GAYE Explained
If your employer, company or personal pension provider runs a Payroll Giving scheme, you can donate straight from your wages or pension. This happens before tax is deducted from your income.
Ask your employer or pension provider if they run a Payroll Giving scheme.
| 20% Tax Payer | |
| Total donated to charity | £20 |
| You pay | £16 |
| Reduction in tax | £4 |
| 40% Tax Payer | |
| Total donated to charity | £20 |
| You pay | £12 |
| Reduction in tax | £8 |
How is it calculated?
If you are a 20% taxpayer, 80% of your donation amount will be taken from your salary and 20% will be taken from the tax which would have gone to HMRC. A £20 donation will cost you £16 - but the charity will still receive £20 because the £4 which would have otherwise gone to the tax man goes to the charity.
How is payroll giving different to Gift Aid?
When you make a direct donation to charity, you're often given the option to tick a box that allows the charity to apply for Gift Aid on your donation. This means that - if you're are a UK taxpayer - the charity can claim back 25% tax on your donation from the Government (regardless of the rate of tax you pay).
For example, if you're a lower rate taxpayer and donate £20 directly to charity, it costs you £20 and the charity receives £25 - once they've claimed the Gift Aid back. While the amount going to charity is higher, the charity carries the cost and hassle of claiming back the tax.
With payroll giving your donation not only costs you less, you receive a tax benefit and the charity automatically receives the donation - avoiding the added administrative burden of collecting Gift Aid.