Do You Pay Tax On An Honorarium?
If you are wondering whether or not you should pay tax on a payment received on an honorarium, you will find the answer to your question in the following blog post. In addition to this, we will also discuss the situations in which honorariums are subject to taxation, how to declare taxable honorariums on your tax return and the amount of tax deduction you can expect on an honorarium.
Do You Pay Tax On An Honorarium?
While an honorarium is considered a form of income, whether or not you need to pay tax on it depends on the specific circumstances.
When it comes to receiving an honorarium in the UK, it is important to understand the tax implications. An honorarium is a payment made to an individual for their services, often for providing a speech or presentation at an event, for voluntary services or to existing employees for responsibilities undertaken beyond their scope of work.
In general, if you receive an honorarium as part of your employment or if you have a contract or agreement to provide services, it will be subject to income tax. This means you will need to report the amount received on your self-assessment tax return and pay any tax owed.
However, if the payment is a one-off occurrence and not part of any ongoing employment or contractual arrangement, it may fall under the category of casual income. In this case, you may be able to claim the “trading income allowance,” which currently allows you to earn up to £1,000 per year without having to pay tax.
Similarly, if you receive an honorarium from a foreign source, you may be required to pay tax in the UK on the foreign-sourced income. Additionally, if you are self-employed, you may be able to deduct expenses related to the services you provided in order to reduce your taxable income.
That said, not all honoraria are taxable. Payments received for professional services, such as speaking engagements or presentations, are considered taxable honoraria.
However, payments received for personal services, such as volunteering or serving on a committee, are considered non-taxable honoraria. It is important to distinguish between the two types of honoraria as they have different tax implications.
According to Section 3(1) Social Security Contributions and Benefits Act 1992, a true “honoraria” is a payment that is received by an office holder. While this may be a token payment and not a commercial fee, it will be considered as “earnings” for the purposes of section 3(1) SSCBA 1992 and will be liable for income tax deductions as well as Class 1 NICs.
Additionally, you may also need to consider any additional taxes, such as the High-Income Child Benefit Charge or the Additional Rate for individuals earning over a certain income threshold. In some cases, one may need to seek professional advice from a qualified accountant or tax specialist to ensure compliance and accurate calculations.
How Do You Declare Honorarium Payments On Your Tax Return?
To declare honorarium payments as earnings subject to income tax in your tax returns to HMRC, you would first need to gather the following documentation:
- copy of the payment receipt
- description of the services you provided
- date the services were provided
- amount of the honorarium
When filing your tax return, you will need to mention the amount that you received as an honorarium in the “Other income” section of your self-assessment tax return. At this stage, you should also mention that the payment you’ve received is taxable.
Once you have completed your tax return, you will need to submit it to HMRC; either online or by post.
If you are not sure whether or not your honorarium payment is taxable or not, you can contact Contact HM Revenue & Customs and seek their advice on how to proceed further.
On the other hand, if you need help from a tax advisor regarding your honorarium payment in relation to your tax returns you can request guidance from Taxaid.
What Is The Amount Of Tax That You Pay On An Honorarium?
The amount of tax you are required to pay on an honorarium in the UK depends on multiple factors, including the following:
- total income
- tax allowances
- applicable tax exemptions
In general, honorariums are subject to income tax and National Insurance contributions (NICs), unless specific exemptions apply.
The amount you earn through an honorarium payment is not treated individually for tax purposes and is added to your other taxable income and taxed at your applicable income tax rate.
To determine the tax you owe on an honorarium, you must first calculate your total income, including the honorarium payment. From there, you can assess the income tax bands and rates that apply to your total income. The rates vary depending on your income level, with higher rates for higher income brackets.
According to the 2023/2034 income tax rates;
- 0% income tax is charged when income is up to £12,570
- 20% income tax is charged when income is between £12,571 and £50,270
- 40% income tax is charged when income is between £50,271 and £150,000
- 45% income tax is charged when income is above £150,001
In conclusion, when it comes to receiving an honorarium, it is essential to understand the tax implications involved. An honorarium is a payment made to an individual for services rendered that goes beyond what would typically be expected in a particular role or position. While honorariums are not considered regular employment income, they are still subject to tax in most cases. Therefore, understanding your tax obligations and accurately reporting your income is essential to avoid penalties or potential legal issues.