Payments to volunteers
Taking on an employee
If you take on volunteers (which could include people that you offer work shadowing or experience to for example) it is likely that you will make payments to them. It is important to understand how you should treat these for income tax and National Insurance (NIC) purposes and the ‘employer’ obligations that may arise if your relationship with the volunteer is actually more like one of employment.
What payments might I make to a volunteer?
A payment to a volunteer might include:
- A cash payment
- A reward
- A gift
- A benefit in kind, like a voucher
- An honorarium (a token payment given to someone who provides services (often professional) for free)
You might also provide volunteers with the private use of an asset for free, beyond what the volunteer needs to perform their duties. The value of this to the volunteer would count as a payment.
Generally, payments to volunteers might be used to:
- pay or reimburse expenses incurred to put the individual in a position to volunteer
- pay or reimburse actual expenses incurred in the course of volunteering
- compensate the volunteer for time spent
- say ‘thank you’
- pay an ‘office holder’ (see below) or someone else for performing a service (honorarium)
If you are a charitable organisation and you reimburse expenses to volunteers or give them some other payment, it is vital to understand that while charitable bodies may be exempt from some taxes, they are not exempt from employer obligations such as having to deduct tax and NIC from certain payments under the Pay As You Earn (PAYE) system. Expenses, in particular, must be dealt with absolutely correctly otherwise they may be taxable/NICable and cause unexpected issues for both the volunteer and the organisation.
What are the tax implications of reimbursing expenses to volunteers?
If you only pay or reimburse actual expenses that the volunteer has incurred and do so at a ‘reasonable’ level, you do not have to deal with income tax or NIC. You will not have to deduct income tax or NIC under Pay As You Earn (PAYE) and you will not have to report the payments to HMRC.
This applies to expenses the volunteer incurs in carrying out the voluntary work and also expenses that put them in the position to carry out the voluntary work in the first place.
You might pay or reimburse volunteers for the following types of expenses:
- food and drink consumed while volunteering (subsistence)
- travel undertaken in the course of volunteering
- travel to and from the place of volunteering
- care of dependents while volunteering
- equipment or protective clothing needed for carrying out the voluntary work
- sundries like phone calls or postage
Charities and other organisations that pay or reimburse volunteers for out of pocket expenses (as most do, as it is considered best practice), should have a proper system in place for recording and paying or reimbursing expenses. See below for further information.
What is reasonable?
You should only pay or reimburse actual expenses at a ‘reasonable’ level. What is reasonable depends on the circumstances.
HMRC have scale rates for travel and subsistence costs. If you use these, HMRC should accept that the payment or reimbursement is ‘reasonable’.
HMRC’s scale rates include the Approved Mileage Allowance Payment (AMAP) rates. You can use these to pay or reimburse a volunteer when they use their own car for volunteering. If you use these rates, the payments are not subject to income tax or NIC under PAYE, and you do not need to report them to HMRC. You should keep good records of any such payments you make.
If a volunteer carries passengers in their car as part of their volunteering, they can claim an additional 5 pence per mile per passenger.
You should also not pay blanket allowances without checking that the individuals have incurred the expenditure intended to be covered by the allowance. If you do, there may be tax and NIC implications (more on this below).
Can I reimburse care costs?
As noted above, you can pay or reimburse a volunteer for care costs, if they need to arrange child-care for example so that they can volunteer for you. You can reimburse these to a ‘reasonable’ level without there being income tax an NIC to pay.
If a registered childminder or playgroup provides the care, they should be able to give the volunteer a receipt, which they can show you to prove the cost of the care.
Some volunteers may choose to have friends or family look after the child. Even if they pay the friend or family member for providing the care, there is unlikely to be a receipt to prove the cost of the care.
You may wish to place a section on your expenses claim form to deal with care costs. This could request information such as:
- Name, address, age of the person providing the care
- Relationship to the person in need of care
- Number of hours spent caring for the person
- Amount of money paid to the person providing the care
- Signature of the person providing the care
- Signature of the volunteer
What are the tax implications of making payments over and above actual expenses to volunteers?
You may have to deal with income tax and NIC via PAYE if:
- you pay or reimburse expenses above the amount the volunteer has incurred, or
- you pay volunteers for expenses at scale rates that you cannot reasonably view as only reimbursing what they have spent, or
- you make other payments to the volunteer, for example, an honorarium or for time spent.
This is because, the excess payments could be viewed as a reward for the volunteers’ work or services. The payments will nearly always count as taxable income on them in these cases. This is confirmed in HMRC guidance.
What happens if the volunteer is classed as an employee or office holder?
If the volunteer is classed as an office holder or employee, any payments you make to them will be considered to be employment income.
It is your responsibility to consider whether the payments you make to a volunteer are employment income.
The payments will be treated as employment income if it can be shown that:
- the individual holds an office or employment
- there are earnings from that office or employment
If this is the case, you will become the ‘employer’ of the individual. This means you will have responsibilities in relation to the individual including:
- you may have to operate PAYE on certain payments you make to them
- you will have to give them rights and protections under employment law
If you do not deduct income tax and NIC under PAYE, because you do not think the volunteer is an employee or office holder, but HMRC later disagree, you could find that you have to pay over the unpaid income tax and NIC and also a penalty.
