Tax efficient gifts from those who pay tax through PAYE can be made in a straightforward manner through payroll giving schemes.
Payroll giving allows you to make donations to charity directly from your pay or pension. The donations are made after national insurance contributions are calculated but before income tax is worked out and deducted. This means that you get tax relief on your donation immediately — and that you only pay tax on what is left.
You arrange a gift of £1000 to the Academy of Ancient Music.
If you are a basic rate (20%) taxpayer, you will save £200 in tax you would otherwise have paid (20% of £1000), so the actual cost to you is £800.
If you are a higher rate (40%) taxpayer, you will save £400 in tax you would otherwise have paid (40% of £1000), so the actual cost to you is £600.
If you are an additional rate (50%) taxpayer, you will save £500 in tax you would otherwise have paid (50% of £1000), so the actual cost to you is £500.
You can support the AAM using payroll giving as long as:
you are an employee and you get paid weekly or monthly through PAYE or you get a company and/or personal pension and your provider deducts tax through PAYE
your employer or pension provider needs to run a payroll giving scheme.
You can make a donation by authorising your employer or pension payer to deduct a set amount from your salary or pension income.
Your employer or pension payer hands over your gift to a government approved payroll giving agency, which then passes the money on to the AAM. You do not have to tell your employer or pension payer that you are supporting the AAM: instead you simply complete a form for the payroll giving agency to tell them where they should send your donations.