Payroll giving: is the charity worse off? 10 February 2020 at 1:43PM in Charities 2 replies 103 views

timgowide

Hi,

New here so apologies if this has been covered somewhere but I don't think anyone else has asked exactly this question and I'm not finding my answer on other threads.

My wife and I are basic rate taxpayers and we've just switched our charitable giving from Gift Aid to Payroll Giving (PG) through her work. Let's say we were wanting to give 10% of our pre-tax income and for simplicity I'm not factoring in any personal allowance on income tax.

Under gift aid, for every £100 we earned: initially £20 to HMRC, £10 to our charity, £70 to us, then after gift aid claimed by the charity it ended up as £17.50 with HMRC, £12.50 to the charity and £70 for us.

Now under PG, for every £100: £10 to our charity, £18 to HMRC (20% of remaining £90), £72 to us.

Can the charity claim any more money back on top of this £10?

If the answer is no, my concern is that under PG we've just effectively taken away £2.50 in every earned £100 from our charity, kept £2 for us and given HMRC an extra £0.50! Am I correct, or in fact can the charity reclaim an extra £2 / £2.50 from HMRC on this pre-tax giving, in which case it's definitely more efficient for us and our charity?

Sorry for the long post. Any advice or correction of my maths would be appreciated! Thanks.

PS I know we could give the charity the extra £2 per £100 we've gained, but I think the PG way is still giving HMRC some of what was originally money destined for the charity?

timgowide

Update: I have realised if we just gave £12.50 pre-tax via PG then we'd end up with £70 as with gift aid. So would I be correct in saying that the advantages of of PG are simply that:
1) Charity doesn't have to go through the time and expense of reclaiming gift aid, and
2) We don't have to go through the hassle of setting up multiple payees and bank transfers?

But there's not actually a direct financial / tax benefit for us as basic rate taxpayers?

Savvy_Sue

timgowide said:

Update: I have realised if we just gave £12.50 pre-tax via PG then we'd end up with £70 as with gift aid. So would I be correct in saying that the advantages of of PG are simply that:
1) Charity doesn't have to go through the time and expense of reclaiming gift aid, and
2) We don't have to go through the hassle of setting up multiple payees and bank transfers?

But there's not actually a direct financial / tax benefit for us as basic rate taxpayers?

Correct, I believe that charities are marginally better off with direct giving and Gift Aid than with Payroll Giving. 

However, worth pointing out that SOME employers will add a top-up or even match-fund payroll giving.