Payroll Giving lets an employee donate to charity straight from their wages before Income Tax is applied, so a £10 gift costs a basic-rate taxpayer just £8 and a higher-rate taxpayer only £6. UK employees gave around £127 million to charity this way in a recent year, and every pound of it passed through an employer's payroll before reaching a charity [1].
The scheme, also called Give As You Earn, is one of the few payroll deductions that benefits an employee directly rather than costing them. It is administered by the employer, routed through an HMRC-approved agency, and carries specific rules about when the deduction sits in the payroll sequence and how the tax relief is delivered.
This guide explains what Payroll Giving is, exactly how the tax relief works from gross pay, the employer's role in setting up and running a scheme, the part played by approved Payroll Giving agencies, and how the scheme compares with Gift Aid for the donor and the charity.
Key takeaways
- Payroll Giving deductions come out of pay after National Insurance but before Income Tax, so relief is given at the donor's marginal rate.
- A £10 monthly donation costs £8 at the 20% rate, £6 at 40% and £5.50 at 45%.
- Donations must be routed through an HMRC-approved Payroll Giving agency, not paid direct to the charity.
- The employer sets up the scheme by contract with an approved agency; there is no obligation to offer one.
- Unlike Gift Aid, higher-rate relief is automatic and needs no self-assessment claim.
What Payroll Giving is
Payroll Giving is a way for employees and pension recipients to donate to charity directly from their pay, with tax relief given at source. The statutory basis is Section 713 of the Income Tax (Earnings and Pensions) Act 2003, which allows an employee to authorise their employer to deduct charitable gifts from pay and pass them to an approved agency [2].
The defining feature is the point in the payroll at which the donation is taken. It is deducted from gross pay after National Insurance has been calculated, but before Income Tax [3]. Because the donation reduces the pay on which tax is charged, the employee never pays Income Tax on the donated amount, and the relief arrives immediately in the same payslip rather than being reclaimed later.
Any charity recognised by HMRC for tax purposes can receive Payroll Giving donations, including UK-registered charities and certain EU charities recognised by HMRC [4]. The employee chooses the charity or charities; the employer does not direct where the money goes.
The National Insurance distinction
One detail is easy to misread and worth stating precisely. Payroll Giving reduces the pay on which Income Tax is charged, but it does not reduce the pay on which National Insurance is charged. National Insurance contributions are still calculated on the full gross pay before the donation is deducted [5].
This is the opposite of a salary-sacrifice pension arrangement, which reduces both tax and National Insurance. The reason matters for anyone comparing the two: Payroll Giving is a tax-relieved donation, not a National Insurance-efficient benefit [6], and modern payroll software applies the deduction in the correct sequence automatically so the National Insurance figure is unaffected. Getting the order wrong, by taking the donation before National Insurance rather than after, would understate the employee's contributions and misreport the figure to HMRC, which is why the sequencing is fixed rather than left to the administrator.
How the tax relief works
The relief is delivered by reducing taxable pay, so its value depends entirely on the donor's marginal rate of Income Tax. A donation is worth more, in relief terms, to a higher-rate taxpayer than to a basic-rate one, because the higher-rate taxpayer would otherwise have paid more tax on the same slice of pay.
The mechanics are best shown as the net cost of a fixed donation across the tax bands. The charity receives the full pledged amount in every case; only the cost to the employee changes [7].
| Pledged donation | Donor's tax rate | Tax relief | Net cost to the employee |
|---|---|---|---|
| £10 | 20% (basic) | £2.00 | £8.00 |
| £10 | 40% (higher) | £4.00 | £6.00 |
| £10 | 45% (additional) | £4.50 | £5.50 |
The charity receives the full £10 in each row. The employee simply pays less tax that period, so the donation costs them less than its face value. There is no minimum donation set in law, so schemes can accept small regular pledges as easily as large ones.
