Making Tax Digital and Foster Carers — An Important Update for 2026 and Beyond

Making Tax Digital (MTD) for Income Tax is one of the most significant changes to how individuals report their income to HMRC, and with the April 2026 start date now upon us, a lot of people are trying to work out whether and how it applies to them.

For foster carers specifically, there have been some important developments that are worth understanding clearly — including a temporary exclusion that buys an extra year before the rules fully apply.

A quick recap — what is Making Tax Digital for Income Tax?

MTD for Income Tax requires self-employed individuals and landlords to move away from the traditional annual Self Assessment tax return and instead keep digital records of their income and expenses, submitting quarterly updates to HMRC throughout the year.

From April 2026, the requirement applies to those with qualifying income over £50,000. From April 2027, the threshold drops to £30,000, bringing more people into scope. Eventually the plan is to extend it further still.

For most people it represents a significant change to how they manage their tax affairs, and the preparation required — choosing compatible software, setting up digital records, understanding the quarterly submission process — takes time to get right.

How does MTD apply to foster carers?

Foster carers have a unique tax position. Fostering income benefits from a specific relief called Qualifying Care Relief, which means most foster carers pay little or no tax on their fostering income. That relief has been well established for many years.

The question when MTD was being developed was whether fostering income would count towards the threshold that brings someone into the MTD regime — and if so, whether foster carers would face the same quarterly reporting obligations as other self-employed individuals.

Following consultation and lobbying with organisations including The Fostering Network, HMRC confirmed that fostering income itself is excluded from MTD. In other words, the income you receive from fostering does not count towards the threshold, and you will not be required to report it under MTD.

However, if you have other sources of income — rental income from a property you let out, or income from another self-employed trade alongside fostering — those income sources are treated differently.

What's the new temporary exclusion for 2026/27?

In January 2026, HMRC confirmed an important additional update specifically for foster carers: there is now a temporary exclusion from MTD for the entire 2026/27 tax year.

Crucially, this exclusion applies to all income — not just fostering income. That means that for 2026/27, even foster carers who have additional income from rental property or another self-employed trade will not be required to enter the MTD system, even if that non-fostering income would normally exceed the MTD threshold.

In practical terms, if you are a foster carer and you were worrying about whether MTD applies to you from April 2026, the answer for this coming tax year is that it doesn't. You have an extra year to prepare.

What happens from April 2027?

From April 2027, the rules change and the picture becomes a little more nuanced.

Fostering income remains fully excluded from MTD — that protection stays in place. But any other self-employed income or rental income you receive will be assessed against the MTD threshold, which by that point will have dropped to £30,000.

So if your non-fostering income — rental income, for example, or earnings from another self-employed business alongside your fostering — exceeds £30,000 in 2027/28 or beyond, you will be required to comply with MTD for those income streams. You would need to keep digital records of that income and expenses and submit quarterly updates to HMRC, even though your fostering income sits entirely outside the regime.

The key point is that it's your non-fostering income alone that determines whether you need to comply — fostering income plays no part in that calculation.

What should foster carers be doing now?

If fostering is your only source of income, or your other income is modest and unlikely to exceed £30,000, the practical impact of MTD on you is likely to be minimal. It's still worth keeping an eye on the rules as they develop, but there's no urgent action required.

If you do have other income streams — particularly rental income or self-employment income alongside fostering — now is a good time to start thinking about preparation, even though you have until April 2027 before the rules apply. That means reviewing your record-keeping processes, understanding which MTD-compatible software might work for your circumstances, and making sure you have a clear picture of what income will and won't fall within scope.

The year's grace provided by the 2026/27 exclusion is genuinely useful — use it to get organised rather than to put the whole thing off.

We can help

MTD is a topic we're helping a lot of clients navigate at the moment, and the rules for foster carers have some specific nuances that are worth getting right. Whether you want to understand exactly how the rules apply to your circumstances, need help choosing the right software, or just want someone to walk you through what quarterly reporting will actually look like in practice — the team at Alera Accounting & Advisory is here to help.

Get in touch today and we'll make sure you're properly prepared ahead of the changes.