Honoraria
As a general rule, honoraria paid by clubs are taxable and should be treated as earnings for tax purposes.
An honorarium is commonly described as a voluntary payment for voluntary services. HM Revenue & Customs define honoraria as payments made to office-holders in respect of duties performed where there is no formal entitlement to remuneration. Subject to the club’s rules, an honorarium may be approved either by the committee or by the members in general meeting.
A frequent misconception is that, because honoraria are often modest in amount, they are tax-free. This is incorrect. In the vast majority of cases, honoraria are subject to Income Tax and, where applicable, National Insurance contributions, and must be processed through PAYE in the same way as wages or salaries paid to club employees.
Where an honorarium is:
HMRC will normally regard the payment as earnings, irrespective of the description used. In such cases, the honorarium must be reported through PAYE and taxed accordingly. This applies equally to committee members, officers and other office-holders.
There is a very narrow exception where an honorarium may fall outside the scope of PAYE. This may arise where the payment is genuinely non-contractual, non-recurring and discretionary, and is approved by the members in general meeting, typically at the Annual General Meeting, as a one-off recognition of services.
Indicators supporting this treatment include:
Even where these conditions are present, clubs should proceed with caution. HMRC will consider the substance of the arrangement, and AGM approval alone does not automatically render a payment non-taxable.
Where an honorarium is subject to PAYE, care must be taken to ensure that National Insurance contributions are calculated using the correct earnings period.
Honoraria are frequently paid as one-off or irregular amounts, rather than through a weekly or monthly payroll. If such payments are incorrectly processed using weekly or monthly National Insurance tables, this can result in an over-deduction of National Insurance contributions, particularly where the recipient has little or no other earnings from the club.
To avoid this, National Insurance should be calculated using the annual earnings period, or the appropriate alternative earnings period (for example, six-monthly), depending on the frequency and nature of the payment. This ensures that thresholds are applied correctly and that National Insurance is deducted only where it is genuinely due.
The reimbursement of genuine out-of-pocket expenses incurred wholly and exclusively in connection with club duties does not constitute an honorarium and does not attract Income Tax or National Insurance, provided the reimbursement does not exceed the actual cost incurred.
Given the potential for confusion and the risk of HMRC challenge, clubs should assume that honoraria are taxable unless there is clear evidence to the contrary. Where there is uncertainty, the safer course is to process the payment through PAYE and apply the correct National Insurance earnings period.