Adult placement carers

Simplified arrangements

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.

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Who do the simplified arrangements apply to?

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.

What are the simplified arrangements?

Respite carers

  • If you provide respite care only, and do not provide more than 182 days of care in the tax year, we will treat your taxable profit from adult placement care as being nil. A day of care is a day when you provided respite care to one person. If you provided respite care to two people on the same day, that is two days of care.
  • If you provide more than 182 days respite care in the tax year, we will treat you under the arrangements below for full time carers with one to three adults in care.

Day carers

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.

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Full time carers with one to three adults in care in the carer’s home

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:

  • £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, 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.

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How will the special arrangements affect my National Insurance contributions?

Profits from adult placement care will count as earnings from self-employment for National Insurance contributions purposes.

Registration and Small Earnings Exception (SEE)

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:

  • adult placement care is your only self-employment
  • your annual profits from adult placement care are less than the SEE

The limit for the SEE is:

  • £4,635 for 2007-08
  • £4,825 for 2008-09

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:

  • the Newly Self-employed Helpline on Tel 0845 915 4515, if you have not previously registered
  • the Self-employed Helpline on Tel 0845 915 4655, if you are currently registered

Class 4 National Insurance contributions

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.

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How will the simplified special arrangements affect my entitlement to Child Tax Credit?

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.

How will the simplified special arrangements affect my entitlement to Working Tax Credit?

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.

How is my adult placement care income taken into account for Working Tax Credits?

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.

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Will I need to complete a Self Assessment tax return?

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).

Further advice

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.