The Church of England has issued a booklet The Parochial Expenses of the Clergy which describes what may be included as reimbursable working expenses and how these should be dealt with by the PCC. Expenses should be reimbursed in full at monthly intervals, using claim forms. Written confirmation must be provided – for expenses payments direct to clergy, payment of expenses bills on their behalf and benefits provided – in order for them to complete their tax returns.
Costs of employing a parish priest
We have put together this brief guide on how much a priest costs, to help you with all the details. The download link is at the bottom of the page “How much does a Priest cost?”.
If you pay Youth Workers, Administrators, Organists, Cleaners or anyone else, please see the HMRC guide to the operation of PAYE by Local Religious Centres (LRC), including employment status of eg church organists. Registration as an employer can be done online or by contacting the New Employer Helpline on 0300 200 3211.
The national church has produced a Guide to paying people.
Checking Right to Work
All employers must check every employee’s right to work in the UK before commencing employment. This is a legal requirement and employers could face a civil penalty if they employ an illegal worker and haven’t carried out a correct right to work check. The government have provided a helpful checklist which it is suggested you should follow.
If your PCC employs anyone earning over £8,632 per year (2019/20), you may now claim Employment Allowance of up to £3,000 (2019/20) before you need to pay Employer’s National Insurance to HMRC, as HMRC has now agreed that each PCC is not linked to its diocese and therefore is entitled to the Employment Allowance. You may be able to reclaim any Employment Allowance not claimed for the earlier tax years.
Where there is no requirement for an LRC to report PAYE information in real time then records of those payments made to an individual must be retained by the LRC for 3 complete tax years following the tax year to which the payments relate.
The law on workplace pensions has changed to make it easier for millions more people to build up a pension, particularly those on lower incomes. Automatic enrolment means that, rather than having to actively choose to join a pension scheme, staff are put into one by their employer as a matter of course (subject to certain criteria). If they do not want to be in the pension scheme, they must actively choose to opt out. It is to encourage people to stay in pension saving. Auto-enrolment duties come into force for each employer from their ‘staging date’. You can find out your staging date by entering your PAYE reference into the tool on the Pensions Regulator website. We recommend using either the Government recommended NEST scheme or the Church of England Pension Builder 2014 scheme.
Church members’ expenses
Many tax-paying church members donate things (eg flowers, candles, cleaning supplies, materials for children’s groups, raffle prizes) to the church.
Other supporters may well not claim legitimate expenses incurred in carrying out charitable church activities (eg travel costs*). If someone does not claim their expenses, it can make it difficult to budget for the future. HMRC does not allow such gifts in kind to be Gift Aided, only money and financial assets (eg gifts by cheques or credit cards).
HM Revenue suggests it would be more tax-effective if the church reimburses the donor for the item(s). Then in a separate subsequent transaction the donor makes a voluntary donation of (all or part of) the reclaimed expense under Gift Aid, so an extra 25% tax reclaim can be made.
- The donor should present the church with the sales receipt or expenses claim, to be entered into the PCC’s expense accounts.
- The PCC should reimburse the donor in cash or by preferably by cheque.
- Then the donor can put the cash into a Gift Aid envelope or similar (with clear identification of the donor’s identity like a G-code).
- The PCC can make a normal Gift Aid tax reclaim.
The key requirement is that there must be two clearly separate and auditable transactions shown in the PCC’s accounts. The church must physically reimburse the donor in cash or by cheque – it is not sufficient to make book entries in the accounts following a waiver of expenses.
This also applies to the situation where someone may extend a loan to the church (as part of an appeal) and then subsequently decide to gift all or part of the loan.
* Travel expenses include mileage allowances within HMRC limits. Currently for most private cars/vans this is a maximum of 45p per mile for the first 10,000 miles a year. Similarly for motor bikes it is 24p, and for bicycles 20p. So if a church has 5 volunteer drivers who are taxpayers and who drive an average of 50 miles each month for church purposes, they could claim total mileage of 5x50x45p = £112.50 a month in expenses, which if paid and then donated back to the church would yield a tax refund of £28.12, which is equivalent to more than £330 a year.
See HMRC Guidance Notes for more details.
There are separate restrictions on making payments to PCC members.