When it comes to HMRC volunteer expenses the rules are a little bit different than usual.
In some ways they’re more lenient, as the government wants everyone to be in a position to volunteer. But volunteer expenses and volunteer payments aren’t something you should mess around with.
To avoid a nasty surprise when the tax man comes around, you need to understand the difference between a volunteer and an employee. We’re here to help you with that.
Let's break down exactly what volunteer expenses are, what constitutes a volunteer, why they should be reimbursed and how you can reimburse them.
|
Key takeaways:
|
What are volunteer expenses?
Put simply, volunteer expenses are any costs volunteers pay out of their own pocket while offering their services without pay.
If you have people volunteering their time, effort and skills for your organisation, it only makes sense that you want to take care of them by paying for their expenses. As a bonus, it makes volunteering more accessible – and covering their expenses can also save you money if it's a tax-deductible expense. It’s a win for everyone involved.
And so long as a volunteer expense is reasonable and necessary for their work, then it qualifies as a tax-free expense. In fact, volunteer expenses are in some ways more lenient than employee expenses.
Volunteer expenses typically fall within the following categories:
- Drinks and meals taken whilst volunteering
- Travel to, from and during volunteering
- Protective clothing or equipment necessary to volunteering
- Care of any dependents the volunteer might have, like children or an elderly relative
- Out-of-pocket expenses like the cost of phone calls, stationary or postage necessary for the volunteer’s work
If you want to offer a volunteer any other kind of reimbursement to say thank you for their time, you’ll have to be careful you aren’t giving them taxable income or turning them into an employee without meaning to.
What’s the difference between a volunteer and an employee?
If a volunteer develops a ‘contract of service’ with an organisation, then they’re technically an employee.
It’s worth mentioning a contract doesn’t need to be written down: it can be verbally agreed upon or even happen as a result of a particular set of working circumstances.
Some of the signals you may have developed a ‘contract of service’ with a volunteer include:
- Telling them how, when and where to work
- Not allowing someone else to perform the work
- Giving a volunteer a set number of hours they have to work
- Giving a volunteer a regular wage, payment or benefit for the work
- Promising a volunteer future or reoccurring work
If your working relationship with a volunteer includes the majority of the signals of a ‘contract of service’, then you might be a bit too close to employment for comfort.
The problem with a volunteer becoming an employee is they’d have to be taxed for national insurance and income tax and have different employment rights.
Not to mention this tax can be backdated if HMRC deems a volunteer has always been an employee. Oops.
If you’re in this position, consider double-checking whether the volunteer still retains the freedom to turn down work or leave without notice. These are both signs that point away from employment.
If in doubt, you can even contact HMRC to get their opinion on your volunteer’s status.
HMRC rules for volunteer reimbursements
To qualify for reimbursement under HMRC guidelines, volunteer expenses must meet specific conditions. First of all, this means you should only be reimbursing volunteers for the exact amount they’ve paid for the expense – not offering a flat rate.
A flat rate would look like you offering a volunteer £15 a day to cover their travel and any meals taken. The problem is that £15 could be a fair bit more than what the volunteer actually paid for their ham and cheese meal deal and all-day bus pass.
That extra £5.60 the volunteer didn’t need could be regarded by HMRC as income. This is where you might fall into dodgy volunteer-come-employee territory.
It also suggests more of a ‘contract of service’ between a company and a volunteer. There’ve been cases where HMRC reviewed volunteer payments and decided they’re earnings. As such, they’ve then demanded years of national insurance and income tax.
To avoid this situation we recommend you:
- Have an expense policy that sets your volunteer allowance, limits and expectations
- Create an easy-to-use expense form for volunteers
- Have a system for recording and reimbursing volunteer expenses
- Always reimburse the exact amount a volunteer has spent
This means volunteers have to provide proof of purchase and how much it cost for every expense. Let’s take a look at how that might look in various expense areas:
Travel costs
You can offer volunteers travel to a place of volunteering as a reimbursable expense that’s also tax deductible for you! There are a few ways a volunteer could claim reimbursement.
They could:
- Print the details of their Oyster or pre-paid travel card in a way that demonstrates how much they used for volunteering
- Keep receipts or tickets for specific bus or train journeys
- Keep receipts for a season ticket (so long as the season ticket is cheaper than the cost of individual or return tickets for the volunteering period)
Fun fact: our Pleo cards auto-generate a ticket for your TfL journey the second you tap your card on the reader – this way, you’ll always have your receipts on hand.
If the volunteer has a disability or needs to travel particularly early or late, then you can reimburse a taxi for them. But the cost of the taxi is capped at four times the rate that journey would cost as a regular driving expense.
The volunteer would need to provide a taxi or Uber receipt to prove exactly how much they spent as well.
Speaking of driving expenses, if the volunteer drives you’ll have to follow HMRC driving expenses guidelines. To find out all HMRC’s scale rates on mileage have a look at our blog on HMRC’s mileage rates.
Phone and internet expenses
For internet expenses to qualify for reimbursement, the volunteer would have to buy an internet connection wholly and exclusively for their volunteer work. They could then provide their internet bill as proof of the exact cost of their expense.
However, if the volunteer already has an internet connection or uses the internet connection for personal use, then they cannot claim any kind of volunteer allowance. After all, it’s not an extra financial burden for them to use their own internet for volunteer work.
It’s the same with a telephone bill. So long as using the telephone bill for their volunteer work doesn’t incur any additional expense, then there’s nothing they can be reimbursed for.
If the volunteer is paying for a telephone contract wholly and exclusively for the volunteering work, then that’s something to claim for. They can also claim if they’ve bought extra minutes or incurred extra expenses by using their phone more than usual.
In that case, they must prove the extra cost is wholly and exclusively for volunteering work – not their personal telephone usage.
