Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
A £10 monthly gift through Payroll Giving costs a basic-rate taxpayer only £8, and a higher-rate taxpayer just £6, because the donation leaves the payslip before Income Tax is worked out [1]. Around £128 million reached UK charities through the scheme in a recent tax year, all of it routed through employer payrolls before it ever touched a charity's bank account [2].
Payroll Giving, also known as Give As You Earn, is one of the very few payroll deductions that leaves an employee better off rather than worse off. It sits at a precise point in the payroll sequence, carries specific rules about how the tax relief is delivered, and depends on an HMRC-approved intermediary that most donors never deal with directly.
This guide explains what Payroll Giving is, who can use it, exactly how the tax relief works from gross pay, the part played by approved Payroll Giving agencies, and how the scheme stands next to Gift Aid for the donor and the receiving charity. It is written for employers weighing up whether to offer the scheme, and for payroll teams that need to run it correctly.
Key takeaways
- Payroll Giving lets an employee donate to charity from 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 the 40% rate and £5.50 at the 45% rate.
- Donations must pass through an HMRC-approved Payroll Giving agency, never straight to the charity.
- The employer sets up the scheme by contract with an agency; offering one is voluntary, not a legal duty.
- Unlike Gift Aid, higher-rate relief is automatic and needs no Self Assessment claim from the donor.
Payroll Giving in one definition
Payroll Giving is a way of donating to charity directly from wages or an occupational pension, with Income Tax relief given at source through PAYE [3]. The employee authorises the employer to deduct a chosen amount from pay, the employer passes it to an approved agency, and the agency forwards it to the charities the employee has named.
The defining feature is where the donation sits in the payroll run. It comes out of pay after National Insurance has been calculated, but before Income Tax [1]. Because the gift reduces the pay on which tax is charged, the employee never pays Income Tax on the amount donated, and the relief lands in the same payslip rather than being reclaimed months later.
Any charity recognised by HMRC for tax purposes can receive Payroll Giving donations, and the employee alone chooses which ones [3]. The employer administers the deduction but never directs where the money goes, which keeps the scheme clearly a staff benefit rather than a corporate donation.
Why the deduction sits where it does
The order of operations is not cosmetic. National Insurance contributions are still calculated on the full gross pay, before the donation is removed, so Payroll Giving reduces Income Tax but not National Insurance [3]. This is the opposite of a salary-sacrifice pension arrangement, which lowers both.
That distinction matters for anyone comparing benefits. Payroll Giving is a tax-relieved donation, not a National-Insurance-efficient perk, and the figures only work out correctly if the deduction is applied in the right sequence [1]. Taking the gift before National Insurance rather than after would understate the employee's contributions and misreport the payroll to HMRC under Real Time Information, so compliant UK payroll software fixes the ordering rather than leaving it to the administrator [4].
Who can use Payroll Giving
Any employee or pension recipient paid through PAYE can donate this way, provided their employer or pension provider runs a scheme [3]. The scheme is open across the earnings range, because the relief is delivered as a reduction in taxable pay rather than as a cash rebate.
The one hard condition is that the donor must pay tax through PAYE. A donor who pays no Income Tax in a given period gets no relief, because there is no tax to relieve, though the donation itself still reaches the charity in full through the agency. Self-employed people and those outside PAYE cannot use Payroll Giving and would use Gift Aid instead [5].
Employers of any size can offer the scheme, from a single-director company to a large multi-site employer. Offering Payroll Giving is entirely voluntary; there is no statutory duty to run one, which sets it apart from obligations such as auto-enrolment or statutory pay [3]. Businesses running payroll for very small teams often reach for an instant payslip generator for one-off pay runs, but a standing Payroll Giving scheme needs a continuous payroll and an agency contract behind it.
How the tax relief works, with worked figures
Relief is given at the donor's highest marginal rate of Income Tax, because the donation is removed from pay before the tax calculation runs [1]. A basic-rate taxpayer saves 20% of the gift, a higher-rate taxpayer saves 40%, and an additional-rate taxpayer saves 45%, matching the England and Northern Ireland Income Tax bands for the 2026-27 tax year [6].
