The giving is easy with Payroll Giving
Payroll Giving offers a simple and efficient method for employees to make regular charitable donations. The donation is deducted from your wages (or occupational pension) by your employer before any tax is paid. The donation is passed on to the good cause(s) that you nominate via a payroll giving agency selected by your employer.
What is Payroll Giving?
Payroll Giving provides tax relief at source for gifts to charity paid directly from your pay or occupational pension. More than a million UK employees currently give in this way and thanks to the generosity of employees, in its first three decades the scheme raised over £1.8 billion for good causes.
If your employer deducts income tax under normal PAYE rules and is contracted with an approved agency, you can elect to donate using Payroll Giving. Once you sign up to the scheme, your employer deducts the amount you choose to give from your pay, before deducting tax. After that, your employer will send the payment to the agency and they pay it to the nominated charity. National Insurance contributions (NICs) are still calculated on the employee’s gross amount of pay before Payroll Giving donations are deducted. You give whatever amount you wish, there is no limit. Importantly, the agency must pass on the donation within 60 days of the receipt of the funds from the employer.
As long as they are used for charitable purposes, Payroll Giving donations are exempt from tax. However, tax exemption is lost if the charity uses the donations are used for non-charitable purposes (for instance if you receive a benefit in kind from the charity). You receive the tax relief through your pay so there is no there’s no tax repayment that can be claimed from HMRC by the agency or the charities receiving the donations.
Benefits of Payroll Giving:
- – as an employee making a donation, you pay less tax
- – it gives higher rate taxpayers a way of passing on full tax-relief to the charity (other means of gift-aided giving only allow the charity to reclaim basic rate tax)
- – easy to use – employer processes the deduction and payment on employees behalf
- – employees enrolled on the scheme get to support the causes they care about.
Setting up Payroll Giving
Setting up a Payroll Giving scheme for employees is not mandatory but many employers choose to adopt a scheme. If yours doesn’t, why not lobby them to do so? It’s actually really easy to set up and maintain. Employers should:
- – contact a Payroll Giving agency to set up a scheme
- – make deductions each time a payroll is processed. The donation will be taken from the employees’ pay before tax but after NICs
- – send the donations to the agency – they’ll pass them on to the chosen charities
- – ask the agency any questions you or your employees have about the scheme.
An admin fee charged by the agency may be deducted from your donation before it is passed on to the charity. However, employers can choose to pay the fee and then the charity will get more money. Importantly, costs incurred by employers running payroll giving schemes can be deducted from business profits before tax. Employers need to keep the following records:
- – a copy of the employer’s contract with the agency
- – a copy of the employees’ authorities to make deductions
- – details of payments made by each employee
- – receipts from the agency.
How it works
An employee joins a scheme and asks their employer to take a deduction from their wages. As a result, the employer deducts the donation to charity from the employee’s pay before tax so the employee gets relief at their highest rate of tax. However, the gift doesn’t reduce their NICs. The amount of tax relief an employee gets depends on the rate of tax paid – see below for an illustration of how a £10 donation to a charity is made up from salary and tax relief contributions. There is no statutory limit to the amount that an employee can contribute tax-free into a charitable Payroll Giving scheme.
You can elect to give donations to more than one charity (most agencies will allow an employee to nominate up to six charities) or to a group made up of a number of different charities. And if you don’t want your employer to know what charities you are supporting, you can instruct the agency directly, without telling your employer. You can also leave the scheme at any time by giving your employer reasonable notice to stop the deductions or by giving notice to the agency.
The donation can only go to the agency for forwarding to the nominated charity or charities, once a payment has been deducted from earnings and tax relief given. Payroll Giving legislation does not allow a refund of an employee’s Payroll Giving donations under any circumstances.
If a charity provides benefits (for example, free admission to properties or free or discounted tickets to events) in return for donations, the employee’s donations will not qualify for relief under Payroll Giving. However, items of low value, for example newsletters, stickers or badges, would still allow an employee’s donations to qualify for relief under the scheme.
The Payroll Giving agency will pass on employee donations to a charity. A charity must:
A charity can’t claim Gift Aid on Payroll Giving donations.
Payroll Giving agencies
A Payroll Giving agency is a charity approved by HMRC for the purpose of acting as an agency under the Charitable Deductions (Approved Schemes) Regulations SI 1986/2211 (as amended). HMRC Charities deals with applications for approval as an agency. There are details of approved Payroll Giving Agencies on the HMRC website.
The agency shouldn’t provide the charity with any information about a donor (name, address or employer) without the agreement of the donor.
- – commences February every year
- – what used to be Payroll Giving Week is now Payroll Giving Month
- – the month is used to encourage Payroll Giving and it’s an opportunity to talk about an organisation’s own scheme on social media.