If you reimburse expenses to an individual and you are their employer, these payments may be taxable employment income. If the reimbursements are excessive, the whole amount may be taxable, not just the amount that exceeds the actual expense.
This is because the rules for allowable expenses are stricter for employees than for volunteers. For employees, expenses that you reimburse must be incurred wholly, exclusively and necessarily in performing work duties. This means that some of the expenses listed above, that would be allowable for a volunteer, would not generally be allowable for an employee, including:
- travel between home and work
- costs of care for dependents.
What happens if the volunteer is not an employee or office holder?
If the volunteer is not an employee or office holder, you do not need to deduct income tax and NIC under PAYE.
The volunteer may need to report the expenses payments to HMRC as miscellaneous income. They may have to pay income tax on this, but they will not have to pay NIC. Any benefits or tax credits they are on could be affected and while this is the responsibility of the individual, you could advise them to talk to their benefits office/HMRC to find out exactly what impact volunteering will have – each individual case will be different. You can find more information on this on our separate page for employees.
How do I know if the volunteer is an office holder?
The volunteer is likely to be an office holder if they have a role in the organisation and the position they fill has a continued existence over time. For example, many clubs, societies, charities and voluntary organisations rely on unpaid individuals filling roles such as chair, treasurer and secretary. The individual filling the role may change, but the role continues to exist.
If the volunteer is an office holder, you may wish to pay them an honorarium.
An honorarium is a cash payment for performing a service (usually a professional service) in circumstances where no other payment will be given. The payment is made mainly to recognise the valuable service given and to ensure the role is filled.
The amounts may be very small, but you must always operate PAYE income tax and NIC on payment of an honorarium.
How do I know if the volunteer is an employee?
An individual is likely to have a ‘contract of service’ and so be an employee if most of the following statements apply to them:
- The organisation can tell them what work to do, when, how and where to do it
- The individual has to do their work – they cannot send someone else to do it
- The organisation can move the individual from task to task
- The individual has a contract and has to work a set number of hours
- The individual receives a regular wage or salary even if there is no work available
You need to consider each of the factors above and make a decision based on the relationship you have with the individual.
If an individual volunteers on a regular basis, carries out specified duties and is subject to some level of supervision and control, a number of the hallmarks of employment will be present. However, there could be other factors pointing away from employment. For example, if they only help you out occasionally, they are free to turn down helping you out and can leave when they wish.
Note that a contract does not need to be set out in writing. It can be oral or even implied by the circumstances.
You can find more information to help you determine whether or not the volunteer is an employee on our page on tax status.
You can also contact HMRC to request their opinion about the status of the volunteer.
See HMRC’s dedicated page for a discussion of how HMRC view research volunteers, lay participants and participants in clinical trials.
What are the practical considerations around operating PAYE for a volunteer?
If your volunteer holds an office or employment with you, there is a prima facie PAYE obligation – it is not acceptable for you just to make a gross payment without thinking any more about it.
If they are an office holder or employee, although there may be a prima facie PAYE obligation, whether or not you actually need to operate PAYE, will depend on whether your organisation already has an existing PAYE scheme set up, to add them to.
If your organisation doesn’t have an existing PAYE scheme set up to add volunteers to (or if you do, but consider that there is a valid reason for the use of a separate scheme because of the vastly different status of the volunteers from the core workforce) then, it is our understanding (and you would need to confirm this with HMRC or an adviser) that you may not need to register for a new PAYE scheme/operate PAYE for them, if:
- You are not paying them (or each of them if more than one) at or above the National Insurance Lower Earnings Limit (LEL) (£123 per week in 2023/24).
- They do not already have another job.
- They are not receiving a state, company or occupational pension.
- You are not providing them with employee benefits in kind.
You pay your volunteer, Wim, £20 each time he attends a steering group meeting (he does this regularly). Although £20 is clearly under the £123 per week threshold, Wim has another job, so you need to register as an employer with HMRC and operate tax and NIC in line with the PAYE tax and NIC rules and rates.
You can find out more about registering for a PAYE scheme on our website.
Even if they are classed as an office holder or employee and you do have to register for a PAYE scheme/operate PAYE, there may be nothing to deduct from them under PAYE due to the amount being under the relevant thresholds. In this case, it would be important to ensure that you get completed Starter Checklists from each individual with the appropriate box ticked, otherwise you would need to deduct emergency tax.
Either way (whether there is no obligation to set up a PAYE scheme, or whether there is, but there is no PAYE income tax or NIC due), you may need to keep some basic information about such individuals including how much you pay them. You will also need to give them payslips and comply with your wider employment law obligations, such as the minimum wage.
Note - if you do need to deduct emergency tax on any payments that you make and this is too much considering the availability of the personal allowance and any other taxable income that the person has, then they can get a refund at the end of the year.
What are the tax implications of making a gift to a volunteer?