Relief in Scotland
Because Payroll Giving relief is given at the donor's marginal Income Tax rate, the value of the relief is different for Scottish taxpayers, whose Income Tax bands and rates diverge from those in the rest of the UK [8]. Scotland operates more tax bands than the rest of the UK, with higher marginal rates at the upper end [9], so a Scottish taxpayer on one of those bands receives correspondingly more relief on the same pledge. The principle is identical everywhere in the UK: the donation reduces taxable pay, and the relief follows whatever rate would otherwise have applied to that pay. The payroll identifies a Scottish taxpayer from the S prefix on the tax code and applies the correct rate without any manual adjustment.
An accountant running Payroll Giving across a mixed client base of Scottish and rest-of-UK employees relies on the payroll to apply the right rate automatically. A payroll bureau platform that holds the correct tax code and regional rate for each employee delivers the relief accurately without the administrator having to intervene per payslip.
The employer's role in setting up a scheme
There is no legal obligation on an employer to run a Payroll Giving scheme, but HMRC encourages employers to offer one, and doing so is straightforward. The employer's part is administrative rather than financial: the donations come from employees, not from the business.
To start a scheme, the employer contacts an HMRC-approved Payroll Giving agency, which supplies a contract setting out how the scheme runs, along with the forms employees use to authorise deductions [10]. Once an employee signs up, the employer deducts the authorised amount from pay before tax on each payrun and forwards the total to the agency, which distributes the money to the nominated charities.
The authorisation is durable rather than a one-off instruction. An employee's pledge continues on every payrun until they change or cancel it, so the deduction recurs automatically without the employee re-confirming it each month. An employee can vary the amount, add or drop a charity, or stop giving entirely by telling the employer, who updates the standing instruction in the payroll. This standing-deduction model is what gives charities the predictable income they value, and it means the ongoing administration for the employer is minimal once the scheme is live: the payroll carries the pledge forward and only changes it when the employee asks.
Reporting and the payslip
The deduction appears on the employee's payslip like any other, and the pay figures flow into the employer's Real Time Information submission in the normal way. The employer reports pay and deductions to HMRC on a Full Payment Submission on or before payday [11], and Payroll Giving simply forms part of the taxable-pay calculation that submission is built on [12]. Software carrying the HMRC Recognised badge produces the FPS with the deduction correctly reflected, which is what the badge certifies: that the software meets HMRC's specification for RTI submissions. Platforms that embed an HMRC-recognised payroll API inherit the same correct treatment, so a host product offering Payroll Giving to its users does not have to build the tax logic itself. For an employer producing only the occasional payslip, even a single instant payslip reflects a Payroll Giving deduction in the same before-tax, after-National-Insurance position.
The cost of running a scheme
The scheme is close to cost-neutral for the employer. Any costs of running it can be deducted from business profits before tax as an ordinary business expense [13]. HMRC's own guidance confirms that the running costs of a Payroll Giving scheme are an allowable deduction for the employer [14]. Some employers go further and choose to cover the agency's administration fee themselves, or to match employee donations, but neither is required. The base position is that the employer administers the deduction and passes the money on, and the modest running cost is tax-deductible.
Approved Payroll Giving agencies
A donation cannot go straight from the payroll to the chosen charity. It has to pass through an agency that HMRC has approved and monitors for Payroll Giving purposes. The agency is the compliance layer that keeps the scheme within the rules.
The employer must pay the deducted gifts to an agency approved by HMRC under the governing regulations [15]. HMRC maintains a published list of approved agencies, though the list only shows those that have asked to be included; some agencies serve particular employers only and can produce a letter of approval on request instead [16].
What the agency does with the money
The agency receives the pooled donations from the employer and passes them on to the charities the employees have chosen. Agencies are expected to distribute all donated money to the nominated charities within 60 days of receiving it from the employer [17]. Where an agency charges an administration fee, it is usually taken from the donation before it reaches the charity, unless the employer has agreed to cover the fee so that the charity receives the full amount [18]. This is the point at which an employer that wants to maximise the value reaching charities can add a small amount of its own, by absorbing the fee rather than letting it come out of staff donations.
