This is a basic introduction to the simplified income tax arrangements for adult placement carers prepared by HM Revenue and Customs (HMRC) in August 2008.
The simplified arrangements apply to people who get income from providing accommodation and care for one to three adults placed with them either by local authorities (Health and Social Services (HSS) Trusts in Northern Ireland) or independent bodies under an adult placement scheme. They apply to schemes which are registered with the relevant care standards inspectorate, or unregistered schemes which comply with National Association of Adult Placement Services (NAAPS) good practice standards.
Day care is outside the respite care arrangements, if you provide day care only, you may choose either a fixed amount of £15 per day per adult or if you prefer, the actual income and expenses method. If you choose the actual and expenses method, you will have to calculate the profits of your adult placement care activity in the normal way. The taxable profit or loss is your total adult placement care receipts less actual allowable expenses and capital allowances. If you choose this method, you will need to keep records of income and expenditure sufficient to support your declared profit or loss.
You can choose one of three methods to calculate your business profits:
1. The 'fixed expenses' method
The taxable profit is your total receipts from adult placement care less the following fixed expenses:
If the total of these fixed expenses exceeds your receipts, we will treat your taxable profit as nil.
2. The 'actual income and expenses' method
You will have to calculate the profits of your adult placement care activity in the normal way. The taxable profit or loss is your total adult placement care receipts less actual allowable expenses and capital allowances. If you choose this method you will need to keep records of income and expenditure sufficient to support your declared profit or loss.
If you wish to claim loss relief, you must use the actual income and expenses method.
3. The 'rent a room' method
The taxable profit is your total receipts from adult placement care over £4,250. If your receipts are £4,250 or less, your taxable profit is treated as being nil. If your receipts are more than £4,250, you will pay tax on the amount by which they exceed £4,250, with no separate relief for allowable expenses or capital allowances.
Note: If your total receipts are more than £4,250, the rent a room method may be less favourable than the other methods. It also has implications for your entitlement to working tax credit (see below).
If you use methods one or three, you will need to keep records of your total receipts from adult placement care, but you will not need to keep records of your expenditure.
The simplified arrangements do not apply to full time carers with more than three adults in care at any one time during the year. If you provide care for more than three adults at any time in the year, you will be required to calculate your profits or losses and keep records of income and expenditure in the same way as proprietors of nursing homes or boarding houses, or of any other business.
Profits from adult placement care will count as earnings from self-employment for National Insurance contributions purposes.
All self-employed people aged 16 and over who are below state pension age are liable and must register to pay Class 2 National Insurance contributions. The weekly contribution is £2.20 for 2007-08 and £2.30 for 2008-09.
We accept that you do not need to pay Class 2 National Insurance contributions and do not need to register for National Insurance contributions at all if:
The limit for the SEE is:
Please note that if you qualify for the SEE and choose not to pay Class 2 National Insurance contributions, your entitlement to Incapacity Benefit, Maternity Benefit, State Pension and Bereavement Benefit may be affected.
The form CF10 – Self-employed people with small earnings (PDF 53K) gives more information.
You can obtain further information about Class 2 National Insurance contributions from:
All self-employed people are liable to pay Class 4 National Insurance contributions on annual profits above a threshold.
For 2007-08 the rates are 8 per cent on profits between £5,225 and £34,840 and 1 per cent on profits above that.
For 2008-09 the rates are 8 per cent on profits between £5,435 and £40,040 and 1 per cent on profits above that.
For Child Tax Credit purposes, your income from adult placement care is the same as your taxable profit from adult placement care. Income that is exempt from tax under the rent a room method does not have to be reported in your Child Tax Credit claim.
You are entitled to claim Working Tax Credit provided that you or your partner are in remunerative work for at least 16 hours a week if you have a child of your own or a disability. If you do not meet these conditions, you or your partner must be aged at least 25 and engaged in qualifying remunerative work for at least 30 hours a week.
Generally, adult placement care will count as a qualifying remunerative work. It will not qualify if you are caring temporarily for someone who is not part of your household, and your profits are treated as nil under the rent a room method.
For tax credit purposes, your adult placement care income is your taxable profit. As with Child Tax Credit claims, income that is exempt from tax under the rent a room method does not have to be reported in a Working Tax Credit claim.
Please note that other income (yours or your partner’s) will be taken into account for Child Tax Credit and Working Tax Credit purposes.
Not necessarily.
If you are issued with a tax return you must complete it. If you complete a return which shows that your only income is from your self-employment as an adult placement carer and your taxable profit is nil, we will not send you a return for future years unless you tell us that your circumstances have changed.
If you are not issued with a tax return you must tell us if you have taxable profit from adult placement care, or have other income on which you have tax to pay (except income where tax is being deducted at source, such as employment income and interest from bank savings).
If you have further questions about these arrangements or are unsure of what they mean for you, please contact your local HMRC office.
There is also more detailed information in our Business
Income Manual in the section beginning at BIM52750.