Food and drink
As a general rule, meals and refreshments qualify as a volunteer expense if someone’s worked four hours or more within one day. The spending has to be reasonable, of course – so no fine wine or five-course meals, unfortunately.
Protective clothing or uniform
When it comes to protective clothing you’re obligated to provide your volunteers with PPE (personal protective equipment) or reimburse them for buying their own.
Uniform is also an acceptable volunteer expense, so long as it satisfies HMRC’s super special guidelines on what constitutes a uniform.
So an all-black polo neck from M&S that you’ll probably wear again is unlikely to qualify.
A specific hospital tunic that’s a recognisable uniform, on the other hand, would be considered a volunteer expense by HMRC. In that case, you could either ask your volunteer to buy it and provide you with the receipt for reimbursement, or you could buy it for them directly depending on your expense policy.
Care of dependents
If an individual has to arrange child care or care for adult dependents to volunteer then you can choose to reimburse them for these costs as well.
So long as the cost of care is reasonable and in line with average care costs for the area, then HMRC considers it an appropriate volunteer expense without any national insurance or income tax needed.
Hurray!
With that being said, it’s worth noting that it’s trickier to work out how to claim informal care arrangements with family or friends than it is to claim from formal care agencies. You’re within your rights as a company to only cover formal care arrangements, or even only offer reimbursement if a volunteer uses a particular care agency.
How can you keep records of volunteer expenses?
The easiest way to keep track of volunteer expenses is to use an automated spending solution, like Pleo. But we know not every business is in a position to make that leap just yet.
So the next best way to keep a record of volunteer expenses is to use expense claim forms for volunteers to fill in and return alongside their receipts. Bonus points if you share your expense policy with them beforehand so they understand what their volunteer allowance and scale rates are.
At a basic level, an expense claim form should ask:
- How much did you spend?
- When did you spend it?
- What did you spend it on?
- What shift were you working at the time?
Depending on the nature of your volunteer’s work, you may want to create more specialist forms if the majority of the claims are for a certain thing. For example, if your volunteers do a lot of driving you could create an expense form that has a column for mileage.
You can then record all these details in monthly volunteer expense spreadsheets and keep the forms and receipts in reserve. It’s all about creating a paper trail so HMRC can see that what you’re doing is by the book.
On that note, we’d only recommend paying volunteer expenses by cheque or BACS via online banking rather than paying in cash. This way, it’s crystal clear exactly what you’re paying your volunteers.
Our top 3 practical considerations for volunteer expenses
When it comes to volunteer expenses, you must understand tax regulations so you don’t cause financial problems down the line for both the organisation and the individual who volunteered.
Even if you’re a charitable organisation that’s off the hook for some forms of tax, you can still end up in a sticky situation when it comes to volunteer expenses if you don’t fully understand the rules.
Here are three practical things to consider for volunteer expenses:
1. What are the tax implications around gifts to volunteers?
So long as you’re only reimbursing the exact amount an expense has cost a volunteer, and that amount is reasonable, then you’re free from paying income tax or national insurance.
But if you’re making a payment to a volunteer that includes:
- A cash sum
- A large gift
- A benefit in kind, like using your facilities for free
- An honorarium, a token amount of money as thanks for their services
These could be viewed as a reward for the volunteer's work and could classify as taxable income under HMRC’s guidelines.
The thing is, as soon as a volunteer is paid regularly or starts expecting payment, it begins to count as earnings and is taxable.
A traditional honorarium is meant to be unexpected – a one-off and a token expression of thanks. But even an honorarium as a form of volunteer payment can be taxable, so in these situations, it’s best to review HMRC’s guidelines or even get in touch with them to clarify your unique situation.
2. Are there tax implications for paying volunteers more than their exact expenses?
If you cover a volunteer’s expenses above and beyond what they actually spend, then this can be classed as payment for their services, which will have national insurance and income tax implications.
Not only might you have to pay or backdate those forms of tax, but the rules on tax-deductible expenses are more rigorous for employees than volunteers.
Remember: if HMRC decides your volunteer is actually an employee and you’ve therefore not paid enough tax they can backdate that tax claim for up to 20 years if they suspect deliberate evasion, six years for carelessness and four years for mistakes.
3. What’s the difference between a volunteer classed as an employee and an office holder?
An office holder is a person who’s been appointed to a position or role of authority within a company but does not have a contract or receive regular payment. Typical office holder roles might be a company director, club treasurer or trustee.
Even if that particular person leaves the role, the role will continue to exist and need to be filled for the organisation to continue.
That might sound suspiciously like an employee, but an office holder doesn’t necessarily have the same employee rights, like:
- The National Minimum Wage
- Working Time Regulations
- A contract
- Regular payment
- Pension Obligations
Because the role of an office holder is still quite taxing, and they don’t receive standard employee rights, they are often given honorariums or gifts to say thanks for their work. For that reason office holders have to pay income tax and national insurance, even if the amount is very small.
An individual can also be an office holder and an employee at the same time, so it’s worth checking out HMRC’s Employment Income Manual on this topic if you find yourself in a sticky office-holder-employee-tax scenario.
How Pleo can help businesses manage volunteer spending
Reconciling the exact amount spent by fifty volunteers for lunch not appealing to you? Keeping track of thousands of receipts a week sending shivers down your spine?
We hear you.
Let’s take a look at just how easy Pleo could make things.
Issue Pleo cards to volunteers
You can issue a virtual business card to each of your volunteers. All they need to do is download our Pleo business expense app on their phone. They can then see the details of their virtual card within seconds.
They can use their new virtual card for everything they need from meals taken, to travel expenses to necessary subscriptions.
No more out-of-pocket volunteers! Try Pleo cards today.