Payroll giving lets an employee or pensioner give to charity straight from pay before Income Tax is worked out, so tax relief is given at source at the donor’s top rate with nothing to claim. The employer deducts the donation through PAYE and pays it to an HMRC approved payroll giving agency, which passes it to the chosen charities. National Insurance is still due on the amount given, and the charity cannot add Gift Aid.

What is payroll giving and where do the rules come from?

Payroll giving, sometimes called give as you earn, is set out in Part 12 of the Income Tax (Earnings and Pensions) Act 2003. Section 713 applies where someone receives PAYE income and, at their request, the payer withholds sums as donations. The amount of the donations is then allowed as a deduction in calculating the person’s taxable income from that employment or pension.

Section 714 defines a donation for these purposes. The sums must be withheld under a scheme approved by HMRC, the payer must pay them to an approved agent, and the agent must pay them on to the charities the individual has chosen. Section 715 lets the Treasury make regulations about approving schemes and agents; the detailed framework is in the Charitable Deductions (Approved Schemes) Regulations 1986.

The deduction is not limited to salaries. Section 713(4) allows it against taxable earnings, taxable pension income and taxable social security income paid through PAYE, and gov.uk confirms that pension providers can run a scheme as well as employers.

How is tax relief given at source?

gov.uk explains that payroll giving donations are taken before Income Tax but after National Insurance. Your taxable pay is simply lower, so you get relief at your highest rate in real time without a tax return or a tax code change. gov.uk currently gives the cost of each £1 donated as:

Taxpayer Cost to you of giving £1
Basic rate (England, Wales, Northern Ireland) 80p
Higher rate 60p
Additional rate 55p
Scottish starter rate 81p
Scottish intermediate rate 79p
Scottish top rate 52p

Because National Insurance is worked out before the donation comes off, there is no National Insurance saving. That is the main practical difference from a salary sacrifice scheme, where the contract changes and pay itself is reduced.

Illustration only. A higher rate employee asks for £50 a month to go to a hospice. Taxable pay falls by £50 each month, so the tax deducted falls by £20 and take home pay drops by £30. The hospice receives £50, less any agency fee the employer has not chosen to cover.

How does payroll giving compare with Gift Aid?

Both reliefs are for gifts of money, but they work in opposite directions. Gift Aid treats the donation as made after basic rate tax, the charity reclaims that tax, and higher rate donors claim the rest themselves by extending their bands (see claiming higher rate relief on Gift Aid). Payroll giving gives all the relief to the donor through PAYE.

Point Payroll giving Gift Aid
Who gets the basic rate relief The donor, through lower taxable pay The charity, which reclaims 25p per £1
Higher rate relief Automatic in PAYE Claimed on a return or through the tax code
Declaration needed No, the donor asks the employer Yes, a Gift Aid declaration to each charity
Can be combined on the same gift No. Section 416(4) of the Income Tax Act 2007 excludes payroll giving sums from Gift Aid, and gov.uk confirms charities cannot claim Gift Aid on them
Community amateur sports clubs Not allowed Allowed

One consequence is worth knowing. A Gift Aid donor who pays too little tax can face a charge for the shortfall. A payroll giving donor cannot, because the scheme only reduces taxable pay. If pay is below the Personal Allowance there is simply no tax saving, but the charity still receives the full donation.

What does an employer have to do?

gov.uk sets out the employer’s role in four steps:

  1. Contact an HMRC approved payroll giving agency to set up a scheme. HMRC publishes a list of approved agencies, though it only includes agencies that ask to be listed; an approved agency not on the list can produce a letter of approval from HMRC.
  2. Make the deductions each time payroll is run, from pay before tax but after National Insurance.
  3. Send the donations to the agency, which passes them to the charities each employee has chosen.
  4. Refer questions from staff about the scheme to the agency.

Agencies may charge an administration fee, usually taken from the donations before they reach the charity. gov.uk says the employer can choose to pay the fee so the charities receive more.

The costs are deductible for the employer. The Business Income Manual at BIM45195 says the employer’s own costs of operating the scheme are allowable in the same way as other PAYE running costs, and voluntary payments to the agency towards its expenses are also relieved. For a company the reference is section 72 of the Corporation Tax Act 2009; for an unincorporated business it is section 72 of the Income Tax (Trading and Other Income) Act 2005.

What happens on the employee’s tax return?

HS342 says the pay figure you enter on the Employment page should be the amount after payroll giving deductions, which is the figure on your P60 or P45. You do not enter the donations anywhere else as a deduction, and you must not put them in the Gift Aid boxes. Our guide to P60s, P45s and payslips explains where that figure comes from.

There is one reporting point. Section 24A of the Income Tax Act 2007 caps certain reliefs at the greater of £50,000 and 25% of adjusted total income, and Step 2 of the adjusted total income calculation adds payroll giving deductions back. HS342 therefore asks you to report payroll giving donations on the Additional information pages so the cap is worked out correctly.

Because the donation is deducted in arriving at taxable pay, it also lowers net income. That can help with tests based on adjusted net income, such as the High Income Child Benefit Charge.

Which charities can receive payroll giving?

gov.uk says the receiving charity must be recognised by HMRC and must use the donation for charitable purposes; it has nothing else to do. Section 714 also lets the definition of charity include the bodies listed in section 468 of the Corporation Tax Act 2010. Community amateur sports clubs cannot receive payroll giving, so donors to a club need to use Gift Aid instead.

What mistakes come up in practice?

  • Deducting after tax. If payroll software treats the donation as a net pay deduction after tax, the employee loses the relief. It must come off before Income Tax.
  • Deducting before National Insurance. The donation does not reduce earnings for National Insurance. Treating it like salary sacrifice under calculates contributions.
  • Paying charities directly. Section 714 requires the sums to go to an approved agent. Payments made straight to a charity outside an approved scheme do not qualify.
  • Double counting on a return. Employees sometimes enter gross pay and then also list the donations as Gift Aid. Use the P60 figure and leave the Gift Aid boxes for genuine Gift Aid gifts.
  • Assuming Gift Aid can be added. Charities sometimes ask payroll donors to sign a Gift Aid declaration. It has no effect on payroll giving sums.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.