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For many charities, employment tax has traditionally been seen as something for payroll or finance teams to manage behind the scenes. That is changing. Rising staffing costs, more flexible ways of working and upcoming changes to the way employee benefits are taxed mean employment tax is becoming a much wider organisational issue which now affects budgeting, governance and day-to-day decision-making, as well as compliance. HMRC has confirmed that most employee benefits will move to real-time payroll reporting from April 2027, while current employer NIC rates continue to put pressure on payroll budgets across the sector.

For trustees and senior leadership teams, this does not mean you have to become a tax specialist. But ensuring that the charity has the right policies, processes and oversight in place will give you confidence in your tax compliance. In practice, understanding where the main risks lie, asking the right questions and making sure that employment arrangements support the charity’s mission without creating avoidable cost or complexity should be your goal. In a sector where resources are already stretched, getting these issues right matters.

A major change is coming: benefits and reimbursed expenses will be taxed through payroll

One of the biggest changes on the horizon is the move to mandatory payrolling of most employee benefits and taxable expenses from April 2027. In simple terms, this means that instead of dealing with many benefits after the end of the tax year through the annual P11D process, employers will need to report and tax them through payroll in real time.

For charities, this matters because information about benefits often sits in different places. HR may manage some benefits, payroll others, and certain expenses may be handled locally by managers or operational teams. The move to real-time reporting will require better internal coordination, clearer ownership and stronger data processes. Even where a charity offers only a small number of benefits, now is a good time to review how that information is captured and who is responsible for it.

Hybrid working can create unexpected tax issues

Another area that is becoming increasingly important is travel for hybrid workers. Many charities now have employees who work from home for much of the month but come into the office or another site for a regular team day or meeting. From a people perspective, it can feel reasonable to cover those travel costs. But HMRC’s guidance is clear that this can still count as ordinary commuting if the employee is travelling from home to their usual office or base location even if that doesn’t happen every day. In those cases, reimbursing the cost is often taxable.

This is one of those areas where common sense and tax treatment do not always line up. A monthly office day may feel occasional, but that does not automatically make the journey business travel. HMRC’s guidance makes clear that attendance can still be treated as ‘regular’ if it follows a pattern. For charities that have introduced hybrid working over the last few years, it is worth checking whether travel reimbursements are being handled consistently and in line with current guidance.

It is also important to note that from 6 April 2026, Income Tax relief for non‑reimbursed working‑from‑home expenses cannot be claimed by employees. Employees who are required to work from home can no longer claim the £6‑per‑week flat‑rate allowance (or actual additional household costs) from HMRC where those costs are not reimbursed by their employer. The change removes the employee deduction route entirely, shifting responsibility to employers: employer payments or reimbursements for homeworking expenses remain tax‑free where the statutory conditions are met.

Staffing models also need careful thought

Many charities rely on flexible workforce models, including consultants, freelance specialists, sessional workers and contractors. That flexibility is often essential, especially where funding is project-based or services vary over time. But it also brings risk if people are treated as self-employed or off-payroll without enough thought being given to the reality of the working arrangement. HMRC continues to emphasise the importance of assessing employment status carefully and keeping records of those decisions.

The key question is whether the charity has a sensible process in place. Are non-payroll engagements reviewed before they begin? Have we identified and trained all those responsible for engaging such workers so there is  a consistent approach across teams? And is the charity comfortable that contracts match what actually happens in practice? These are not just technical tax questions, they are part of good governance and risk management.

Volunteers need careful handling too

Volunteers are central to the work of many charities, and rightly so. But they also sit in an area where good intentions can sometimes create problems. HMRC and other guidance makes clear that genuine volunteers can be reimbursed for reasonable out-of-pocket expenses, such as travel or meals, without triggering tax issues. The difficulty comes when payments go beyond reimbursement and start to look more like reward, honoraria or benefits. That can change the tax position and, in some cases, raise wider questions about the individual’s status.

This is a reminder that clear policies matter. A simple volunteer expenses policy, sensible record-keeping and a process for reviewing unusual or one-off payments can go a long way. This does not mean being inflexible or discouraging recognition, but it does mean making sure that support for volunteers is structured in the right way.

Small gestures for staff can still have tax consequences

Many charities use modest gifts, team events or occasional vouchers to thank staff and support morale. In many cases, this is entirely appropriate and well within the rules. But there are still conditions attached to when those items can be provided without creating a tax charge. HMRC provides exemptions for some low-value benefits and for certain annual staff events, but details such as cost limits, who can attend and whether the item is genuinely a gift rather than a reward for work matter in applying them.

Even small benefits are worth keeping an eye on, especially where practices develop informally over time. What starts as a one-off thank you can become something more regular, and that is often where confusion begins. Trustees do not need to approve every staff meal or gift, but they should be satisfied that management understands the rules and that there is a consistent approach across the organisation.

What should trustees be asking?

A helpful starting point is not: “Do we know all the tax rules?” It is: “Are we asking the right questions?”

For many charities, those questions might include:

·         Do we have a clear plan for the move to payrolling benefits before April 2027?

·         Have we reviewed our approach to hybrid travel and regular office attendance?

·         Do we understand the full cost of employing staff, including National Insurance and benefits?

·         Do we have a process for reviewing all engagements of consultants and other off-payroll workers?

·         Are volunteer expenses and staff recognition practices supported by clear policies?

These questions are not about creating unnecessary work. They are about making sure the charity is prepared, informed and able to avoid unwelcome surprises later on.

Final thought

Employment tax may not always feel like the most visible issue on the agenda, but it is increasingly connected to many of the things trustees care about most: best use of donations, financial resilience, staff experience, compliance, reputation and operational effectiveness. The charities best placed for the next few years are likely to be the ones that start early, review their arrangements now and make sure the basics are in good order before the rules tighten further.

For further information, please contact Caroline Harwood, BDO Partner – National Head of Employment Tax, or Mariska Temple, Senior Manager – Employment Tax.

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