The Treasury wants to scrap the requirement that all payroll giving agencies must be charities, saying that opening up the marketplace to commercial players would drive down costs and promote innovation and investment.

The change is proposed in the government’s long-awaited consultation on how to reform payroll giving, to make it easier to administer and drive up the amounts raised for charity through the scheme.

Published this morning, the document also suggests introducing standardised sign-up forms for all donors, employers and agencies; reducing the time it takes for a donation to reach a charity from 60 days to 30, and forcing agencies to be transparent to donors about the fees they charge to process donations.

And it recommends creating “exit packs” for donors that stop giving through the scheme, to help them continue their relationship with the charity.

However, it stops short of recommending that offering payroll giving should become mandatory for all employers. “It should instead be a choice for employers, taking into account the demands from their employees and the costs associated with enrolling in the system.”

The government recognises though, that as one of the UK’s largest employers, it has a responsibility to lead by example and promises to “follow best practice in the operation and take-up of payroll giving”.

At present, just 2 per cent of employers offer payroll giving and 3 per cent of employees donate through the scheme.  Donations are deducted from gross pay, meaning that a £1 donation to charity costs a basic-rate taxpayer 80p and a higher-rate taxpayer 60p.

Last year, £118m was given through payroll giving by 738,000 people.

Commercial payroll giving agencies

There are currently 12 active payroll giving agencies (PGAs) operating in the market.

The consultation said it is “not clear that the requirement for PGAs to have charitable status is necessary”, and pointed to the emergence over the last decade of new commercial outfits that have “changed the landscape of giving whilst safeguarding the interests of charities and donors”.

It went on: “It is essential that the next decade of payroll giving is characterised by PGAs that embrace new technologies, to ensure that payroll giving is made as dynamic, appealing and as cost-effective as possible to donors, employers and charities. This is unlikely to occur under a single monopolistic provider.

“Opening up the supply of payroll giving services to new operators, including commercial operators, has the potential to drive down costs, result in technological change and innovation that leads to better services for donors, employers and ultimately charities.”

Transparency about fees

In order to improve transparency, the government added: “We are minded to introduce a requirement for all PGAs, including charities, to tell donors and potential donors how much they charge to operate payroll giving including any costs to charities. This will ensure a level playing field between providers.”

Regulation of the market

The document also touches on regulation of the market and invites views on whether any activities of PGAs might be suitable for self-regulation or statutory regulation.  It also asks if HMRC, the current regulator, needs a broader range of powers to ensure compliance with the regulations.  At present, the only penalty available is a complete removal of the agency’s status.

Announcing the consultation, Economic Secretary to the Treasury, Sajid Javid MP (pictured), said payroll giving has “real untapped potential, not just for raising money for charity directly, but also for starting a giving culture among those that do not normally donate”.

The deadline for submissions is 19 April 2013.