Over £1.6bn is claimed in Gift Aid by charities every year and it is open to abuse, warned HMRC, which has set out tighter rules following a consultation on tightening the rules on charitable tax relief.

The changes in legislation are set to tackle three key areas giving HMRC additional compliance powers.

One of the key changes will be powers to act on tainted donations, which are classified as such when a company makes a large donation to a charity with the intention of gaining a tax advantage.

Additionally, investments made by charities which qualify for tax reliefs will have to be for the benefit of the charity, and not to avoid tax.