Charitable Gift Aid Relief versus Charity Gross Payroll Gifting
Published / Last Updated on 06/03/2025
Following a discussion with a client this week, we explored the most tax efficient way to make gifts to Charity either by direct gift via one off donation, standing order or direct debt versus making gift via your payroll from earned income or pension income.
Gift Aid
Direct gifts to Charity from your bank account or a cash donation and you give the Charity your full details and National Insurance Number will mean the Charity can then claim Gift Aid. This is claimed at 20% basic rate tax relief only. In short, for every £0.80 you gift, £0.20 can be claimed in Gift Aid by the Charity or to make it easier for every £1 you gift, £0.25 is paid in Gift Aid.
- A note of caution: You must be a tax payer for 20% Gift Aid to be granted. If you are a non-taxpayer and you make gifts and the Charity claims Gift Aid, HMRC will send you a tax bill for the Gift Aid they have given the Charity.
Payroll Gifting
Payroll gifting is where a gift to Charity is made by deduction via payroll from your gross income or gross pension before income taxes have been applied.
- You pay lower income tax.
- The Charity receives the gross contribution only and cannot claim Gift Aid as you have already had ‘tax relief’.
- Payroll Gifting therefore gives you the ability to make a larger gift before tax deduction so the Charity gets more from you rather than you making a gift from net income after 45% tax deduction to Charity and they can only then claim back 20%.
Worked Examples:
|
Gift Aid Route |
|
|
|
|
Tax Band |
20% |
40% |
45% |
|
Gross Pay |
£100 |
£100 |
£100 |
|
Net Pet |
£80 |
£60 |
£55 |
|
Charitable Donation |
£30 |
£30 |
£30 |
|
Gift Aid |
£7.50 |
£7.50 |
£7.50 |
|
Total Gift to Charity |
£37.50 |
£37.50 |
£37.50 |
|
Money Left in Pocket (Net pay less Gift) |
£50 |
£30 |
£25 |
|
|
|
|
|
|
Payroll Gifting Route |
|
|
|
|
Tax Band |
20% |
40% |
45% |
|
Gross Pay |
£100 |
£100 |
£100 |
|
Less Gross Charity Donation |
£37.50 |
£50 |
£54.54 |
|
Taxable Pay |
£62.50 |
£50 |
£45.46 |
|
Money Left in Pocket (after 20%/40%/45% tax) |
£50 |
£30 |
£25 |
The simple answer is the money left in ‘your pocket’ is the same but you are being more efficient for the Charity by Payroll Gifting, provided you are a 40%/45% taxpayer.
