TaxPersonal TaxQ&A: ICAEW advises on payroll giving

Q&A: ICAEW advises on payroll giving

Frank Haskew and Francesca Lagerberg of the ICAEW's tax faculty advise on payroll giving.

Question: What are the options for employees who want to give regular sums of money to charity through the payroll?

Answer: Payroll giving is becoming a highly effective way of raising money for charity. Already, more than £30m has been raised in this way. The money is donated straight from an employee’s gross pay before tax. This means that employees receive up-front tax relief at their marginal tax rate on the contribution. In addition, until April 2003 the government is adding 10% to all donations made.

Question: What are they charged on?

Answer: The scheme applies only to employees who must authorise their employer to deduct regular charitable donations from their pay. The employer pays the donations to a payroll giving agency approved by the Inland Revenue.

The agency then distributes the money to the charity or charities of the employee’s choice. There is no limit on what you can give, and employees can stop giving at any time by informing their employer. The charity will benefit by receiving a regular stream of income, which will allow it to plan more effectively. It also benefits the donor, as his or her donation will reduce income before tax, thereby giving tax relief on the donation at his or her marginal rate of tax.

For example, assume a donation of £5. The basic rate taxpayer will get tax relief of £1.10 (22% of £5), and the higher rate taxpayer will get tax relief of £2 (40% of £5). In addition, the government will add 50p (10% of £5), with the result that the charity will receive £5.50. Therefore, there are clear benefits to the charity in using the method as they end up with more money for their cause.

Employers can call the Revenue’s employers helpline on 0845 7143 143.

Lines are open from 8:00am to 8:00pm, Monday to Friday, and 8:00am to 5:00pm, Saturdays and Sundays.

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