Payroll Giving For Employees

Payroll Giving is a tax-efficient employee benefit scheme that allows charitable donations to be deducted from employees’ gross pay, before their income tax is calculated. This means that all Payroll Giving donations are completely tax-free. Employees will pay less income tax to the tax man, and instead their chosen charities receive the full gross amount, making all donations work harder.

It is the simplest, most efficient and most impactful way for employees of any business to donate to their chosen charities directly from their salary, tax-free and hassle-free, making their money work hard to create change.

There are so many great benefits of Payroll Giving.

• Your donations work harder due to the tax benefit
• You can create greater impact from your support
• You can support any UK-registered charity
• Support as many charities as you like, with flexible donation amounts
• Super simple, quick and easy to set up
• You can log in any time to make any changes
• We take care of it all for you, so you don’t need to manage direct debits or enter bank details.

That is a great question, and one that we at GoodPAYE are on a mission to solve. In order to make charitable donations via payroll giving, you need to be an employee at a company that offers a Payroll Giving scheme.

Unfortunately, the majority of employers in the UK do not offer a Payroll Giving scheme to their employees, and so most of the working population in the UK simply do not know about this extremely easy and impactful way of charitable giving.

Every employer and employee we speak to agrees that Payroll Giving is the best way to give and they are surprised that they had never previously heard about it. GoodPAYE was set up to change this. Not only are we spreading the word, but we’ve also made it completely free and super easy for employers to start offering it to their employees, and even easier for employees to set up and mange their payroll giving donations, so that more people can make their charitable donations via Payroll Giving.

When you donate to charity directly, e.g. via Direct Debit, you may have seen the option to tick the “Gift Aid” box. If you are a UK tax payer, ticking the box will enable the charity to retrospectively claim an additional 25% of your donation from HMRC. For example:

You give £10 per month by direct debit and tick the gift aid box. £10 gets taken from your bank and given to charity. A few months later, the charity will claim an additional £2.50 (25% of £10) from HMRC. The £10 that get’s taken from your bank is taken from your net take-home pay, i.e. the salary that you actually receive from your employer after all the income tax is calculated and deducted.

However, with Payroll Giving, your donations are deducted from your gross pay, i.e. before income tax is calculated. This means that you pay less income tax to HMRC, and instead your charity will receive it. For example:

You’re in the 20% income tax band and you give £12.50 to charity via payroll giving. Your gross salary is reduced by £12.50 and the charity receives that £12.50 without needing to claim anything. You will pay less income tax because your gross salary is now £12.50 less. And therefore your net take-home pay (the amount you actually receive in the bank from your employer) is only reduced by £10.

And whereas Gift Aid is capped at 25%, there is no cap on payroll giving donations. So if you’re in the 40% or 45% income tax rate band, the benefit is even greater! For example:

40% Income Tax Band: you could give £16.66 to charity from your gross pay and it will only reduce your net take-home pay by £10.

45% Income Tax Band: you could give £18.18 to charity from your gross pay and it will only reduce your net take-home pay by £10.

Donating to charity via Payroll Giving is the most tax-efficient way to donate to charity. All payroll giving donations are deducted before income tax is calculated, which means that employees will pay less income tax to the tax man. Instead, their nominated charities will receive the full pre-tax amount. The higher your income tax band, the greater the impact. Here’s an example:

If you want to give £10 of your take-home earnings to charity:

• 20% Income Tax Band: you could give £12.50 to charity and it will only cost you £10
• 40% Income Tax Band: you could give £16.66 to charity and it will only cost you £10
• 45% Income Tax Band: you could give £18.18 to charity and it will only cost you £10

The difference between the £10 cost to you and the £2.50 / £6.66 / £8.18 extra that the charity will receive is the amount that you would otherwise have paid in income tax to the tax man. We call this the “payroll giving bonus”.

The more you give, the less income tax you pay and the more your charities will receive. Finally, your donations can work as hard as you do.