Voluntary work, gift aid and tax deductions

[Nimrod103]

Somebody I do voluntary work with, but don't know well, in conversation, mentioned that their accountant claimed their voluntary work as a tax deduction. As a result, this took him out of the higher rate tax bracket. Something to do with gift aid rules. This struck me as grossly unfair, and could not possibly be true. Is it true?

[mc2fool]

Doesn't sound right as described, but it depends on exactly what they mean.

If the charity pays them expenses (e.g. travel costs) ...

"If the expenses are reasonable, you can reimburse a volunteer for costs they have had to pay because of their work, eg, train fares.

Once you pay a volunteer, they can keep the money or pay part or all of it back to the charity as a Gift Aid payment.

Gift Aid only applies when the volunteer makes an actual payment of money to your charity or CASC. You cannot claim Gift Aid if a volunteer decides not to claim for expenses that they’re entitled to.

If you pay expenses to a volunteer which are higher than the costs incurred, the payment may be taxable as employment income if it can be shown that they’re employed. If this cannot be proven, the payments may be chargeable as a miscellaneous receipt."
https://www.gov.uk/guidance/gift-aid-wh ... volunteers

There's a breakdown of what would be classed as expenses vs employment income vs miscellaneous receipts at https://www.litrg.org.uk/working/employ ... lunteering

If the "volunteering" is actually paid for work but your colleague and the charity have agreed that his payment will actually go directly back into the charity, then it can be gift aided but it will also be liable to income tax and (potentially) NI.

In any case, the vital thing is that however much they claim as a gift aided payment is matched by the amount that the charity will claim gift aid on. I.e. the amount they claim as a deduction must be received by the charity and claimed on.

[y0rkiebar]

[Nimrod103]

Doesn't sound right as described, but it depends on exactly what they mean.

If the charity pays them expenses (e.g. travel costs) ...

"If the expenses are reasonable, you can reimburse a volunteer for costs they have had to pay because of their work, eg, train fares.

Once you pay a volunteer, they can keep the money or pay part or all of it back to the charity as a Gift Aid payment.

Gift Aid only applies when the volunteer makes an actual payment of money to your charity or CASC. You cannot claim Gift Aid if a volunteer decides not to claim for expenses that they’re entitled to.

If you pay expenses to a volunteer which are higher than the costs incurred, the payment may be taxable as employment income if it can be shown that they’re employed. If this cannot be proven, the payments may be chargeable as a miscellaneous receipt."
https://www.gov.uk/guidance/gift-aid-wh ... volunteers

There's a breakdown of what would be classed as expenses vs employment income vs miscellaneous receipts at https://www.litrg.org.uk/working/employ ... lunteering

If the "volunteering" is actually paid for work but your colleague and the charity have agreed that his payment will actually go directly back into the charity, then it can be gift aided but it will also be liable to income tax and (potentially) NI.

In any case, the vital thing is that however much they claim as a gift aided payment is matched by the amount that the charity will claim gift aid on. I.e. the amount they claim as a deduction must be received by the charity and claimed on.

He doesn't receive any payment nor expenses from the voluntary organisation, because the organisation prides itself in being entirely voluntary. The way he put it, this was a deliberate and successful claim by his accountant, that putting in hours as a volunteer was regarded as a gift, which was tax deductable. The way he spoke, I don't believe he was telling us a tall story.

[mc2fool]

He doesn't receive any payment nor expenses from the voluntary organisation, because the organisation prides itself in being entirely voluntary. The way he put it, this was a deliberate and successful claim by his accountant, that putting in hours as a volunteer was regarded as a gift, which was tax deductable. The way he spoke, I don't believe he was telling us a tall story.

Doing volunteer work may be a gift morally, but only donations of money can be claimed by the donor as a Gift Aided donation.

"Under the Gift Aid scheme, charities may reclaim basic-rate tax from monetary donations received from UK taxpayers."
https://www.charitytaxgroup.org.uk/tax/donations/gift-aid/

For donations of goods:

"As Gift Aid only applies to gifts of money, donations of goods for sale through a charity shop or otherwise do not qualify for Gift Aid.

However, a charity can offer to act as an agent for supporters and sell goods on their behalf. If the supporter agrees to donate the sale proceeds, and signs a Gift Aid declaration, that donation can then qualify for Gift Aid, under the Retail Gift Aid scheme."
https://www.charitytaxgroup.org.uk/tax/donations/gift-aid/gift-aid-on-donated-goods/

I know of no equivalent for donation of voluntary work, and cannot find anything related -- and when you consider the vast amount of voluntary work done for charities in the UK you'd really think if there was an equivalent there'd be something about it to be found.

I'm pretty sure that for every £100 net of BRT your colleague is claiming a donation of (a) the charity must have received £100 and (b) the charity must have claimed £25 of Gift Aid from HMRC.

Is this a local charity where perhaps you know or can easily contact the treasurer? If so I'd mention it to them, 'cos HMRC will investigate both charity and donor if the two sides of Gift Aid don't match up -- and they do check.

(P.S. I used to run a charity, including doing all the gift aid filing and reporting...)

[DrFfybes]

MrsF does think she came across this the other day (she does accounts for several charities and chritable organisations).

The simple answer is as above - "a sole trader cannot claim Gift Aid for TIME spent on charitable work". However IF they pay expenses or charge a fee which is returned as a Gift then GA applies. It appears that even if your friend incurs expenses in volunteering then he cannot claim for them
https://community.hmrc.gov.uk/customerf ... 2248c61dcd

It is more complex if a company is involved, as there are some allowances for letting employees spend company time on charitable endeavors.
https://www.gov.uk/tax-limited-company- ... -employees

From the OP comments his friend may have misunderstood hat is going on.

Paul

[Nimrod103]

It is more complex if a company is involved, as there are some allowances for letting employees spend company time on charitable endeavors.
https://www.gov.uk/tax-limited-company- ... -employees

I assume the person in question is an employee of a big company, but probably also has his own company doing something as another income stream. I don't know whether it is his employer or his own company which is enabling him to claim Gift Aid. I assume one of those entities is enabling him to spend company time on his charitable activity, and that is how he claims.

I will have to do some more digging, but as he is an acquaintance not a friend it might be tricky.

Edit to add, what it could be is that he has his own small company, which gives him an income. Then this company coopts his time to the charity. Could that be it?

[mc2fool]

It is more complex if a company is involved, as there are some allowances for letting employees spend company time on charitable endeavors.
https://www.gov.uk/tax-limited-company- ... -employees

I assume the person in question is an employee of a big company, but probably also has his own company doing something as another income stream. I don't know whether it is his employer or his own company which is enabling him to claim Gift Aid. I assume one of those entities is enabling him to spend company time on his charitable activity, and that is how he claims.

I will have to do some more digging, but as he is an acquaintance not a friend it might be tricky.

Edit to add, what it could be is that he has his own small company, which gives him an income. Then this company coopts his time to the charity. Could that be it?

I am unfamiliar with the rules around company donations, however the above is a far way from what you said in the OP, that claiming his voluntary work took him out of the higher rate tax bracket due to the Gift Aid rules.

Maybe you misunderstood what he said, or maybe he misunderstands what his accountant is doing, or maybe both!

Declaring Gift Aided donations on your self assessment does (potentially) reduce your HRT exposure, and in the border case can eliminate it, but it's fundamental that it must be a monetary donation that the charity has received and has (or will) claim Gift Aid on.

Perhaps the way through is to ask him for the fine details of what was done, so that you can do it yourself. Or, maybe better, 'cos you mentioned it to a friend and they want to know how to do it....