If you make a gift in kind to a volunteer (who is not an office holder or employee) as a ‘thank you’, you should not have to deal with income tax or NIC. This is the case provided that the cost is reasonable in relation to your organisation’s total income and the volunteer’s contribution.
Gifts in kind might include:
- Christmas party
- tickets to events
It is important that such gifts are genuine gifts – they should not be expected or a reward for work or services performed. If they are not genuine gifts, they may be taxable either as employment income or miscellaneous income.
If you make a gift and it is seen as employment income because the volunteer is an office holder or employee, the benefit in kind rules will apply. These help you work out the value of the gift and whether an exemption could apply (for example the trivial benefit exemption). There may be income tax and NIC to pay. There is guidance for employers in HMRC’s booklet.
To the extent there is a liability, an employer could protect the employee by using a PAYE settlement agreement.
We know that the use of vouchers (such as a shopping voucher) to reward volunteers is very popular. Although providing these can give rise to a benefit in kind tax charge as we explain above, the employer can pay the tax instead using a PAYE settlement agreement if the payment meets the criteria. Some trivial benefits up to a value of £50 (such as giving employees a voucher as a Christmas gift) can be tax-free. Such vouchers are not treated as income for Universal Credit, by virtue of Reg 55(2)(a) of the UC Regulations.
Allowing volunteers to use charity assets
If a charitable organisation allows volunteers to privately use an asset for free (for example, the private use of a holiday home for disabled people), beyond what they need to perform their duties and such that they can be seen as receiving pay or reward for their services, there is a risk that any such payments or benefits in kind could then become subject to tax and NIC as ‘employment income’.
You would need a professional adviser, taking into consideration all the facts and circumstances to tell you how big that risk is and what you can do to mitigate it (for example, by charging volunteers properly to use the holiday home, this would turn it into something more like a normal commercial transaction, which could negate the risk of it being seen as a reward).
If the use of the asset is seen as employment income, then the benefit in kind rules will apply when considering the value. For example, in the case of the use of a holiday home, because it is ‘living accommodation’ there are specific rules on how to value the benefit in kind – it is not simply a case of saying it is the market value less any amount made good, or indeed, even the marginal cost to the organisation of providing the facility.
Can a volunteer waive their expenses?
Some volunteers may wish to waive the payment or reimbursement of their expenses or gift them back to a charitable organisation.
If the volunteer and the charitable organisation wish this to be done in a tax efficient manner, per HMRC’s guidance, the organisation should still make the expenses payment to the volunteer. The volunteer should then gift it back to the organisation as a donation under Gift Aid.
There must be an actual payment to the organisation in order for tax relief under Gift Aid to apply. A waiver of the payment or reimbursement of expenses does not involve an actual payment, so the organisation would not be able to claim tax relief on the amount.
If a volunteer wishes to make a donation using Gift Aid, they must have paid enough tax in the year to cover the tax on the donation.
What employment rights do volunteers have?
We are not employment law experts, but it is our understanding that a volunteer who only receives reimbursement for expenses they incur, is not entitled to the National Minimum Wage (NMW).
This is either because they are true volunteers and fall outside the scope of the NMW (because they are under no obligation and are not a ‘worker’ – see below) or because they are a ‘worker’ but fall within the specific exemption for ‘Voluntary workers’. To be exempt under this provision, they must work for a charity, voluntary organisation, associated fund raising body or statutory body and receive no monetary payments and only limited and specified expenses and benefits.
A ‘worker’ is a person who does work for someone else under a contract (written, oral or implied). It is a wider than being an employee for employment law purposes. 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 (and thus falls outside the exemption).
You can read more about when volunteers may be ‘workers’ and due the NMW in the HMRC technical manual.
There is a useful page on GOV.UK about the minimum wage and volunteers in the context of work experience and internships.
Note that if an individual is a ‘worker’ or an employee for employment law purposes they may be entitled to other employment rights too, some of which depend on their length of service.
It is important to understand that employment law is a complicated area. If you are unsure at all about your obligations, you should ensure you take proper advice based on your circumstances rather than acting or refraining to act based on any of the content here. This may be from ACAS or from a local lawyer.
What records should I keep?
It is sensible to have a system in place for recording details of expenses payments that you make to volunteers.
If you use HMRC scale rates for travel and subsistence, for example, the HMRC approved mileage allowance payment (AMAP) rates, then you should keep records of payments made and claims.
Where can I find more help and information?
There are several pages in HMRC’s Employment Income Manual that deal with volunteers. They are listed under Volunteers and Voluntary organisations.
A good guide for paying organisations on making payments to research participants has been created by the National Institute for Health and Care Research.
If you are not sure how to deal with reimbursed expenses or other payments you make to volunteers, you could seek assistance from HMRC’s Employer Helpline.
If you need assistance with NMW and other employment law issues, you could contact the Advisory, Conciliation and Arbitration Service (ACAS).
If you need general information on how the tax system works for charities, see HMRC’s guidance notes on GOV.UK.
If you need to consult a professional tax adviser, you can find one who specalises in charities and/or employer issues on the Association of Taxation Technician’s (ATT) website or on the Chartered Institute of Taxation’s (CIOT) website.