Payroll giving – a brief guide

Payroll giving is a tax efficient way for employees to give to charity. As a result, many employers have set up payroll giving schemes that allow them to do this. While employers don’t have to offer a payroll giving scheme, it’s a good idea. It not only diverts money to good causes, but it can help boost employee morale. In this post, we take a look at how payroll giving works and how you can set up a scheme for your own workers.

What is payroll giving?

Payroll giving allows people to give money to charity without paying tax on it. Once an employer has an approved scheme in place, they deduct the agreed amount from an employee’s pay before deducting tax from PAYE. However, national insurance contributions are still calculated on gross pay before a payroll giving donation is deducted. There is no limit on the amount an employee can give from their pay.

When the employer has deducted a donation, it must send it to an approved payroll giving agency. This agency must then distribute the money to the chosen charities within 60 days of receipt.

How to set up a scheme

If you want to set up a payroll giving scheme, you need to get in touch with an approved agency. You can find a list of payroll giving agencies here.

The agency will then give you a contract and all the necessary paperwork to set up the scheme.

Once you’ve set up the scheme, you need to take the following steps:

• Tell your employees about the scheme and that they can use it to make donations to charities of their choice.
• Give employees the relevant forms to authorise donations and nominate their chosen charity or charities.
• Send these forms to the payroll giving agency. An employee may also send the form directly to the agency. They might do this if they don’t want you to know which charities they plan to support.
• Deduct the donations before PAYE is applied, but after national insurance contributions are calculated.
• Send the combined donations to the agency at the same time as you send your PAYE remittance to HMRC.

Options for payroll giving

There are various options for giving. The most common is when an employee agrees to give defined amounts to their named charities out of their weekly or monthly pay. However, the following options are also allowable:

• Personal account. An employee is given a charity card or vouchers. They can use these to donate to charities when they want to.
• Group option. A group of employees pool their donations. These are distributed to a chosen charity or group of charities.
• Employer’s shared giving scheme. All employee donations are pooled. A committee decides which charities will benefit.

Record keeping and costs

If you run a payroll giving scheme, you need to keep certain records. These are your contract with the agency, copies of employee forms authorising deductions, details of payments made by each employee and receipts from the agency.

If you incur additional costs as a result of running the scheme, these are allowable deductions for tax purposes.

Agencies also make a small charge for their service. This is normally deducted from employees’ donations. However, if an employer decides to pay the agency fees, this is also an allowable deduction.

Other considerations

These are some of the other things you need to know about payroll giving schemes:

• Donations can be made to any organisation accepted by HMRC as a charity for tax purposes.
• Employees can leave a scheme by giving their employer or the agency reasonable notice.
• Refunds are not possible. Once a donation has been deducted from earnings, it has to go to the agency for distribution.
• Agencies can’t tell charities about any donor without their express permission.
• If a charity provides benefits (such as discounted tickets for events) in return for donations, those donations don’t qualify for tax relief under payroll giving. The only exceptions are low value items such as stickers, badges or newsletters.

Need help setting up payroll giving?

Payroll giving is valued by employers and employees alike. If you would like help with your payroll – including payroll giving – get in touch today. Our payroll outsourcing services could be just what you need.