What’s the tax status of an honorarium?

There is a type of payment that is becoming common to consultants – the honorarium, writes John O’Leary.

An honorarium is a payment that is made without expectation or obligation, and is normally a gesture to recognise the activities that have been provided by an individual rather than as a payment for services rendered.

True honorariums are exempt from tax.

If a consultant provides their time, for instance on lecturing to institutions or hospitals, and does not expect or invite any reward for their activities, a payment made as a gesture of gratitude should be exempt from tax. If, however, a consultant has links with a business and provides services for which he would normally expect to be paid, such remuneration is taxable.

The problem we have is that many businesses are making use of the consultant’s time and subsequently make a payment marked as an honorarium. We then come back to the very useful principle that “if something looks like a duck and quacks like a duck, then…”. The act of calling a payment an honorarium does not automatically make it so. If it was that simple we would have the word stamped on every payslip and no one would pay income tax again.

So, what happens if you did some lectures or articles last year and received payments marked as honorariums? You probably have a good feeling as to the true nature of the payment. There are some simple tests, for example, would you have undertaken the activity for no payment at all and is it customary to be remunerated for such services?

If you feel it was an unexpected goodwill gesture, then by all means exclude it from your tax return. If your only rationale is that you have a piece of paper stating that it is an honorarium, you could be in for a bumpy ride if you do not declare it.

John is a specialist in the taxation of hospital consultants with Medic-Tax. John can be contacted at jo@medictax.co.uk

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