The Employer's Guide to Payroll Giving | The Accountancy Partnership

Payroll Giving is a scheme which allows employees to make tax-efficient donations to UK charities directly from their pay. If you’re an employer considering Payroll Giving for your business, then this guide is for you.

How does Payroll Giving work?

You’ll need to set up a workplace scheme through a recognised Payroll Giving agency to get started. Once everything’s set up, your employees can choose the amount they would like to donate to their selected charities, and then you or your payroll provider will deduct this from their wages each time you run payroll. The deductions are then sent to your Payroll Giving agency, who will pass the donations on to the nominated charities.

These deductions are made after National Insurance, but before income tax is taken, so the donations will attract tax relief which can then be passed on to the charity. It means that an employee can pledge their donation, but might not need to pay the full amount that the charity receives depending on what rate of income tax they pay.

For example

A basic rate taxpayer will pay 20p in tax for every £1 they earn. They sign up to a Payroll Giving scheme and pledge £10 a month.

The charity receives the full amount, but only £8 is taken from the employee’s net pay. If they pay income tax at a higher rate, the deduction will be even less. The table below shows how this works for taxpayers in England, Wales, and Northern Ireland (Scotland uses different rates of income tax).

Donation Amount	Cost to 20% Standard Rate Taxpayer	Cost to 40% Higher Rate Taxpayer	Cost to 45% Additional Rate Taxpayer
£10 per month	£8	£6	£5.50
£15 per month	£12	£9	£8.25

Receiving reliable, regular income is great news for the charity, allowing it to plan ahead. There’s also less administration required on their part because the funding received already includes tax relief, so they won’t need to spend time claiming back Gift Aid.

How do I set up a Payroll Giving scheme?

Your first stop is to sign up with a Payroll Giving agency which will help you make sure (and prove to HMRC) that any charitable deductions end up in the right place.

HMRC do publish a list of approved Payroll Giving agencies but, confusingly, the list doesn’t include every agency which has been approved – just those that ask to be included. You can ask the agency to provide you with a copy of their approval letter if you’re not sure! You’ll usually find their registration agreement form on their website, or they’ll send one for you to fill in.

Most payroll systems can implement the scheme quite easily, with many offering a straightforward ‘tick box’ option. Once an employee signs up, you’ll deduct their donation every payday (so remember to tell us if we operate your payroll!), and the sum total of donations are then sent to your Payroll Giving agency. The donation amount is shown on the employee’s payslip as a deduction.

How much does it cost to set up Payroll Giving?

There isn’t a specific cost to you as an employer, other than the time you spend administering the scheme. Most Payroll Giving agencies will deduct an administration fee from the donation amount before passing it on to the charity, although you can choose to pay this if you prefer, so that more of the money goes to the charity.

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Can any employee join the scheme?

Yes, any member of staff who you pay through Pay As You Earn (PAYE) is eligible to make charitable donations through Payroll Giving, and there aren’t any limits on the size of the gift, either.

How flexible is Payroll Giving for my employees?

Very flexible indeed. Not only can employees choose the charity or charities they wish to support, they can also choose the amount too. If they decide to take a break from donating (after all, anyone’s financial circumstances can change), they can leave and re-join the scheme whenever they want to. Employees just need to let payroll know.

How can I promote Payroll Giving in my organisation?

Whether you set up the scheme because your employees asked you to, or it’s something that you wanted to offer, employee engagement is crucial here. To encourage participants, you could:

Offer to match donations
Plan an event that gets your teams together, with the theme of charitable donations and Payroll Giving
Aim for a Gold Quality Mark, if 10% of your employees sign up
Engage the help of a Professional Fundraising Organisation (experienced fundraisers which work with companies and charities to promote Payroll Giving to employees)
Invite representatives from the charity to come and meet staff

Once you start, don’t forget to update your staff regularly! Whoever your team supports, many charities are only too happy to provide newsletters, case studies and updates on how donations are spent. Make sure you circulate these amongst your staff, so they know they really are making a difference.

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