Payroll Giving: The Tax Effective Way Of Giving To Charity

To put it simply, your employer will take your donation off your salary before working out the tax you owe to the tax man. For example, if you earn £1000 per month and donate £100 per month through payroll giving, the amount you will be taxed on is £900.

This is significant because this means that a £100 donation has only cost you £80 (20% tax payer) or £60 (40% tax payer). This is because you have not been required to pay tax as it deducted before your tax is calculated: (100 x 20%= £20) or (100 x 40% = £40).

Why a cash donation isn’t effective.

The most common way for most people to donate is by giving cash. However, to give £100 from your take home pay (income after tax), this has cost you roughly £125 in earnings to give that £100 (125 x 0.8 – assuming a 20% tax payer ) or £166 (166 x 0.8 – assuming a 40% tax payer).

National Insurance Contributions

Please bear in mind that for National Insurance Contributions will not be reduced by the donation figure. It is only the Tax Due on your salary that will change.

Fees

Please note that there is an transaction fee for setting up a regular payment through payroll by most providers. It tends to be roughly 20p. I wouldn’t let you put this off as it is roughly in line with the fees that would be required through a standard donation scheme (Direct debit/cash).

In many cases, employers set up a monthly donation to cover the admin fee’s for donations made by staff.

Fundemtally the most efficient way

To me, Payroll Giving is a no-brainer if you are looking to donate to charity. It reduces the tax paid by yourself making the donation ‘cheaper’.

More info can be found via the Charities Aid Foundation here.

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