Payroll Giving (UK) or GAYE
Payroll Giving (sometimes referred to as Give As You Earn (GAYE)) is a way of giving money to charity without paying tax on it. It must be paid through PAYE from someone’s wages or pension. The amount of tax relief you get depends on the rate of tax you pay but it is particularly cost effective for higher rate taxpayers.
Your employer needs to set up and run the scheme which involves making deductions each time they run payroll. The donation will be taken from employees’ pay before tax but after National Insurance.
The donations are then sent to a Payroll Giving agency who then pass them on to the chosen charities.
- Charities Aid Foundation (CAF)
- Most used provider in the UK
- Charges 4% administration fees on donations (this can be covered by the employer and is a tax deductible cost)
- Can't set up a monthly % of salary (have to work out the amount to donate)
- No impact reporting
- Tyve is an effective giving non-profit that aims to promote workplace giving to effective charities
- Does not charge an admin fee
- Can set up a monthly % of salary
- Limited administration for the employer
- Impact tracking available for donations to Tyve’s recommended charities.
Tax relief
Depending on how much money you make, your effective marginal tax rate will vary and there may be a benefit of donating more to reduce your taxable income.
Interactive version of this chart.
Payroll giving vs Gift Aid
Payroll
You earn £60,000 per year (making your marginal tax band 40%). You donate £1,500 through payroll giving. Your take-home pay only reduces by £900. (From £43,849.40 to £42,949.40, assuming no other deductions).
Gift Aid
You earn £60,000 per year (making your marginal tax band 40%). You donate £1,200 to a charity after you've been paid. The charity can claim 25% from the government, giving them £1,500. And you can claim a tax rebate of £300 (1500 * 0.2), meaning you are only out-of-pocket £900.
Comparison
- Both benefit you and the charity the same
- Both reduce your 'income' for the purposes of tax traps
- With Gift Aid, the charity needs to take the step of actually making the claim from the government for the 25% top up.
- With Gift Aid, you need to go through the step of claiming your tax rebate, including keeping track of how much you have donated throughout the year.
Sources