- Payroll giving is a way of giving money each week or month direct from your pay.
- It is a tax-efficient way for employees, non-executive directors and those receiving a company pension to give a regular amount to one or more charities, or to make a one-off gift.
- The donation is made after your National Insurance contribution is calculated but before Income Tax is worked out and deducted. This means that you receive tax relief immediately on the value of your gift. Another way of looking at it is that money you would have paid in tax goes to your chosen charity.
An increasing number of companies offer this scheme, and some will match the donations of their staff. This could significantly increase the value of the gift. Even without that incentive, payroll giving is for most people in regular employment, receiving director’s fees or a company pension, the simplest way to give tax-efficiently.
Example: If you make a pledge of £10 a month and you pay 20% tax, the tax relief at that rate is taken from your original £10, so the cost to you is £8 a month. If you are a 40% taxpayer, £4 will be taken from the £10, so the cost to you is £6 a month. If you are a 50% taxpayer, £5 will be taken from the £10, so the cost to you is £5 a month. If your company matches your donations, the charity will benefit even more.
The process of payroll giving:
- If you are a UK taxpayer receiving a salary or pension through PAYE, your company is eligible to offer a payroll giving scheme. If they agree to set up a payroll giving scheme they will do this in association with a payroll giving agency. This is a charity that collects donations from various employers and distributes them to the employees’ chosen charities.
- Payroll giving agencies include: Achisomoch Aid Company; BEN - Motor and Allied Trades Benevolent Fund; Charities Aid Foundation; Charities Trust; The Charity Service Ltd; KKL Payroll Giving Agency; Scottish Council for Voluntary Organisations; Charitable Giving; Stewardship Payroll Giving; United Way Payroll Giving Service; The Lincolnshire Community Foundation; H-PAN; County Durham Community Foundation; Hull and East Yorkshire Community Foundation; Co-operative Payroll Giving Limited; and Giveall2Charity
- Most payroll giving agencies charge an administration fee each month. This will be taken from the donations the charity receives. The fee is sometimes paid by the employer. Fees vary, but are usually up to about 4%. This does reduce the amount the charity receives, but as all the administration is handled by the payroll giving agency the charity’s expenses are often less for this process than for Gift Aid, so it is cost-effective for the charity.
- To take part in the scheme, all you have to do is ask your employer for a charity nomination form. This gives your employer the authority to make the deductions from your pay or pension, and sets out how much you want to give, and to which charity or charities.
- The donation will be taken from your salary after working out National Insurance but before working out PAYE. It will be handled automatically by your payroll administrator. You may change the size of your donations or the charity, or stop at any time, simply by telling your employer.
- If your company does not provide a payroll-giving scheme, you might consider encouraging them to set one up. HM Revenue and Customs (HMRC) produces a simple guide which describes how the scheme works from the point of view of an employer. Also, the charity you want to support may be experienced in payroll giving and be able to give you the expert advice.
- Once payroll giving is set up it is simple for the donor to change the amount or charity destination of the donations.
A version of this article, written by Philanthropy UK, was published in a previous edition of A Guide to Giving (2008).