How should a charity handle trustee and volunteer expenses?

England and Wales: This page sets out the position in full. Scotland: the same position on reimbursing genuine expenses, but trustee remuneration — a different question from expenses, covered separately below — is more tightly controlled by statute in Scotland than in England and Wales; see the governing hub for the remuneration rules themselves. Northern Ireland: no difference identified for expenses specifically.

Trustee expenses: reimbursement, not remuneration

Pay back actual, evidenced costs only. Trustee expenses are the costs a trustee pays out on the charity’s business, such as travel to a trustee meeting. The charity pays them back against evidence.

That can be a receipt, a mileage log or a ticket: something that shows what was spent, by whom, on what. Once a payment is no longer tied to a specific, evidenced cost, it stops being an expense. It becomes pay.

Expenses work the same way for trustees and volunteers in England and Wales, Scotland and Northern Ireland. What differs is the regulator: the Charity Commission, OSCR or the Charity Commission for Northern Ireland. Trustee pay, a separate question, is more tightly controlled by statute in Scotland.

This page assumes the charity’s financial controls are in place. It also assumes the charity has applied to HMRC for charity recognition, or is about to.

An expenses policy turns on the line between expense and pay. A round-sum allowance is a flat amount handed over whatever was spent. It is remuneration, not reimbursement, however it is labelled on the claim form.

Such an allowance is taxable pay: see the tax hub for the PAYE and benefit-in-kind treatment. It may also breach the governing document, if that document does not permit trustee benefit — check what yours says with map your governing document. And it has to be disclosed differently in the accounts from a genuine expense claim.

Why record trustee expenses separately?

Trustee expenses have to be recorded apart from everyone else’s, because the accounts must disclose them. Some charities pool all their expenses into broad groups, such as travel, postage and refreshments.

A charity that does this cannot produce that disclosure at year end without rebuilding it claim by claim. Code trustee expenses to their own nominal when the claim is made. Then the year-end disclosure is a simple lift, not a search through old claims.

The stakes are real. In a sampled Charity Commission review, only 55% of accounts in the smallest band examined fully disclosed related party transactions. That rose to 86% in the largest.

In the smallest charities, disclosure of trustee expenses was the weakest of the three related-party areas measured. The next step, set up a related party register and annual declarations, covers the disclosure itself. This step is what feeds it.

Which mileage rate should the expenses policy use?

When volunteers or trustees drive on the charity’s business, HMRC’s own Approved Mileage Allowance Payment rates are the standard. A charity may pay a volunteer driver the same rates that apply to an employee. At or below the approved rate there is no Income Tax. For volunteer driving at or below that rate, there is no National Insurance to pay either, even on any profit.

What else a volunteer can be paid without a tax problem is in set up a volunteer expenses policy that stays non-taxable.

The rate for the first 10,000 business miles in the tax year is £0.55 per mile. The rate for each business mile after that stays unchanged, at £0.25 per mile. Some policies raise both bands by the same share, on the view that “the mileage rate went up”. A policy that does this will overpay on every mile beyond the first 10,000.

What if a trustee is paid for goods or services?

Paying a trustee, or a person connected to a trustee, for supplying something to the charity is not an expense. That means a contractor’s invoice, a consultancy fee or goods bought from a trustee’s business. Charities Act 2011 s.185 governs these payments, and the bar is much higher than for an expenses policy. Do not confuse the two.

A payment under s.185 needs a written agreement. It needs a trustee decision that it is in the charity’s best interests. It also needs the condition most often breached in practice: immediately after the agreement, the paid and connected trustees constitute a MINORITY of those holding office.

The section is explicit about what it does not cover, verbatim:

s.185(3): “This section does not apply to any remuneration for services provided by a person in the person’s capacity as a charity trustee or trustee for a charity or under a contract of employment.”

Paying someone for being a trustee needs authority from somewhere else. That can be the governing document, a Commission or court order, or another statute. The full rules are set out in the explainer on whether trustees can be paid.

With expenses coded to their own nominal, the next step is the related party register, which this expenses record feeds.

Common mistake: paying a round-sum allowance and calling it expenses

It saves the paperwork of single claims. That is why it is tempting. But it is remuneration, not reimbursement.

It is taxable. It may breach the governing document. And it must be disclosed differently in the accounts from a genuine expense claim.

Common mistake: not recording trustee expenses separately

Trustee expenses are small. They get coded to whatever the cost type was, such as travel, postage or refreshments. They do not go to a trustee-expenses line of their own. Yet the accounts must disclose trustee expenses. In the Commission’s review of the smallest charities, this was the weakest of the three related-party areas measured.

Worked example

A trustee of Saltmarsh Trust drives to a trustee meeting and buys refreshments for it. The claim is mileage at the approved rate, backed by the journey log, plus the cost of the refreshments on the receipt. Both are coded to a trustee-expenses nominal within the right activity, not to general travel or hospitality.

At year end, that nominal can be lifted straight into the disclosure note. Nobody has to trawl the general ledger to work out which travel claims were a trustee’s.