EIM71163 - Volunteer drivers’ guidance: calculating your profit

Calculating your profit

As explained at EIM71153 you will not be required to pay National Insurance contributions on the reimbursement of out of pocket expenses received for voluntary work. Tax is only charged on any profit element arising from the reimbursements. As an alternative to claiming actual expenses (an appropriate proportion of insurance, vehicle duty, fuel costs etc.) or using the tax-free mileage allowance rates, an individual could instead take advantage of the £1,000 trading allowance - which is available to those with casual or miscellaneous income. It is an optional relief and will depend on each individual’s personal circumstances as to whether it is beneficial to use or not.

The trading allowances allows you to receive up to £1,000 of gross Income Tax free from a trade or a source that would otherwise be caught by the miscellaneous income rules. If you use the trading allowance you cannot claim expenses against your income. There is more information about how the trading allowance works in HMRC’s Business Income Manual at BIM86000.

If your annual gross payments from volunteer driving are £1,000 or less, and you wish to claim the £1,000 trading allowance, you will not have to tell HMRC or declare this income on a tax return. You can only use the allowance to reduce your income to nil, you cannot generate a loss by use of the allowance. If you have other trading or casual income in the year, and the combined total exceeds £1,000 you will have to declare the amount above £1,000 on a tax return.

If your annual gross receipts from volunteer driving are more than £1,000 you can still use the £1,000 trading allowance. You can deduct up to the £1,000 trading allowance from the total income received/your gross receipts. However, you cannot then deduct any other expenses when calculating your profit. Any profits after deducting the £1,000 allowance would be liable to tax as miscellaneous income.

Whether or not you will benefit from using the trading allowance will depend on your personal circumstances. This is expanded upon in the following examples.

Example 1

In the tax year 2019 to 2020, Junaid drives 1,500 miles for a charity which pays him 60 pence per mile. He received £900 from the charity (1,500 miles at 60 pence).

Using the tax-free mileage allowance rates (the first 10,000 miles at 45 pence a mile and 25 pence per mile thereafter) this would result in 1,500 miles × 45 pence = £675. This would result in profit of £225 (£900 less £675) which Junaid would need to declare as miscellaneous income on his tax return.

Junaid did however incur expenses attributable to volunteer driving totalling £540. Deducting these actual expenses would result in a profit of £360 (£900 less £540). If Junaid chose this method, he would need to declare miscellaneous income of £360.

In the alternative, Junaid could opt to claim the £1,000 trading allowance and as this is more than the £900 received from the charity, the amount of his miscellaneous income is treated as nil and he would not need to declare it to HMRC.

Example 2

In the 2020 to 2021 tax year, Lesley drives 2,000 miles for a charity which pays her 58 pence per mile. She received £1,160 from the charity (2,000 miles at 58 pence).

Using the tax-free mileage allowance rates (as in example 1), this would result in 2,000 miles × 45 pence = £900. This would result in profit of £260 (£1,160 less £900) which Lesley would need to declare as miscellaneous income on her tax return.

Lesley did however incur expenses attributable to volunteer driving totalling £480. Deducting these actual expenses would result in a profit of £680 (£1,160 less £480). If Lesley chose this method, she would need to declare miscellaneous income of £680.

In the alternative, Lesley could opt to claim the £1,000 trading allowance. This would result in a profit of £160 (£1,160 less £1,000) which would need to be declared as miscellaneous income on a tax return.

Example 3

In the 2018 to 2019 tax year, Jodie drives 7,400 miles for a charity which pays her 52 pence per mile. She received £3,848 from the charity (7,400 miles at 52 pence).

Using the tax-free mileage allowance rates (as in example 1) this would result in 7,400 miles × 45 pence = £3,330 which gives Jodie a profit of £518 (£3,848 less £3,330). Jodie would need to declare this as miscellaneous income on her tax return.

Jodie incurred expenses from volunteer driving totalling £1,680. Deducting these actual expenses would result in a profit of £2,168 (£3,848 less £1,680) which Jodie would need to declare as miscellaneous income on her tax return.

If Jodie claimed the £1,000 trading allowance, it would result in a profit of £2,848 (£3,848 less £1,000) which would have to be declared as miscellaneous income.

Example 4

In the 2019 to 2020 tax year, Mo drives 3,100 miles for a charity which pay him 35 pence per mile. He received £1,085 from the charity (3,100 miles at 35 pence).

Using the tax-free mileage allowance rates, this would result in 3,100 miles × 45 pence = £1,395. As this exceeds the payments received of £1,085, Mo would not need to declare any miscellaneous income.

Mo incurred expenses totalling £735 in relation to volunteer driving. Deducting these actual expenses would result in a profit of £350 (£1,085 less £735) which would also need to be declared on his tax return.

If Mo claimed the £1,000 trading allowance, this would equate to £85 profit (£1,085 less £1,000) which Mo should declare on his tax return as miscellaneous income.

It is not possible to create a loss using any of these methods.

If you think you no longer need to complete a tax return, you can ask HMRC to stop sending them. You can do this online via the Government Gateway or by phone or by post.