Payroll Giving is one of the most flexible and tax-efficient ways to charity. It is simple to set up and easy to manage, while being highly rewarding for everyone involved.
What is Payroll Giving?
Payroll Giving is a straightforward way for employees to make regular donations to UK-registered charities directly from their wages or pensions. The scheme is highly effective because you make donations before you deduct tax. This gives the donation more value while costing the employee less.
Unlike one-off donations, Payroll Giving provides charities with a consistent flow of income. It also eliminates the need for charity to claim Gift Aid, since tax relief applies at the point of donation. This makes the process faster and simpler, while being less burdensome for everyone.
How Payroll Giving Works
The first step is for the employer to set up a Payroll Giving scheme through a recognised and HMRC-approved agency. Once the scheme is active, employees can decide how much to give and which charities to support.
You deduct the donations each time you run a payroll. These deductions occur after National Insurance but before Income Tax, which means the employee gets tax relief at their highest rate. As a result, they pay less than the charity receives. Here’s how it works:
- A £10 donation costs £8 for a 20% taxpayer
- The same donation costs £6 for a 40% taxpayer
- And just £5.50 for a 45% taxpayer
For a £15 donation, the cost drops to £12, £9 or £8.25 depending on the tax band. These savings make Payroll Giving one of the most tax-efficient ways to support charitable causes in the UK.
Benefits for Charities
Unlike irregular donations, this method offers a predictable and steady stream of income. This helps them plan projects and manage resources, while continuing to deliver essential services. Because donations already include tax relief, charities do not need to spend time and money claiming Gift Aid.
With fewer administrative burdens, charities can focus more of their energy on what really matters; helping people, funding research and making a difference. Many are also keen to share updates with donors, through newsletters, case studies and impact stories, showing how they use any and all contributions.
Setting Up a Payroll Giving Scheme
Employers who want to offer Payroll Giving need to register with a recognised Payroll Giving Agency. HMRC publishes a list of approved agencies, but not all are listed. If in doubt, request a copy of the agency’s HMRC approval letter.
After choosing an agency, the setup is usually straightforward. Most payroll systems support Payroll Giving with built-in functionality. Employers simply register, activate the feature in their payroll system and forward monthly donations to the agency.
The agency then distributes the funds to the selected charities.
What About the Costs?
Payroll Giving agencies typically charge a small administrative fee. They deduct this fee from each donation before the money reaches the charity. However, employers can choose to cover this fee, allowing the full donation to go to the intended cause.
All costs associated with running the scheme can be deducted from business profits, reducing the overall tax burden.
Flexibility for Employees
Any employee paid through PAYE can join the scheme, regardless of their income. There are no limits on how much they can donate. Employers can change, pause or stop their donations at any time. They simply need to notify the payroll department.
This control allows employees to give in a way that suits their personal and financial circumstances. They choose how much to give and which charities to support.
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