Payroll giving

The payroll giving scheme was originally introduced in 1986. The scheme allows employees and pensioners the opportunity to make either regular or one-off donations to charities of their choice by a direct deduction from their salary. This gives employees immediate tax relief at their marginal rate of tax.

There is no upper limit to the level of donations that can be made through the payroll giving scheme and individuals are not restricted in the UK charities that they can support.

A payroll giving scheme operates by an employee authorising the employer to deduct the charitable payment from his gross pay for PAYE (but not NIC) purposes. The donation is then passed by the employer to a Payroll Giving Agency (‘PGA’). The PGA has the responsibility to distribute the monies to the charities nominated by the employees within sixty days of receiving the funds from the employer organisation.

An employer wishing to establish a payroll giving scheme for its employees should contact an approved PGA. Details of the approved agency charities can be found on the HMRC website. The precise details of the scheme and its practical operation will be agreed between the employer and the PGA. It is also possible for an employer to establish its own PGA to handle the charitable donations of its employees. Although various options are available, the most common arrangement is where the employee agrees to give specified amounts to named charities out of each wages or salary payment.

Employers must pay the sums deducted to the agency within 14 days of the end of the tax month for which the deductions are made, and the agency must pay the amounts to the nominated charities within 35 days of receipt.

Charities that receive donations under a payroll giving scheme do not claim any additional tax refund. This reduces the administrative burden because there is no additional paperwork to complete. The donations are received directly from the PGA by the charity nominated by the donor and this will usually give the charity increased certainty over its income. Charities receive the same level of donation, subject to the administration fee charged by the PGA, as if they had received a donation under Gift Aid; but they do not have the responsibility of maintaining detailed records of their donors and charitable gifts.

The main benefit to a donor making charitable donations via a payroll giving scheme is the immediate income tax relief at the time of making the donation. The donor, if a higher-rate tax payer, does not need to complete a self-assessment tax return to claim his or her higher-rate tax relief.

Following its consultation on payroll giving in 2013 the Government made a commitment to review ways to make payroll giving more attractive for donors, employers, charities and PGAs. The review will consider what non-financial incentives can be provided to help improve the use of payroll giving.

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