a to z of finance

C is for charities. In the world of finance, giving to charity can not only be tax free; it may even cost you nothing at all.

Affinity credit cards, as they are called, allow specific charities to benefit when you spend on the card, without any direct cost to you. There are both Visa and Access versions of these cards, branded to benefit a particular charity. For example, the Co-operative Bank offers an Oxfam Visa card. When you sign up, the charity normally gets a one-off fee of pounds 5. This comes from the card issuer and doesn't necessarily mean you being charged an annual fee - with the Co-op's Oxfam card there is no fee.

On top of this one-off, the charity also benefits when you spend. The card issuer pays a small percentage of every transaction made - 0.25 per cent is typical. This costs you nothing and is paid regardless of whether you pay off the bill at the end of the month or clock up interest. The charity's share comes out of the percentage the issuer gets on all payments from the businesses taking the card.

Say you spend pounds 400 on your card every month. That means a pound a month towards the charity, on top of your joining fee. Not a lot, but - importantly - it doesn't cost you a penny.

The tax breaks on gifts to charity are something different and - by definition - will involve some cost to you. However, a small amount of tax planning can enhance the value of your gift and/or reduce the cost to you. The three ways of making tax-deductible gifts to charity are payroll giving, sometimes called the Give As You Earn scheme; Gift Aid; and Deeds of Covenant. Payroll giving is only possible if your employer operates a scheme. The employer simply deducts the agreed gift from your salary before tax and hands it over to the charity. If you took that part of your salary and gave it to the charity yourself, it would be taxable.

Gift Aid is for one-off donations of at least pounds 250. The charity claims back the basic-rate tax. If you are a higher-rate taxpayer you can claim back the additional tax through your tax return. Deeds of Covenant work in a similar way, tax-wise, but require a commitment of three years' minimum of donations.

The Co-operative Bank and the Royal Bank of Scotland both run a number of affinity credit cards. Ask at local branches or contact a charity of your choice.

There is a leaflet, IR65, which you can obtain from the Inland Revenue or your local tax office on the three different tax-efficient schemes for giving to charity. Call Inland Revenue on 0800 660800.