Volunteer drivers (information)

 

Volunteer Drivers

This guidance is for volunteer drivers who offer their services for an organised volunteer car scheme. It tells you how to work out whether tax is due on any mileage or other allowances you receive towards the costs of running your car.

It is not for employees of the organisation or commercial operators such as taxi or mini cab operators, or people who run similar businesses, who receive mileage or other motor expenses from the organisation.

Will I have to pay tax on any mileage allowances I receive?

You will have to pay tax only if the allowances you receive during the tax year come to more than the expenses you incur driving for the organisation: in other words, if you make a profit. A tax year runs from 6 April one year to 5 April the next. If you make a profit in the tax year, most people who pay income tax will only pay tax on their profit at the basic rate. If, for example, you make a profit in the tax year starting 6 April 2002, most people who pay income tax will only pay tax on their profit at the rate of 22p on every pound of profit.

Since I may have to pay tax on the profit element of my mileage allowances do I have to pay National Insurance contributions (NICs) on this profit as well?

Volunteer driving is not a gainful employment for National Insurance purposes. Liability for Class 2 or Class 4 NICs does not arise on any profits made from volunteer driving. This leaflet is not for commercial operators, such as a taxi or minicab drivers, who (unless they are employees and have tax and NICs deducted from their wages) must register as self-employed and, depending on their profits, may have to pay Class 2 and Class 4 NICs.

How much can I receive before I have to pay tax?

The following table shows the tax-free mileage allowances you can receive in the tax year 2002-03 before you have to pay any tax.

On the first 10,000 miles in the tax year - 40p

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

So, if, for example, your organisation pays you more than 40p a mile and you drive 5,000 miles then you will make a profit on each mile driven and will have tax to pay. We show you how to calculate the amount later in this leaflet. However, if your organisation pays you 40p a mile (or less) and you drive 5,000 miles, then you will have no tax to pay.

This saves you having to keep details of your actual motoring expenses. You will need to keep a record of the number of miles you drive in a tax year for any organisation(s) and the mileage allowances you receive from them. If you have driven for two or more organisations in the year, then the 40p rate applies to the first 10,000 miles you have driven for all your organisations added together.

If you prefer to keep records of actual motoring expenses, and to claim your actual volunteer costs when calculating your profit, you may still do so. See Example 3.

The tax-free mileage allowances are intended to give tax relief for amounts that represent fair reimbursement for car use. They are also intended to be easy for individuals to use and to reflect wider environmental aims by encouraging the use of more efficient, lower emitting cars. The different rate of tax-free allowances over 10,000 miles a year reflects the fact that some costs, such as road tax and insurance, do not increase with greater mileage. Others, such as depreciation, do increase, but not in line with increasing mileage. So the higher the total mileage, the lower the cost a mile of running a car and the greater the profit element becomes. The different rates of tax-free allowances above and below 10,000 miles take account of this.

Miles you can drive before tax is due

As explained below, the tax-free mileage allowances change once you have travelled 10,000 miles. However, many organisations pay the same amount of mileage allowances, no matter how many miles a volunteer driver travels. Even if you drive more than 10,000 miles you may still not have made a profit. This is because, although the rate of allowances you receive may be more than the tax-free allowance for travel over 10,000 miles, you may receive less than the tax-free allowance for travel up to 10,000 miles. We show you some examples below for 2002-03 where mileage rates do not result in a profit. Example 2 also shows how this works.

First look at column A to find the figure which covers your total volunteer mileage for the year. For example, if you drive 11,500 miles in a year, look at the entry for 12,000 miles. Then, look across the line to the right to column B. If you are paid at 37p a mile or less, and do not exceed 12,000 miles in volunteer driving, you will not make a profit.

If your total mileage for 2002-2003 is

There is no tax to pay if you receive less than the following pence a mile

A

B

10,000 miles or less

40p

12,000 miles

37p

14,000 miles

35p

16,000 miles

34p

18,000 miles

33p

20,000 miles

32p

However, if total mileage exceeds these limits, there could be a profit.

If you use the working sheet (see below) you will be able to calculate your profit.

How do I calculate any profit?

The working sheet below will help you to calculate whether you have made a profit or not. Follow the steps shown after the working sheet. There are also two worked examples to show you how to use the sheet.

Working sheet

worksheet.gif

Step 1

Add up all the mileage allowance payments that you have received from the organisation(s) in the tax year and enter this in the first column.

Step 2

Look at the mileage you have travelled for the organisation(s) in the tax year. Enter that mileage at (3) after Total in the second column. If this is less than 10,000 miles, enter the same figure at (1). If it is more than 10,000 miles, enter 10,000 miles at (1). At (2) enter the difference between 10,000 miles and the total mileage figure.

