Policy paper

Qualifying Care Relief increase

Published 15 March 2023

Who is likely to be affected

The measure will affect foster carers and shared lives carers. ‘Shared lives carer’ includes carers providing adult placement care, kinship care, staying put care, and parent and child arrangements.

These affected groups are collectively referred to as ‘carers’ in this document.

General description of the measure

Qualifying Care Relief (QCR) is a tax simplification available to carers that provides specific tax relief for care income, as a replacement for apportioning and calculating full deductions for expenses. The relief allows carers to keep simpler records for their care activities and use a simpler method of filling in the self-employed pages of their tax returns.

QCR provides tax relief for carers comprised of:

• Their share of the fixed amount, currently £10,000, plus
• Weekly amounts for each cared-for child or adult, currently:
  • £200 for each child under 11 years of age
  • £250 for each child 11 years of age or older
  • £250 for each adult

This measure increases the rates of QCR, and automatically increases these rates each tax year in line with inflation. This increase sets QCR for the tax year 2023 to 2024 to:

• The carer’s share of a fixed amount of £18,140, plus
• Weekly amounts for each cared-for child or adult:
  • £375 for each child under 11 years of age
  • £450 for each child 11 years of age or older
  • £450 for each adult

Each tax year, starting in 2024 to 2025, these rates will increase in line with CPI inflation. The rates will be rounded to the nearest £10 for the fixed amount, and nearest £5 for the weekly amounts.

Policy objective

This measure aims to support carers by increasing the amount of tax relief that they are able to benefit from for their care income, and ensures that this relief stays at an appropriate level over time in line with inflation. By increasing the level of tax relief that carers can use, this measure aims to ensure that carers are not taxed on income which is intended to be spent on the care of the person they are looking after. Increasing the level of the relief is intended to reflect the higher allowances being paid to carers, and higher costs of caring, compared to when the relief was originally set. By linking the value of the relief to inflation, the measure will also help to ensure that the level of QCR remains appropriate over time, supporting carers now and in the future.

This measure also aims to simplify carers’ tax affairs by allowing more carers to use the simpler method of completing their self-assessment returns available where care income is completely covered by QCR. This increase ensures that the simpler QCR method more accurately reflects the costs of caring, which could otherwise be claimed under the more complex profit method of calculating care income.

Background to the measure

This measure was announced at Spring Budget 2023.

Detailed proposal

Operative date

This measure will have effect from the tax year 2023 to 2024.

Current law

Current law on QCR is included in Chapter 2 of Part 7 of the Income Tax (Trading and Other Income) Act 2005 Sections 803 to 828. Shared lives care is one of the types of care arrangements covered by this relief, and further conditions that a shared lives scheme must meet to be eligible are set out in the Qualifying Care Relief (Specified Social Care Schemes) Order 2011 (SI 2011/712).

Proposed revisions

Legislation will be introduced in Spring Finance Bill 2023 to amend Chapter 2 of Part 7 of ITTOIA05. This will replace the fixed amount of £10,000 in section 808 with £18,140, and will replace the weekly amounts of £200 and £250 in section 811 with £375 and £450 respectively. This increase will have effect for the tax year 2023 to 24.

A new section will be introduced into Chapter 2 of Part 7 to link the fixed amount and weekly amounts to CPI inflation. This will operate in a similar way to the indexation of allowances in section 57 of the Income Tax Act 2007, measuring annual CPI inflation in the September before the start of the tax year. This increase linked to inflation will first take place in the tax year 2024 to 25. If the increase results in a number that is not a multiple of £10 or £5, the fixed amount will be rounded up to the nearest multiple of £10, and the weekly amounts will be rounded up to the nearest multiple of £5.

Summary of impacts

Exchequer impact (£m)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
—	nil	-15	-10	-10	-10

These figures are set out in Table 4.1 of Spring Budget 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is expected to affect 33,500 individuals that receive care income in respect of foster caring and other types of care and that currently submit Self-Assessment returns, who look after an estimated 58,000 foster children. Carers that are currently paying tax on their care income may see their tax bills reduced or eliminated. Carers that do not currently pay tax on their care income will be able to earn more care income without paying tax on that income in the future.

This measure is expected to take most care income out of tax by providing a higher level of relief. This will provide a direct financial benefit to carers that currently pay tax on their care income. By increasing the number of carers benefitting from full relief on their care income, this measure will also allow more carers to use the simpler method completing their self-employment pages on their Self-Assessment return.

This measure is not expected to impact on family formation, stability, or breakdown.

This measure is expected overall to improve individuals’ experience of dealing with HMRC as filling in returns will be simpler, as more carers are taken out of tax on their care income.

Equalities impacts

It is not expected that there will be adverse effects on any group sharing protected characteristics.

Impact on business including civil society organisations

This measure is not expected to impact on businesses or civil society organisations. Some carers may be treated as running a self-employed business for tax purposes; impacts on these carers have been reflected in the impact on individuals section above.

Operational impact (£m) (HMRC or other)

There will be operational impacts for HMRC to support safe implementation of this measure. HMRC will need to make changes to its IT systems. These changes are currently estimated to cost in the region of £900,000.

Other impacts

This measure may have an impact on the recruitment and retention of foster carers and shared lives carers. It is expected that an increase in QCR will provide a greater financial incentive for carers to join or stay in the care industry, improving the recruitment and retention of carers in the future.

Other impacts have been considered for this measure and no further impacts have been identified.

Monitoring and evaluation

This measure will be monitored through information collected in tax returns and kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact the Business Profits Team by email: businessprofits.admin@hmrc.gov.uk. Please include ‘Qualifying Care Relief’ in the subject line of the email.