The table below shows what a headline donation actually costs the donor once the relief is applied, for the three England and Northern Ireland rates.
| Donation pledged | Basic rate (20%) net cost | Higher rate (40%) net cost | Additional rate (45%) net cost |
|---|---|---|---|
| £5 | £4.00 | £3.00 | £2.75 |
| £10 | £8.00 | £6.00 | £5.50 |
| £20 | £16.00 | £12.00 | £11.00 |
| £50 | £40.00 | £30.00 | £27.50 |
The mechanism is simple to state and easy to get wrong in practice. If an employee earning enough to pay higher-rate tax pledges £20 a month, taxable pay falls by £20, so £8 of Income Tax that would otherwise have been due is never charged, and the take-home pay only drops by £12 [6]. The charity still receives the full £20, less any agency administration fee [3].
Scottish and Welsh taxpayers
The relief tracks whichever set of Income Tax rates applies to the donor. Scottish taxpayers, identified by an `S` prefix on the tax code, are relieved at their own marginal rate, which ranges from the 19% starter rate up to the 48% top rate under the Scottish bands [7]. A Scottish higher-rate taxpayer on the 42% rate therefore sees a £10 gift cost £5.80.
Welsh taxpayers, identified by a `C` prefix, currently pay the same rates as England and Northern Ireland, so the net cost figures in the table above apply to them without change [8]. Payroll software reads the tax code to apply the correct relief automatically, which is why the tax code on file has to be right before the first deduction is taken [4].
The role of the approved agency
An employer cannot send Payroll Giving donations straight to a charity. Every scheme has to run through a Payroll Giving agency that HMRC has approved and monitors, and the agency is the body that receives the pooled donations and distributes them to the chosen charities [9]. This intermediary step is what allows an employee to support several charities through a single payroll deduction.
The agency is bound by distribution deadlines set out in HMRC's guidance for charities. It must pay donations on to a charity within 35 days of receipt where it already knows the donor and charity and has paid that charity within the last 12 months, and within 60 days in all other cases [10]. These deadlines stop donations sitting in an agency account and keep the money moving to the front line.
Agencies may charge an administration fee, usually taken from donations before they reach the charity, though an employer can choose to cover the fee so the charity keeps the whole gift [3]. HMRC maintains a public list of approved agencies, and although not every approved agency asks to appear on it, any approved agency can produce a letter of approval on request [9].
What the employer actually does each pay run
Once the agency contract is in place, the employer's job is procedural rather than discretionary. Each pay period, the payroll deducts the pledged amounts, records them against the right employees, and sends the total to the agency with a schedule of who gave what [3]. The deduction is reported through the normal Real Time Information Full Payment Submission, because it affects the Income Tax figure, and an HMRC Recognised payroll engine files that submission on or before payday [11].
The cost of running the scheme is itself deductible. An employer can set the administrative costs of operating Payroll Giving, including any agency fees it chooses to meet, against business profits before Corporation Tax [3]. For a business running payroll across multiple client schemes, payroll bureau software that handles the deduction consistently across every employer removes most of the per-scheme effort.
Payroll Giving compared with Gift Aid
Payroll Giving and Gift Aid are the two main routes for tax-relieved giving in the UK, and they relieve tax at different points. Gift Aid applies to donations made from pay that has already been taxed: the charity reclaims the basic-rate tax from HMRC, and a higher-rate donor claims the extra relief separately [5]. Payroll Giving applies before tax, so there is nothing for the charity to reclaim and nothing for the donor to chase [3].