Step 3

Look up the tax-free mileage allowance. If you travelled more than 10,000 miles you need both figures of the tax-free allowance. In the third column after (4), enter the tax-free allowance up to 10,000 miles, and after (5) enter the tax-free allowance for over 10,000 miles.

Step 4

Multiply the figure at (4) by 10,000 and enter the result after ‘=’. Multiply the figure at (5) by the figure at (2) and enter the result after ‘=’. Add together both the amounts after ‘=’ and enter the figure at (6) after Total in the third column.

Step 5

Check the figure after (6) with the figure in the first column. If the figure in the first column is the smaller of the two, you have not made a profit and you should enter Nil in the fourth column. If the figure in the first column is the bigger figure, then deduct from it the amount at (6) Total and enter the difference in the fourth column. This is the profit you have made.

The following examples use the working sheet.

Example 1

In 2002-03, that is, between 6 April 2002 and 5 April 2003 Richard drives 16,000 miles for a charity which pays 38p a mile. He, therefore, receives £6,080 from the charity (that is, 16,000 miles at 38p). The tax-free allowances for 2002-03 are; the

first 10,000 miles at 40p a mile; and 25p a mile above 10,000 miles.

example1.gif

Step 1

Richard enters the £6,080 mileage allowance payments received from the charity in the first column.

Step 2

In the second column at (3) after Total; Richard enters his total mileage travelled for the charity of 16,000 miles. He then enters the figure of 10,000 at (1). At (2) he enters the difference between the 10,000 and the total mileage of 16,000, which is 6,000.

Step 3

The tax-free allowance is 40p a mile for the first 10,000 miles. So Richard enters 40p in the third column after (4), and 25p, the tax-free allowance over 10,000 miles, after (5).

Step 4

Richard multiplies the 40p figure at (4) by the 10,000 at (1) and enters the result of 4,000 after ‘=’. He then multiplies the 25p figure at (5) by the 6,000 at (2) and enters the result of 1,500 after ‘=’. Together the two amounts produce a figure of 5,500 to enter after Total at (6).

Step 5

The figure of 6,080 in the first column is greater than the figure of 5,500 at (6) Total in the third column. Richard deducts 5,500 from 6,080 giving a profit figure of 580 to enter in the fourth column.

What about interest on a loan to buy my car?

If you are buying your car with a loan or on hire purchase, you can also deduct a proportion of the interest in working out your profit. Be careful to count only the interest included in hire purchase instalments. The interest that can be deducted is the proportion relating to your volunteer driving. Calculate this by comparing the number of miles you have driven for the organisation with your total mileage for the year.

For example, in 2002-03 Richard paid interest of £75 on a loan to buy his car. He can deduct part of that amount from the profit figure of £580 (see page 6). Richard drove 20,000 miles in the year, of which 16,000 were for the charity, so four-fifths (16,000/20,000) of the interest can be deducted. Four-fifths of £75 is £60. Richard can deduct the £60 from the £580, which leaves a profit figure of £520.

What about telephone and postage costs?

In working out your profit, you may also deduct any telephone costs (but not the line rental) and any postage costs incurred because of your volunteer driving which are not reimbursed. You may find that after deducting the tax-free allowance there is no profit, as shown in Example 2 below.

Example 2

If in 2002-03 Rachel drives 12,000 miles for a charity which pays 34p a mile, no taxable profit arises. She receives £4,080 from the charity (that is 12,000 miles at 34p). Again, the tax-free allowances for this mileage and size of car are the first 10,000 miles at 40p a mile, and 25p a mile above 10,000 miles.

Mileage allowance paid 

(£)

Volunteer mileage

(£)

Tax-free allowances

(£)

Profit

(£)

4,080

(1) 10,000

(4) 40p x 10,000 = 4,000

NIL

 

(2) 2,000

(5) 25p x 2,000 = 500

 

 

(3) Total 12,000

(6) Total 4,500

 

Step 1

Rachel enters the £4,080 mileage allowance payments received from the charity in the first column.

Step 2

In the second column at (3) after Total; Rachel enters her total mileage travelled for the charity of 12,000 miles. She then enters the figure of 10,000 at (1). At (2) she enters the difference between the 10,000 and the total mileage of 12,000, which is 2,000.

Step 3

The tax-free allowance is 40p a mile for the first 10,000 miles. So Rachel enters 40p in the third column after (4), and 25p, the tax-free allowance over 10,000 miles, after (5).

