profits instead
of using the normal rules.
Operative date
- The relief will be introduced for the tax
year beginning 6 April 2003.
Current law and proposed revisions
- Foster carers are normally taxed on any
profit they make under Case I, II or VI of
Schedule D. Under a longstanding administrative
arrangement, foster carers are normally treated
by the Inland Revenue as having a profit only
if they receive payments which their local
authority identifies as "reward".
- Under the new relief, any such foster carer
receiving gross receipts from foster care
in a year under an individual limit will be
exempt. "Exempt" means that the
individual will be treated as having a profit
or loss from foster care of "nil".
- The exemption will apply solely to income
obtained from the provision of foster care.
It will not affect the tax treatment of income
received from other sources.
- Foster carers whose gross receipts in a
year from the provision of foster care exceeds
their individual limit will be able to choose
between:
- computing their business profits using
the normal rules; or
- treating as their profit the amount
by which their gross receipts from foster
care exceed their individual limit.
- The individual limit will be made up of
two elements:
- a fixed amount per residence of £10,000
for a full year; and
- an additional amount per child for each
week, or part week, that the individual
provides foster care. The amounts will
be £200 a week for a child aged under
eleven and £250 a week for a child
aged eleven or older.
Example
- Ms Smith provides foster care to one eleven
year old for the whole of the year and to
one eight year old for ten weeks of the year.
No other foster carers live in her house.
Ms Smith's individual limit will be made up
as follows:
Fixed amount £10,000
Child 1 (52 x £250) £13,000
Child 2 (10 x £200) £2, 000
TOTAL £25,000
Further advice
- If you have any questions about this change,
please contact the Public Enquiry Unit on
0207438 6420 to 6425.
www.inlandrevenue.gov.uk
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