Charities Services:

Generally speaking, volunteers do not fall to be classified as employees and are not covered by the usual rules relating to the taxation of benefits-in-kind.

The Inland Revenue accept that the reimbursement of expenses – including those in respect of travel between the volunteer's home and the place at which the work is carried out – will not give rise to a liability to tax. However, should the expenses paid exceed the costs incurred or be calculated at scale rates which cannot reasonably be regarded as merely a reimbursement of what the volunteer has spent, the Revenue may regard the volunteer as receiving remuneration for their services. If the volunteer can be shown to be an employee, the excess may be deemed to be taxable under the PAYE system; if that is not the case, the volunteer may be assessed directly in respect of the tax due. (Note that employees do not enjoy an exemption from tax in respect of “home to work” travel allowances).

The possibility that those who offer their services to organised volunteer car schemes might be making a profit prompted the Inland Revenue to issue specific guidance on this subject in the form of leaflet IR122. Again, tax will be payable only if the sums reimbursed exceed the costs incurred. In this case, the Inland Revenue have made things simple by stating that they will not regard mileage payments as containing a profit element provided that they fall within specified bands. For the tax year 2003/04, the following mileage allowances for business use will be tax free:

•  On the first 10,000 miles in the tax year - up to 40p per mile

•  On each mile over 10,000 miles in the tax year - up to 25p

If the individual prefers to keep details of actual motoring expenses, he may take an appropriate proportion of these in demonstrating that sums reimbursed for volunteer driving do not result in a profit.

Volunteers, particularly those of long standing, may also receive remuneration in the form of an honorarium. Where it can be shown that an employer-employee relationship exists and that the payment relates to the provision of services, the Inland Revenue will regard such sums as taxable. However, if a payment can be shown to be have been made ex-gratia it will be free of tax.

It is worth mentioning in this context that the National Minimum Wage legislation specifically exempts charity volunteers provided that they receive no remuneration. The definition of remuneration excludes the reimbursement of genuine expenses, the payment of reasonable monetary subsistence and the provision of such accommodation as is reasonable in the circumstances. Care should be taken to avoid payments that might indicate the existence of a contractual relationship, whether express or implied. This could bring the minimum wage legislation into play.

Finally, volunteers should be aware that the receipt of certain amounts – for example, honoraria and mileage allowances in respect of “home-to-work” travel – will be regarded as income by the Benefits Agency and may affect entitlement to benefits. It is the responsibility of the volunteers to inform the Agency of such receipts, but the charity concerned may be asked to provide details in respect of named individuals.