Volunteers – tax and NIC
The Government encourages volunteering. If you volunteer, for example, for a charity, you may receive payments from the charity. We explain how these payments are treated for income tax and National Insurance (NIC) purposes.
What payments might I receive if I volunteer?
If you volunteer for a charity or other organisation, for example, you volunteer to take part in a clinical trial or research study, the organisation may make payments to you. In this situation, a payment can include a cash payment, a reward, gift or a benefit in kind, such as a voucher.
Often, you will receive a payment to cover any costs you have incurred in carrying out the voluntary work. However, sometimes, the payment will be to recognise the time you have spent or will be more than the actual costs you have incurred.
The different kinds of payments may result in different income tax and NIC treatment.
What if my expenses are paid or reimbursed?
Generally, if the charity or other organisation for which you volunteer pays or reimburses you only for actual expenses that you have incurred (or makes a reasonable estimate of such expenses), you will not have to pay any income tax or NIC on the payments.
This applies to expenses that you incur in carrying out the volunteer work. It also applies to expenses that you incur to put you in a position to carry out the voluntary work in the first place.
Examples of expenses that you might incur include:
- Food and drink you consume while volunteering
- Care of dependants while volunteering
- Travel undertaken in the course of volunteering
- Travel to and from the place of volunteering
- Equipment or protective clothing if needed for carrying out the voluntary work
- Sundries like phone calls or postage
You may have to complete an expenses claim form and it is a good idea to obtain and keep receipts. You may need to provide these to the charity when claiming for payment or reimbursement of expenses.
There are statutory rates of mileage reimbursement that can be paid if you have used your own car for volunteering. Provided there is no profit element (that is, no excess is paid), they are not subject to tax or NIC.
You will need to keep records to show that the mileage expenses claimed are reasonable. For example, you might keep a diary of the dates you volunteered at the charity and distances travelled, in order to substantiate your claim for mileage costs.
Note carefully that these are the maximum rates that can be paid without incurring a tax liability: you may be paid less.
First 10,000 business miles in the tax year
Each business mile over 10,000 in the tax year
Cars and vans
Haled volunteers for the NHS. He collects someone from hospital and drives them home – 5 miles there and 5 miles back – in his own car. He can be reimbursed £4.50 without any tax or NIC implications (45p x 10 miles).
The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle.
What if the payments are greater than my actual expenses?
If you received payments that exceed the costs you have actually incurred, HMRC may view you as having received reward for your work or services. For example, if the charity gives you a round sum allowance of £10 for travel expenses, but you actually walk. HMRC have guidance about this in their Employment Income Manual.
This will also be the case if you receive any other type of payment, reward or benefit in kind for your work or services – payment for your time to attend a meeting for example. The income tax and NIC treatment depends on your ‘employment status’.
The payments will be treated as employment income if:
- You hold an office or employment with the organisation, and
- You have earnings from that office or employment
If this is the case, the organisation will become your employer, and must operate Pay As You Earn (PAYE) on certain payments. The organisation must also give you various rights and protections under employment law.
You should be aware that if your payments are treated as employment income, then certain expenses that you are paid or reimbursed, will almost always be taxable (for example, home to work expenses). This is because the rules for allowable expenses for employment income are much stricter than if you are just a volunteer.
If you are not an employee or office holder
If you are not an employee or office holder but receive excess expenses or reward for your work or services, you will receive the payments gross from the organisation. This may apply, if you are taking part in a clinical trial for example, where HMRC accept that any payment is unlikely to be employment income.
However, you will have to report the expenses payments to HMRC. You will likely report this as miscellaneous income. You may have to pay income tax on this, but you will not have to pay NIC on it.
There is a £1,000 a year trading allowance for tax purposes which means that, if you are not self-employed or otherwise using it, small amounts of miscellaneous income like volunteer expense payments should not be taxable (although this would not apply if the income should actually be treated as employment income). Note, however, that the trading allowance does not apply when determining 'income' for certain welfare benefits purposes – see more information below on the impact of volunteering on state benefits entitlement.
