I’m borrowing this example from the Payroll Giving topic page:
You earn £60,000 per year (making your marginal tax band 40%). You donate £1,200 to a charity after you’ve been paid. The charity can claim 25% from the government, giving them £1,500. And you can claim a tax rebate of £300 (1500 * 0.2), meaning you are only out-of-pocket £900.
The way they actually get the £300 into your bank account is by adjusting your tax code, which means you pay less tax for the rest of the year.
In a tax code like 1257L, the 1257 means you pay zero tax on the first £12,570. Changing this to e.g. 1258L effectively shifts all the tax bands up by £10, so if the highest band you were in was 40% this gets you an extra £4.
In the above case, they would add £750 to the tax-free allowance, to save you 0.4×£750=£300. So this would change your tax code from 1257L to 1332L (equal to 1257+75)
You can use this to check they’ve done the adjustment correctly when you talk to them over the phone. It should be the case that:
0.4×(difference between old and new tax code)×£10=0.25×(gross donation amount)
Appendix: Example of how the arithmetic works
I’m borrowing this example from the Payroll Giving topic page:
The way they actually get the £300 into your bank account is by adjusting your tax code, which means you pay less tax for the rest of the year.
In a tax code like 1257L, the 1257 means you pay zero tax on the first £12,570. Changing this to e.g. 1258L effectively shifts all the tax bands up by £10, so if the highest band you were in was 40% this gets you an extra £4.
In the above case, they would add £750 to the tax-free allowance, to save you 0.4×£750=£300. So this would change your tax code from 1257L to 1332L (equal to 1257+75)
You can use this to check they’ve done the adjustment correctly when you talk to them over the phone. It should be the case that:
0.4×(difference between old and new tax code)×£10=0.25×(gross donation amount)