February 2023 is Payroll Giving Month. Charities, companies and payroll giving agencies use this month to make businesses and employees more aware of the benefits of donating money direct from payroll.
For the first time, payroll giving is getting focus throughout the whole of the month of February. In previous years, the focus was for one week during the month. The initiative was launched in 2020 by the Payroll Giving Forum and the first Payroll Giving week was in February 2021. The forum is a group of charities that successfully run payroll giving schemes.
Payroll Giving week, as it was then, was a campaign launched to raise awareness on this highly impactful form of charitable giving.
Payroll Giving has been around since 1987 but hasn’t had the visibility within the business community that it has now. Payroll Giving month aims to change that so employers can offer this valuable opportunity for their employees to support the causes they believe in, in a more tax-efficient and ‘cheaper’ way.
What are the benefits of donating to charities direct from payroll?
Payroll giving gives charities a regular and more reliable stream of income. When charities receive income through payroll giving, the full value of tax relief is available and it’s also paid at source instead of the charities having to apply for Gift Aid from the government.
Applying to recover Gift Aid on donations is an administration task that charities could do without, plus it can take several months for the payments to come through. With Payroll Giving, the tax relief is paid at the time of the donation. This reduces admin time and allows the charity to focus on their important work rather than chasing payments.
With Gift Aid, only 25% tax relief applies. With Payroll Giving, the full value of tax relief is applied. So, for example, if a higher rate tax payer makes a donation through Payroll Giving, the full 40% tax relief applies - meaning more money goes to the charity.
Payroll donors, on average, make contributions to charity for an average of 8 years. Often, in times of economic downturn, charitable donations are one of the first things that the public cuts back on, which has a massive impact on charities and their ability to support their vital work.
Charities are still reeling from the impact of Covid-19 and are also now being impacted with of the cost-of-living crisis. Employers that offer Payroll Giving are making a valuable contribution to the long-term financial health of charities.
What are the benefits for employees of donating direct from payroll?
Payroll Giving is the most tax efficient way for an employee to make a donation to a cause they want to support. The donation is made after National Insurance contribution (‘NIC’) has been deducted from pay, but before being taxed.
This means that employees donate ‘tax-free.’ For a £10 donation to charity through Payroll Giving, a donor in the 20% tax bracket would only see a difference of £8 in their take home pay. An employee in the 40% tax bracket would only see a difference of £6 from their take home pay by making a £10 donation through Payroll Giving. This is a real time saving of £4 for every £10 donated, but the charity still gets the same donation as tax relief makes up the difference.
What’s a Payroll Giving Agency?
A Payroll Giving Agency (‘PGA’) is an organisation that’s authorised by His Majesty’s Revenue & Customs (‘HMRC’) to make the secure transaction from an employee’s gross wages to the charity’s bankaccount.
Businesses work with Payroll Giving to process donations to charities. The deduction is the regular or one-off donation amount set up by the employee. This is taken from their pay at the time of running the payroll.
The deduction is processed by the company’s payroll team and then transferred over to the payroll giving agency each month. This payment has to be made within 14 days of the end of the tax month when the deduction was made.
Companies have to have a contract with a payroll giving agency to allow donations to be deducted from employees’ gross pay.
How does PayCaptain help?
PayCaptain.org is an HMRC-approved Payroll Giving Agency. As a payroll processor and PGA, the process of deducting payments from employees’ pay and making the payment to the designated charity is fully-automated and streamlined. This reduces administration-time for employers and speeds up the process for charities, resulting in quicker payments.
PayCaptain also partners with GoodPAYE. GoodPAYE is a charity-owned, tech-for-good professional fundraising organisation. The certified social enterprise has a platform where every penny of payroll giving donations goes to the employees’ chosen charities.
GoodPAYE doesn’t deduct anything from payroll giving donations, and because they’re made pre-tax, charities get the full donation amount straight away, including the tax benefit.
The service offers a bespoke landing page for charities, so that they can be discovered by new supporters.
In summary, Payroll Giving is a great way to enable the charities your employees care about to receive regular funds. Payroll Giving is easy to setup and once its active, payroll giving can be offered to employees to support the charities by regular or one-off donations that are cheaper because of tax relief.
February 2023 is Payroll Giving Month which is an opportunity for both charities and employers to increase the visibility of the benefits of payroll giving.
