Payroll Giving Scheme

The payroll giving scheme in the UK enables employees to donate to charities of their choice through direct deduction of the donations from the employee’s wages. This enables tax relief to be given immediately through the PAYE system, and gives tax relief at the taxpayer’s highest rate of tax. There is no limit on the amount of the donation that can be made from salary in this way.

Payroll giving can be used by an employee whose wages are subject to weekly or monthly tax deductions under the PAYE scheme, or by a person receiving a company or personal pension from which tax is being deducted by the provider using the PAYE system.

The donations are passed by the employer to an approved Payroll Giving Agency, which distributes them to the charities nominated by the employee. The employees can nominate their charities by completing forms supplied by the Payroll Giving Agency. This enables employees to nominate the charities privately without needing to inform the employer, who just sends the donations to the Payroll Giving Agency without knowing to which charities they are then to be distributed. The completed forms indicate the employee’s nominated charities to the Agency and the donations are distributed according to the employee’s wishes. The employee can choose to make the donations anonymous.

Role of the employer in payroll giving

The employer decides whether to set up a Payroll Giving Scheme. Having set up a scheme, the employer deducts the amounts indicated by employees and passes them to an approved Payroll Giving Agency for distribution to the charities nominated by the employee.

To set up the scheme, the employer signs up with a Payroll Giving Agency, a body which is itself a registered charity. The payroll system of the employer has to be set up to include the payroll giving, deducting the donations of each employee before computing income tax to be deducted under PAYE.

Some Payroll Giving Agencies provide the employees with a charity cheque book or payment card, to enable them to donate the funds directly to their chosen charities out of the amounts paid over to the Agency.

Most of the administrative burden of payroll giving is borne by the Payroll Giving Agencies. They cover their costs by deducting an administration charge from the donations. An employer can choose to pay these administrative costs so that the donations by the employees are made to their chosen charities without any deduction for costs. These administrative costs are deductible in computing the employer’s own income or corporation tax.

Records required for payroll giving

The employer must keep a copy of the contract with the Payroll Giving Agency, as well as a copy of the forms filled in by the employees authorising the deductions from their salaries. The employer should also record the deductions from the employees’ wages and keep a record of all the money paid over to the Payroll Giving Agency.

The use of payroll giving does not prevent an employee making other gifts to charity by other means such as the gift aid scheme, which provides for a gift to charity to be treated as made net of income tax, allowing the charity to reclaim the tax.


HM Revenue and Customs

“Taxation: Finance Act 2010”, by Alan Melville, sixteenth edition, 2011