Charities are losing out on nearly £1bn of funding every year because workers are not aware of the tax benefits of payroll giving, according to research from Oxfam.

Oxfam found that a third of employees in the UK would donate an average £9.60 a month through their salary if they knew how to do it. This is the equivalent of £88m every month and more than £9bn annually.

Because the Chancellor cut the standard rate of income tax by 2p, organisations could stand to lose thousands of pounds every year in Gift Aid tax clawback.

Currently a donation of £10 will receive a refund of £2.82, but from April 2008 – when the new tax regime begins – charities will be only able to claim £2.50 on a £10 donation.

By raising the awareness of payroll giving – in which donations are made from pre-tax salaries – the charity hopes to counter the potentially damaging effect that changes to the tax regime will make on Gift Aid, where tax has to be claimed back.

In response to this situation, Oxfam has launched the ‘Oxfam at Work’ project, which is hoping to raise £1m in its first year by showing taxpayers how they can make donations through payroll giving.

At the moment only 4% of employees give money to charity through payroll giving, although this would rise to 33% if people knew more about it.

“Today signals a new era for fundraising,” said Barbara Stocking, director of Oxfam.