The practical differences between the two schemes matter most to higher and additional-rate taxpayers, and to the charities that depend on prompt, predictable income.
| Feature | Payroll Giving | Gift Aid |
|---|---|---|
| When relief is given | Before Income Tax, at source | After tax; charity reclaims 25% |
| Higher-rate relief | Automatic in the payslip | Claimed via Self Assessment or a tax code change |
| Who must act | Employer runs the scheme | Donor makes a Gift Aid declaration |
| Charity admin | None; agency distributes | Charity submits a reclaim to HMRC |
| Available to | PAYE employees and pensioners | Any UK taxpayer |
For a basic-rate taxpayer the end result is similar, because Gift Aid restores the 20% the charity would otherwise miss [5]. For a higher-rate taxpayer the schemes diverge sharply. Under Gift Aid, the extra 20 percentage points of relief only reaches the donor if they remember to claim it each year, whereas Payroll Giving hands over the full 40% relief automatically the moment the deduction is taken [1]. A charity also cannot claim Gift Aid on a Payroll Giving donation, because the gift was never taxed in the first place [3].
Why employers offer it
Payroll Giving is often presented as a low-cost, high-goodwill staff benefit. It costs the employer little beyond the administrative time to run the deduction, and it gives employees a frictionless way to support causes they care about with immediate tax relief [12]. Because the relief is built into the pay run, there is no paperwork for the employee to file and no waiting for a rebate.
For larger employers, the scheme can also form part of a wider corporate responsibility offer, and some choose to match employee donations. The mechanics stay the same whatever the employer's motive: the deduction is taken before tax, routed through the agency, and reported through PAYE [3]. Employers weighing the scheme up alongside other payroll obligations often find it one of the simpler things to bolt on to an existing HMRC-recognised payroll platform, because it reuses the deduction and reporting plumbing already in place.
Work out the effect on take-home pay
Because a Payroll Giving deduction changes the Income Tax figure, an employee who wants to see the exact effect on their net pay can model it with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross salary.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
Payroll Giving occupies an unusual place in UK payroll: a deduction that leaves the employee ahead, delivered through the same PAYE machinery that handles tax and National Insurance. Its logic rests on a single design choice, taking the gift after National Insurance but before Income Tax, and everything else, the agency, the distribution deadlines, the automatic higher-rate relief, follows from that.
For employers, the scheme is voluntary but cheap to run and easy to explain, and it rewards the payroll systems that already report cleanly through Real Time Information. As more employers look to offer meaningful, low-friction benefits, a deduction that costs the business almost nothing and gives staff instant tax relief on their generosity is likely to keep its quiet appeal.
Frequently asked questions
Does Payroll Giving reduce National Insurance as well as Income Tax?
No. A Payroll Giving deduction is taken from pay after National Insurance has been calculated, so it reduces the pay on which Income Tax is charged but leaves National Insurance untouched. This is different from a salary-sacrifice pension, which lowers both. The relief an employee receives is therefore equal to their marginal Income Tax rate on the donated amount, and nothing more.
Can a charity claim Gift Aid on a Payroll Giving donation?
No. Gift Aid works by letting a charity reclaim the basic-rate tax on a donation made from taxed income. A Payroll Giving donation is taken before Income Tax, so no tax has been paid on it and there is nothing for the charity to reclaim. A donor who wants a charity to benefit from Gift Aid instead would need to give from taxed pay and make a Gift Aid declaration.
Is an employer legally required to offer Payroll Giving?
No. Running a Payroll Giving scheme is entirely voluntary. Unlike auto-enrolment or statutory payments, there is no legal duty on an employer to set one up. An employer that does want to offer it must contract with an HMRC-approved Payroll Giving agency, which then handles the distribution of donations to the charities employees choose.
How quickly does the money reach the charity?
The approved agency must pass donations to a charity within 35 days of receiving them where it already knows the donor and charity and has paid that charity in the previous 12 months, and within 60 days in every other case. These limits are set in HMRC's guidance for charities and are designed to stop donations sitting in an agency account rather than reaching the cause the employee chose.
Image prompt
Documentary-style wide shot, a UK payroll administrator at a shared desk in a bright open-plan office reviewing a charity pledge form beside a printed payslip, natural daylight from tall windows, mid morning, muted palette of warm grey, sage green and paper white, other desks softly out of focus in the background, off-centre composition with the subject in the left third, shot on a Leica Q3 at 28mm f/2.8, photojournalism, subtle 35mm film grain, no AI artefacts, no warped hands, no warped text, landscape orientation 16:9.
