HMRC Payroll Giving – How Tax-Free Charity Donations Work

Payroll Giving is a government-backed scheme that allows employees to make tax-free donations to charity directly from their salary. Both Payroll Giving and Gift Aid are government-led initiatives designed to encourage charitable giving, but Payroll Giving provides immediate tax benefits at the point of donation. So how does HMRC support Payroll Giving, and why should employers and employees take advantage of it?

What Is HMRC Payroll Giving?

HMRC led Payroll Giving allows UK employees to donate pre-tax income, meaning charities receive more while donors pay less. It’s a simple, tax-efficient way to give regularly to charity without extra paperwork.

The Role of HMRC in Payroll Giving

HMRC supports Payroll Giving by:

• Allowing employees to donate pre-tax, reducing taxable earnings.
• Ensuring donations go through HMRC-approved Payroll Giving Agencies (PGAs).
• Enabling charities to receive donations without needing to reclaim tax (as required with Gift Aid).

Employers must work with an HMRC-approved Payroll Giving Agency, such as GoodPAYE, powered by PayCaptain.org. GoodPAYE is both an integrated Payroll Giving Agency (PGA) and Payroll Fundraising Organisation (PFO), streamlining the process for employers and employees alike.

Payroll Giving vs. Gift Aid – What’s the Difference?

Both Payroll Giving and Gift Aid are government-led schemes aimed at supporting charitable donations, but they function differently:

• Immediate tax relief: Payroll Giving provides tax savings instantly, while Gift Aid requires charities to reclaim tax later.
• Higher tax bands benefit more: Higher-rate taxpayers get full tax relief through Payroll Giving, whereas Gift Aid only applies at the basic rate, requiring donors to claim additional tax relief separately.
• Smoother process: Payroll Giving removes the need for individuals or charities to handle extra paperwork.

We explain the difference between the two schemes in a more detailed article here.

Government support for Payroll Giving

The UK government actively encourages employers to offer Payroll Giving as a tax-efficient way to support charities. Stephanie Peacock, the Charities Minister, stated:

“This government recognises the charity sector as a valued and equal partner in tackling some of the biggest challenges in society. That’s why we’re committed to making philanthropic giving efficient and accessible to everyone. “Payroll Giving is a tax-efficient way for people to support causes they care about and we encourage all UK employers to offer the scheme for PAYE employees.”

Why Is There a Lack of Awareness Around Payroll Giving?

Despite being a government-backed initiative, Payroll Giving remains underutilised. Many employees and employers are simply unaware of its benefits, and awareness campaigns have been limited. This is where GoodPAYE comes in – transforming the way Payroll Giving is done by making it simpler, more engaging, and widely accessible.

The Payroll Giving Quality Mark

HMRC awards the Payroll Giving Quality Mark to employers who actively promote Payroll Giving, recognising their commitment to workplace philanthropy. Businesses that encourage Payroll Giving can earn Bronze, Silver, Gold, Platinum, or Diamond status, showcasing their dedication to corporate social responsibility (CSR).

Why More Employers Should Offer Payroll Giving

Companies with Payroll Giving see increased employee engagement and loyalty. A strong CSR strategy – including Payroll Giving – boosts staff retention and enhances a company’s reputation. Additionally, offering Payroll Giving helps employees feel more connected to their workplace, improving morale and job satisfaction.

HMRC Payroll Giving is a win-win for employees, employers, and charities. It simplifies giving, maximises tax benefits, and strengthens workplace culture. With the government advocating for more employers to implement Payroll Giving schemes, businesses can take a proactive role in making charitable giving easy and impactful.