How is CAF Give As You Earn tax-effective?
Unlike other ways of donating to charity CAF Give As You Earn
is tax-effective for you. Donations made to charity through CAF
Give As You Earn are taken from your pay or company/personal
pension after your National Insurance contributions are
removed but before Income Tax is calculated and
- Your tax is calculated on a lower amount; this could change
your tax bracket and lower the amount of tax you pay
- You get tax relief on your donation immediately, at your
highest rate of tax, and you can pass this benefit onto
How is it calculated?
If you are a 20% taxpayer, 80% of your donation amount will be
taken from your salary and 20% will be taken from the tax which
would have gone to HMRC.
A £20 donation will cost you
£16 - but the charity will still receive £20
because the £4 which would have otherwise gone to the tax man goes
to the charity.
For example, if you are a 20% taxpayer,
earning £20,000 annually (gross) who opts to donate £20 a month to
charity, this is the impact it would have on your monthly salary
| ||With no donation to charity ||With a donation to charity ||Explanation |
|Gross monthly salary ||£1,666.67 ||£1,666.67 || |
|Donation to charity ||£0 ||£20 ||£16 taken from gross salary; £4 from tax |
|Total taxable salary ||£880.67 ||£860 ||Gross salary minus £20, minus personal tax allowance of
|Tax due ||£176 ||£172 ||20% of total taxable salary (reduces by £4) |
|National insurance due ||£122.52 ||£122.52 ||Remains the same |
|Net salary ||£1,368.15 ||£1,352.15 ||Reduces by 80% of donation (£16) |
Please note: these calculations
are made at 2013/14 tax and National Insurance
contribution rates and based on standard assumptions on tax
breakdown. There are many other possible variables which have not
been considered here.
If you're a 40% taxpayer, 60% of your donation
will be taken from your salary and 40% will be deducted from the
tax which would have gone to HMRC.
How is payroll giving different to Gift Aid?
When you make a direct donation to charity, you're often given
the option to tick a box that allows the charity to apply for
Gift Aid on your
donation. This means that - if you're are a UK taxpayer -
the charity can claim back 25% tax on your donation from the
Government (regardless of the rate of tax you pay).
For example, if you're a lower rate taxpayer and donate £20
directly to charity, it costs you £20 and the charity receives
£25 - once they've claimed the Gift Aid back. While the amount
going to charity is higher, the charity carries the cost and hassle
of claiming back the tax.
With payroll giving your donation not only costs you less, you
receive a tax benefit and the charity automatically receives the
donation - avoiding the added administrative burden of collecting
Increase your donations through payroll giving
You also have the option of increasing your donation because
it's costing you less.
For example, if you're willing to gift £20, you can
increase your donation to £25. It will only cost you £20, and
the charity receives £25 (as it would with a direct Gift Aid
donation) - but without the administrative cost of claiming Gift
For higher tax payers, payroll giving is the only way to pass on
your higher percentage of tax to the charity of your choice, as
Gift Aid is set at 25%.
A 4% administration fee will be deducted from your donation
unless your employer pays the fee on your behalf. Please contact
your employer to confirm that they'll pay your administration