This routing through an approved agency is what allows the tax relief to be given at source without HMRC needing to check each individual gift. The agency's approval and monitoring stand in for that scrutiny, which is why donations paid outside the agency route do not qualify for the scheme.
Payroll Giving compared with Gift Aid
Employees often ask why Payroll Giving exists when Gift Aid already lets charities reclaim tax on donations. The two schemes reach a similar destination by different routes, and the difference matters most for higher-rate taxpayers.
Gift Aid operates on donations made from net pay, money the employee has already paid tax on. The charity then reclaims the basic-rate tax, and a higher-rate or additional-rate donor claims the extra relief separately, usually through self-assessment [19]. Payroll Giving instead gives all the relief at source, in the payslip, so nothing has to be reclaimed afterwards.
| Feature | Payroll Giving | Gift Aid |
|---|---|---|
| Donation taken from | Gross pay, before Income Tax | Net pay, after tax |
| Who claims basic-rate relief | Delivered at source in the payslip | Charity reclaims from HMRC |
| Higher-rate relief | Automatic, in the payslip | Donor claims via self-assessment |
| Routed through | An HMRC-approved agency | Paid direct to the charity |
| Employer involvement | Runs the scheme through payroll | None required |
For a higher-rate taxpayer, the practical advantage of Payroll Giving is that the full relief lands immediately and needs no separate claim [20]. For the charity, Payroll Giving offers a predictable, regular income stream because the donations recur automatically with each payrun. The trade-off is that Payroll Giving depends on the employer offering a scheme, whereas Gift Aid can be used on any donation to a participating charity. A business weighing which giving options to promote to staff can treat the two as complementary, and payroll-integrated giving is one of several employee benefits that a modern SME payroll platform can support alongside pay and pensions.
Conclusion
Payroll Giving turns a charitable donation into a payroll deduction that costs the donor less than its face value, because the relief is applied at source rather than reclaimed later. Its rules are specific but not complex: the deduction sits after National Insurance and before Income Tax, the money must travel through an HMRC-approved agency, and the relief follows the donor's marginal tax rate wherever in the UK they are taxed.
For the employer, the scheme is light to run and close to cost-neutral, and for the charity it provides a steady, tax-efficient income that recurs with every payrun. As charitable giving overall becomes more concentrated among fewer donors, the schemes that make regular, automatic giving easy stand to matter more, and Payroll Giving remains the one that delivers a donor's full tax relief without a single form after the payslip.
Frequently asked questions
Is Payroll Giving taken before or after tax?
Payroll Giving donations are deducted from pay after National Insurance has been calculated but before Income Tax. This means the donation reduces the pay on which Income Tax is charged, so the employee gets tax relief at their marginal rate immediately. National Insurance is still calculated on the full gross pay, so the donation does not reduce National Insurance contributions.
How much does a £10 Payroll Giving donation actually cost?
The charity receives the full £10, but the net cost to the employee depends on their tax rate. A basic-rate (20%) taxpayer pays £8, a higher-rate (40%) taxpayer pays £6, and an additional-rate (45%) taxpayer pays £5.50. The difference is the Income Tax the employee would otherwise have paid on that slice of pay, which is given as relief at source.
Do employers have to offer Payroll Giving?
No. There is no legal obligation on an employer to run a Payroll Giving scheme, though HMRC encourages it. An employer that wants to offer one sets it up by contract with an HMRC-approved Payroll Giving agency, then deducts authorised donations through payroll and forwards them to the agency. Any costs of running the scheme can be deducted from business profits before tax.
What is the difference between Payroll Giving and Gift Aid?
Payroll Giving takes the donation from gross pay before tax and gives all the relief at source, so nothing is reclaimed afterwards. Gift Aid takes the donation from net pay, the charity reclaims basic-rate tax, and a higher-rate donor claims the extra relief through self-assessment. Payroll Giving must run through an approved agency and depends on the employer offering a scheme, while Gift Aid can be used on direct donations to any participating charity.