What this £1,000 allowance means is:
- If your miscellaneous income for a tax year is less than £1,000, you do not have to pay income tax on it and you do not have to report it to HMRC.
- If your miscellaneous income is more than £1,000 but less than £2,500, you will have to tell HMRC about it. However, depending on your other income, you may not have to complete a Self Assessment tax return as HMRC may be able to collect any tax due, through PAYE.
- If your miscellaneous income is more than £2,500, you will probably have to complete a Self Assessment tax return to report the income to HMRC if there is tax to pay (even if it can be collected through PAYE). If there is no tax to pay but the income is more than £2,500, you should still tell HMRC about the income.
What if I receive a thank you gift?
The charity or organisation for which you volunteer may make a small gift to you as a ‘thank you’. Provided the gift is a genuine gift, and not expected or a reward for work or services, you will not have to pay any income tax or NIC.
If the gift is expected or is actually a reward for work or services, then, as with excess expense payments, the gift will be taxable as employment income or miscellaneous income. In this case, the charity would have to tell you the amount that is taxable.
Can I waive the reimbursement of my expenses?
You may not wish to receive reimbursement of your expenses from the charity. Or you may wish to gift them back to the charity.
You can do this in a tax efficient manner, as follows:
- Receive reimbursement of the expenses in question
- Gift the payment of expenses back to the charity as a Gift Aid donation
If you waive the expenses payment, neither you nor the charity can claim Gift Aid tax relief, as for Gift Aid to apply, there must be an actual payment donated to the charity.
If you decide to donate your reimbursed expenses back to the charity under Gift Aid, it is important to note that you must have paid enough tax in the tax year to cover the tax relief. If you have not, HM Revenue & Customs (HMRC) may charge you for the tax relief that the charity claims.
Can I get tax relief if I am not reimbursed expenses?
We were recently asked this question: Can unpaid volunteers who are not employees and who are not reimbursed mileage, claim (perhaps using a form P87) a tax rebate for mileage?
The answer is, unfortunately, no.
There is no tax relief available to volunteers who incur expenses that are not reimbursed. Even if you have other income, such as employment income or self-employed profits, you cannot claim a deduction against that for expenses incurred as a volunteer. For deductions to be claimed on a form P87 against employment income, for example, the expense has to be incurred wholly, exclusively and necessarily in the performance of your duties in that employment, not for any other purpose.
Am I entitled to the National Minimum Wage?
If you only receive reimbursement of actual expenses incurred, then you are specifically exempt from entitlement to the National Minimum Wage (NMW).
If the payments you receive exceed the expenses you have actually incurred, and if you are a ‘worker’, then you may be entitled to the NMW. A ‘worker’ is a person who does work for someone else under a contract (written, oral or implied).
Put another way, if there is no contractual relationship between the volunteer and the charity, then there is no entitlement to the NMW. If there is a contractual relationship with the charity (such that the volunteer becomes a ‘worker’) then there may be an entitlement to the NMW if the person receives monetary payments other than expenses.
You can read more about when volunteers may be ‘workers’ and due the NMW in the HMRC technical manual.
Do payments I receive as a volunteer affect my welfare benefits?
You will probably want to ensure that any voluntary work you carry out does not end up restricting any benefits that would otherwise be paid to you, or at least understand the potential consequences.
In general, volunteering will not affect your entitlement to welfare benefits as long as you only receive reimbursement for actual expenses incurred.
In any other event, benefits or tax credits could be affected – each individual case will be different. For example, under Universal Credit, payments would be treated as unearned income if they fall to be taxable as miscellaneous income (regardless of whether any tax is paid – for example because of the use of Trading Allowance).
If you are in any doubt, you should speak to your benefit office or HMRC to find out what effect the volunteering will have.
Where can I find more help and information?
If you need help with issues related to the NMW or employment law, you could contact the Advisory, Conciliation and Arbitration Service (ACAS).