BIM52765 - Care providers: Foster carers: 2003/04 and later years

Where the foster care receipts of a foster carer (see BIM52755) are less than that person’s limit their profit for the year is deemed to be nil (no profit, no loss), and no claim for capital allowances is permitted.

An individuals limit for a year of assessment is comprised of:

• Their share of the fixed amount. Where a residence is used for provision of care by more than one individual each receives an equal share of the fixed amount. If the income period is not a year the fixed amount is adjusted proportionately.
• An amount weekly for each child under 11 years of age.
• An amount weekly for each child reaching 11 years or older.

The exempt amounts are:

Starting 2003/4.

Fixed amount: £10,000.

Under 11: £200 per child per week.

11 and over: £250 per child per week.

We understand that some local authorities have schemes whereby a child, who is a parent is placed in foster care. The foster carer effectively cares for the parent and her baby, but only the parent is technically placed in care.

We are informed that the payments made to the foster carer in these circumstances are invariably intended to cover accommodation and care provided to parent and baby. On that basis, we are content for tax purposes to treat the parent and each baby as being in foster care. The foster carer can claim a weekly amount per child for each of them when calculating their "qualifying amount".

Carers whose gross receipts exceed the exemption may elect to have their profit for a year of assessment to be calculated by subtracting their limit from their gross receipts (the simplified method). Capital allowances are not available if such a claim is made. The election must be made on or before the first anniversary of 31 January next following the end of the year of assessment to which it relates. If they do not make such an election the will need to calculate their profit in the normal way (the profit method).

Specialist foster carers

There are foster carers who care for children with a disability or other special needs ("specialist foster carers"). Some specialist foster carers may incur can specific expenditure that is clearly not of a type covered by normal maintenance. In this case, we would accept as a measure of actual expenditure, the qualifying amount plus the cost of the exceptional expenditure.

In other cases the specialist carer's expenses may be exceptional by degree rather than type. In such cases there is no practicable way of measuring the exceptional expenditure separately. Such carers should record their actual expenses, and we will accept that they can sample regularly recurring expenses.

If the specialist carer receives amounts in excess of the exemption then it is not necessary to remove any existing special arrangement.

Overlap Relief

The operation of the exemption does not restrict overlap relief. Where there is a cessation, or a change of accounting date, the relief may operate to reduce profits or create a loss for the year of assessment.