Step 4

Rachel multiplies the 40p figure at (4) by the 10,000 at (1) and enters the result of 4,000 after ‘=’. She then multiplies the 25p figure at (5) by the 2,000 at (2) and enters the result of 500 after ‘=’. Together the two amounts produce a figure of 4,500 to enter after Total at (6).

Step 5

The figure of 4,080 in the first column is less than the figure of 4,500 at (6) Total in the third column. So there is no profit. Rachel enters ‘Nil’ in the fourth column.

Personal allowances

Depending on your other income, you may have allowances and reliefs available to set against any profits you receive as a volunteer driver. Our leaflet IR90 ‘Tax allowances and reliefs’ gives more information on this.

What if the system of tax-free allowances does not suit my circumstances?

The tax-free allowances on page 2 are based on average allowable motoring expenses. They aim to produce a fair result, yet save the work in making an actual claim. However, if your expenses are high, the tax-free allowances may not reflect all of your allowable expenses. If you wish, you can keep a record of your actual motoring expenses and the number of miles you have driven privately and for the organisation(s) throughout the year, and use these to calculate your profit at the end of the year. Motoring expenses are fuel, insurance, road tax, servicing, repairs and depreciation.

Example 3

In 2002-03, that is, between 6 April 2002 and 5 April 2003, Sanjay drives 20,000 miles in total, of which 15,000 miles are for an organisation which pays 40p a mile. The expenses he incurs in driving the total 20,000 miles are £8,000.

Step 1

He received mileage allowance of 15,000 miles at 40p a mile = £6,000

Step 2

Sanjay calculates the proportion of the expenses on total driving, which relate to volunteer driving. The proportion of volunteer driving to total driving is three quarters (15,000/20,000 miles). So the expenses relating to volunteer driving are three quarters of £8,000 = £6,000

Step 3

The profit is the £6,000 allowances received less the £6,000 proportion of the total driving expenses = Nil

As explained after Example 1, you can also deduct any allowable proportion of interest on a loan to buy the car, plus any telephone or postage costs incurred because of your volunteer driving which are not repaid.

Tax Return

If you do not make a profit from volunteer driving you need take no further action. If you have a profit from volunteer driving for the first time, contact your Tax Office. Explain that you drive for an organisation that uses volunteer drivers, and have made a profit in the year to 5 April. If you do not know where your Tax Office is, you should contact the one shown under ‘Inland Revenue’ in your local telephone directory. You must do this by 5 October of the tax year following the tax year in which you make the profit. So, for example, for the tax year ended 5 April 2003 you should contact your Tax Office by 5 October 2003.

If you use the system of tax-free allowances, the amount to tell your Tax Office is your profit as calculated based on Example 1, less any interest, telephone or postage costs as explained. If you calculate your profit using only your actual expense figures, based on the section on ‘What if the system of tax-free allowances does not suit my circumstances?’ and Example 3, then report the amount left after all expenses are deducted.

If you have received a Self Assessment Tax Return to complete, then you should show any profit from your volunteer driving at Q13 (item 13.3) of the return.

Drivers who have reported a profit from this source of income in an earlier year and

  • have not been issued with a Self Assessment Tax Return, and
  • have an adjustment in their PAYE coding to collect tax due on the profit made in the previous year

may be asked periodically to confirm the amount received. When they review the latest information, the Inland Revenue may need to correct the tax position for earlier years if the figure of profit has changed. Drivers who have not received enquiry forms should check that the figure used in their tax code is still accurate. If not, they should write to their Tax Office and give the correct profit.

Records

You must keep records of your receipts for at least two years.

If you calculate your profit using only your actual expense figures, on the basis of Example 3, you must keep, for at least two years, records of all your expenses, and the number of miles travelled privately and for the volunteer organisation(s).

If you use the system of tax-free allowances, but also claim actual expenses for interest, telephone or postage costs as explained after Example 1, you must keep, for at least two years, records of these expenses and the number of miles travelled privately and for the volunteer organisation(s). You do not need to keep any records of your other motoring costs where you have claimed the tax-free allowances rather than claim actual expenses.

However, if you make use of the tax-free allowances alone in arriving at your net profit figure and do not make any additional deductions in respect of interest, telephone or postage costs, then you need not keep any records of your expenditure or of private and volunteer mileage for that tax year.

If you are unsure what records to keep, please contact your local Inland Revenue office and ask to talk to a Business Adviser from the Business Support Team, who will be able to explain what records are needed.

Profit tables

Some volunteer organisations, including the hospital car service, provide profit tables to enable their volunteer drivers to read off a profit figure. These apply the standard tax-free allowances to the particular mileage allowances that they pay.

Any further questions?

If you have any further questions, staff at any Inland Revenue Enquiry Centre or Tax Office will be pleased to help.

 
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