COMPLIANCE
Tax on payments to volunteers
SudeepGanguli, employment taxes senior manager at PSTAX, discusses the payments made by public bodies to volunteers and the taxation consequences that could arise
S ince the COVID-19 pandemic, there has been a significant increase in the number of public bodies making payments to volunteers. This has resulted in several queries being raised regarding the tax treatment of such payments. Nothing has changed regarding the status of volunteers since the pandemic and, similarly, we are not aware of any changes regarding the taxation rules. As many of you will be aware, Her Majesty’s Revenue and Customs (HMRC) clarified, during the pandemic, that employees returning to their normal places of work, even if volunteering on their days off – or carrying out other separate voluntary activity – were still liable to tax and National Insurance contribution (NIC) deductions through the payroll on any travel costs met, as they were not travelling in in the performance of the duties of their employment. What is a ‘volunteer’ or ‘voluntary worker’? If someone receives no payment or reward for their time, work done or services provided, they are likely to be a volunteer or voluntary worker. So, if they receive no payments or benefits at all in connection with their voluntary work, the question of tax and NICs does not need to be considered by the engager. Some volunteers will incur genuine reasonable expenses and be reimbursed for those. In such cases the expenses are not liable to tax or NICs, even if this includes
travelling between home and the place where the voluntary work is undertaken. This is on the basis that the expenses are reasonable and there is no profit element involved. For example, if the engager pays mileage that exceeds the authorised HMRC rate of 45p per mile, this would give rise to a profit element. ...if they receive no payments or benets at all in connection with their voluntary work, the question of tax and NICs does not need to be considered by the engager. Therefore, it should be noted that if the expenses are not reasonable and include an element of profit, then they would potentially be liable to tax and NICs if HMRC considers the relationship is of a nature that makes it an employment or office holding. Importantly, if the volunteer is in receipt of expenses that do not fully qualify for exemption from tax and NICs – or receives any other type of reward or recognition payment in respect of the voluntary role – all expenses and benefits paid will
potentially be subject to a tax and NICs charge if HMRC considers there is an employment relationship or office holding (this point is considered further below). This would include the home to work travel expenses (even if they are within HMRC rates), because the person would no longer have volunteer status for tax and NICs purposes. Other examples that could result in an individual losing volunteer status include: ● the volunteer being given a voucher as a thank you for additional work undertaken or for their efforts, say, during the pandemic ● the volunteer is given access to an employee assistance programme (EAP), or other corporate benefits usually reserved for paid employees. It should be noted that, for tax and NICs to be due on the profit, there must be two elements: ● the individual needs to hold an office or employment ● there are payments or benefits for the work done that arise from the office or employment. So, could the volunteers turn into employees or office holders simply by receiving a small reward? To establish whether there is an employment in place, the relationship between the individual volunteer and the paying organisation needs to be considered. If there is a contractual relationship in place under which the ‘volunteer’ works in the expectation of receiving payment or reward in return for doing that work, this will create an employment relationship.
| Professional in Payroll, Pensions and Reward | November 2021 | Issue 75 20
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