Charities rely heavily on volunteers for many tasks, including fundraising, and often the question will arise as to whether a volunteer should be recompensed for volunteering.
Making a payment, even with the best of intensions, can have far-reaching consequences. This article explores some of the income tax and national insurance (NI) implications of payments to volunteers, including trustees who are not otherwise remunerated, and provides guidance on maintaining compliance with HMRC rules.
Who is a volunteer?
The term “volunteer” is not legally defined in UK tax law, but HMRC and employment law focus on the nature of the relationship rather than the label.
A volunteer is someone who provides services without expectation of payment or reward. In contrast, an employee or worker is someone who operates under a contract, written or implied, where there is consideration and an intention to create a legally binding relationship.
A volunteer might be treated as an employee or worker if there are:
- Regular payments or benefits beyond reimbursement of actual expenses.
- Obligations to work set hours or perform duties under supervision akin to employment.
- Promises of future paid work or contractual benefits.
- Training or benefits not necessary for the volunteer role, but of personal value.
It’s more common in smaller charities for the line between volunteer and employee to blur, especially when volunteers help for extended periods. It’s important volunteers are not rewarded for any work they carry out, however invaluable.
Reimbursing out-of-pocket expenses
Charities are encouraged to reimburse volunteers for genuine expenses such as travel, meals, protective clothing, and childcare costs.
While guidance is limited, HMRC’s Employment Income Manual at Paragraph EIM71100 provides useful commentary. HMRC confirms that income tax and NI can be charged if there is either:
- An office or employment.
- Earnings from the office or employment.
HMRC has confirmed that if there is no office or employment, the reimbursement of any expenses incurred by volunteers doing charitable work will not give rise to a tax liability. Volunteers will not be liable to income tax or NI on any reimbursement of costs they might incur for the work they carry out, including expenses incurred travelling from home and the place where the work is performed. This contrasts significantly to the position of an employee, where any costs paid by the employer relating to travel to the usual place of work will be liable to income tax and NI.
However, HMRC has stated that where expenses are paid that do more than reimburse the costs incurred or are at scale rates that cannot reasonably be regarded as merely a reimbursement, the voluntary worker may be viewed as receiving remuneration for their services.
In this case, payments will be regarded as taxable employment income if it can be demonstrated that the individual holds an office or employment. If neither are present, the payments will be taxable as “miscellaneous” income.
Gifts and benefits
Many charities host events, such as concerts, as part of their fundraising mission, often offering tickets to volunteers. If a ticket is given as a reward, it may constitute a benefit in kind and could jeopardise volunteer status, bringing individuals within the scope of PAYE and national minimum wage legislation too.
Practical boundaries to maintain volunteer status
Charities should protect their volunteer status by:
- Using clear role descriptions that avoid employment-style obligations.
- Reimbursing only actual expenses with receipts.
- Avoiding flat-rate payments or honoraria unless properly treated as taxable.
- Not promising future paid work or providing benefits unrelated to the volunteer role.
- Keeping detailed records of expense claims and reimbursements.
Keeping within scope of the above should ensure the volunteer status is maintained.
Nick Bustin is a director and head of employment tax at HaysMac
