Advantages for the charity of payroll giving include the fact that your chosen charity or charities can receive your donation directly into their bank account before tax has been deducted so will not need to make a repayment claim, saving time and paperwork. They also receive the gross payment from higher and additional-rate tax payers rather than just the basic rate.

Advantages for the donor include the fact it can be anonymous – the employee does not have to agree to the charity knowing their name and employers do not know which charity an employee chooses to support. Some payroll-giving agencies can supply a donor with a charity card or cheque book, so they can vary the charities they give to. In addition, the donor doesn’t have to remember to give, regular gifts continue to be sent to the chosen charity for as long as the donor chooses, which of course is also advantageous for the charity in terms of cash flow, and the donor can cancel their payroll giving mandate at any time. 

It is important to note that Gift Aid and payroll giving are only two ways of giving to charities tax efficiently, there are for example schemes to give assets such as shares or UK land tax efficiently, and there are inheritance tax (IHT) exemptions and a potential reduction in the IHT tax rate for those that leave a gift to a charity in their will.  

At the end of the day, though, if you are going to give to a charity at Christmas, or at any other time, please consider doing it tax-efficiently. There really is no downside, and you will help your chosen charity that little bit more.

Andy Gadd is head of research at The Lighthouse Group 

Key points

Two tax-efficient ways of making financial donations to charities are Gift Aid and payroll giving.

You can use Gift Aid if the amount of tax you have paid is at least equal to the amount of basic-rate tax the charity will reclaim on your gift.

Payroll giving provides income tax relief at source.