This article is part of our Foster Carer Finance Guide, which aims to provide foster carers with a better understanding of all things Tax, National Insurance and their Benefit Entitlements.
We’ve previously discussed foster carer tax and self-assessments and this article hopes to help you gain a better understanding of national insurance for foster carers.
Do foster carers pay National Insurance?
Whether you as a foster carer have to pay National Insurance will depend completely on your personal situation.
If your taxable income is less than your Qualifying Care Relief amount, then your profits are deemed as NULL from fostering and you do not have to pay National Insurance. However, you may still decide to pay Class 2 National Insurance voluntarily to secure your entitlement to state benefits in case you need to claim them in future – this includes state retirement pension, employment and support allowance and maternity allowance.
However, if you are below state pension age and your profits from fostering are over £8,424 for 2018/19, you will also need to pay Class 4 National Insurance, which is 9% of your total profit over this threshold. This does not count towards your contributory state benefits.
What does Class 2 National Insurance cover you for?
Class 2 National Insurance provides foster carers access to a range of state benefits, including;
– Basic State Pension – so you can claim your basic state pension once you reach retirement age.
– Bereavement Benefits – if you take a break from fostering after your husband, wife or civil partner has died.
– Maternity Allowance – if you decide to take some time out of fostering while you expand your own family.
– Contributory Employment Support Allowance (ESA) – if you are sick and not able to foster as a result.
However, your benefits may be affected if there are gaps in your National Insurance record, which is why you may want to decide to make voluntary contributions to your Class 2 National Insurance. This works out at around £2.95 per week and buys you into a full year of state pension and benefits.
If you decided to pay voluntary contributions, you will pay once a year with your tax bill. If you haven’t paid it but would like to, you’ll need to get in touch with HMRC directly, as they will not chase you for this.
Do foster carers need to register for Class 2 National Insurance?
No, once you’ve registered as self-employed, you’ll automatically be registered for Class 2 National Insurance contributions.
You can learn more about foster carer tax in our previous article.
What if I decide not to pay Class 2 National Insurance voluntarily?
Foster carers who decide not to pay Class 2 National Insurance voluntarily may have the option to claim for National Insurance Credits for carers. However, to opt-in for these credits, your profitable income will need to be below the earnings threshold.
You can apply for National Insurance credits for parents and carers online or by post. You will simply need to fill in a form and submit a letter from your fostering agency on headed paper confirming that you are a foster carer. This adds one year to your National Insurance contributions record. You will need to re-apply every year for your National Insurance credit to be applied to your record.
However, you wouldn’t want more than half of your total National Insurance record to be made up from credits, as this could affect your benefit entitlements. Don’t forget, you may have used credits to cover the gaps in your contributions record, if you had time off work to look after your own children. We’d advise you seek advice from an accountancy firm like Williams Giles to work out what’s best for you.
How many years do I have to pay National Insurance?
You’ll need 35 qualifying years to get the full new State Pension.
What if I haven’t been paying National Insurance?
You can make back payments of Class 2 National Insurance for up to six years previously, however, we’d recommend speaking to an advisor before making a decision, as you may reach the qualifying number of years before retirement to be entitled to a full state pension.