PAYMENTS TO EMPLOYEES / VOLUNTEERS AND THE TAXMAN

• Home
• About Us
  • History
  • Staff
• Services
  • Accountancy
  • Charity Accounts
  • Book-keeping
  • Taxation
  • Payroll
  • Budgets and Forecasts
  • Training
• Useful Links
• Help Sheets
• Vacancies
• Forms
• Prices

Like any other, charities and voluntary organisation have to comply with tax legislation when paying individuals

You must:

• keep records of all payments made to employees and volunteers

• you should notify your local tax office if you take an employee for the first time.

Types of payment:

• Wages and Salaries

• Business Expenses

• Travel Expenses

• Conclusion

You must operate PAYE if the income is above the tax (2005/06  £94) or NIC (2005/06 £94) threshold.

Pay for an employment can take the form of salaries, bonus lump sums, clothing allowances etc.

These are taxable payments and PAYE should be operated. There is usually no liability to NIC’S when paid to a volunteer.

‘Business’ Expenses etc

All round sum allowances usually attract tax and N/C. Because the allowance are ‘round sum’ they cannot relate to a particular expense: it is hard to prove that this is a reimbursement of actual expenses. The whole amount would become taxable. There is now a new concession called ‘Personal Incidental Expenses’ which allows payment of up to £5 per night in the UK (£10 overseas) for people staying away from home on business. If the £5 (£10) is exceeded the whole amount becomes taxable. NIC applies as normal to the ‘profit element’ i.e. sum paid less actual costs incurred.

Direct reimbursement of expenses actually incurred are normally ignored for PAYE purposes although they may need to be entered on the P11D/P9D Benefits in Kind.

The Inland Revenue will tax any 'profit' made on the payment of a mileage allowance. Each year they set a table of rates depending on the car engine size. If the employer pays up to those rates then no tax and NIC becomes changeable. Any amounts paid over these rates (the 'profit' element) attracts tax and NIC.

If you are working wthin these Authorised Rates then it is worthwhile agreeing a dispensation with the Inland Revenue . Otherwise all travel expenses have to be returned on the P11D/P9D at the end of the year.

Mileage should be claimed on the distance of business journey – normal home – place of work journey.

Employers should monitor the travel claims carefully as they could end up picking up the tab for inflated mileage claiming. The have been known to check the mileage on people’s cars to prove their mileage claims are possible!.

Conclusion

If you are paying in money or anything capable of conversion into cash then it is likely to fall within the PAYE regime. Direct reimbursement e.g. bus fares are usually ok but should be supported by the relevant receipts/tickets.

Remember if you can’t prove it you might lose out.

Sample expenses claim forms and details of Authorised mileage rates can be obtained form CAS.

Your tax office can also give you advice on dispensations etc.