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The reduction in the basic rate of tax, from 22% to 20%, has prompted HMRC to review its guidance for employers and employees on the operation of Payroll Giving schemes. Donations given by employees under payroll giving benefit from the “net pay arrangement”, whereby donations to charities are deducted from gross pay before tax (but not before NICs). As a result, the actual cost to the employee, measured by the effect of the donation on the employee’s net pay, is less than the amount deducted from gross pay.

In the last tax year, a donation of £10 deducted from gross pay reduced the net pay of an employee paying tax at 22% by £7.80. The reduction in the basic tax rate to 20% in the current tax year means that, for the same £10 deduction from gross pay, net pay reduces by £8.00. The effect on employees paying tax at 40% is unchanged; the net pay reduction is £6 for a gross donation of £10.

Further information:
Payroll Giving Helpsheet
Updated Guidance on Payroll Giving
View the previous news item for Payroll Giving

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The UK Payroll News is sponsored by HRD & Payroll Solutions

Written by Ian Congreave - Payroll writer and lecturer

Filed under: Charity payroll giving on May 19th, 2008

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